Knowledge that Transforms

IN I958, the O.E.E.C. in Paris published a survey of the gross national products (I956) of their member countries. This survey purported to demonstrate that the total production per person in the Netherlands was the second lowest in Western Europe (see Table I, col. 2). Because this finding is in contradiction with the ideas of productivity in the Netherlands, Dutch economists and statisticians have applied themselves to explain this rather bad relative position. Their studies raised several important questions concerning method and principle in the study of comparative productivity. The first difficulty is presented by the case of exchange rates in calculating gross national product per head. Official rates of exchange are an unsatisfactory basis for calculation, because their use neglects factors of internal purchasing power and internal alteration in price structure. Economists in the O.E.E.C. have themselves dealt with this problem2 and provided the material necessary to correct the official exchange rate. After having corrected the figures in this way,3 excessive differences disappear, at least so far as the European countries are concerned (see Table i, column 3) . A second difficulty to be overcome is connected with the divisor employed to obtain productivity per head. Of course the total population, as used by the O.E.E.C. economists, cannot be maintained. If, for instance, account is taken of social structure to obtain an estimate of the economically active population, quite different results emerge. So, the population of the Netherlands has increased more rapidly than that of the other O.E.E.C. countries. Furthermore, this country also has the highest average age. If these differences are reckoned with, the Dutch position has improved. Still, it remains second from the bottom in European countries (see Table i, column 4).

PpT HIS paper presents in very concise form the principal results of a detailed estimate of the national income and product of the Soviet Union in I955, together with a brief discussion of the problems involved in the construction of such accounts.' Although at least two other estimates of Soviet national income accounts for I955 by the Economic Commission for Europe (ECE) 2 and by Hoeffding and Nimitz3 are available, the study on which this paper is based differs from them in several respects.4 The ECE study, which follows the United Nations system of national accounts,5 presents basic sector accounts but does not contain enduse or origin breakdowns or an adjustment of established prices for indirect taxes and subsidies. The Hoeffding-Nimitz study, which uses the format devised by Professor Bergson following that of the United States Department of Commerce,6 does include an end-use breakdown in established prices, but it lacks a similar one in adjusted prices and also lacks an origin breakdown. In contrast, the study summarized in this paper contains both end-use and origin breakdowns at both established and adjusted prices.7 In addition, the results are presented in a form intended to facilitate comparisons (i) of the purchasing power of the ruble and foreign currencies in regard to national product (and its major components) and (2) of the relative size of Soviet national product (and its major components) and that of another country in a common currency for example, with United States national product through the use of appropriate ruble-dollar or dollar-ruble ratios.8 In the limited space available, this paper presents the basic accounts constructed in the underlying study, the resulting end-use and origin breakdowns at established and adjusted prices, and some observations on the problems and limitations involved in the construction of Western-style national accounts for Soviettype economies.

I must, alas, call attention to the peculiar ideological problem that is again paramount in deciding fiscal policy for the next i8 months. Shall the fiscal I963 programs be restricted to the constraint of a balanced budget? Ideology can never be met on its own terms by reason. It has to be matched by ideology.2 But unfortunately, as time passes, ideological ripostes remain to plague one. The notion that the fiscal I963 budget could be balanced was a powerful one in quieting the irrational opposition to needed fiscal expansion. If private spending had boomed, that notion would today do us no harm. But facts are facts. It was harmful to let a large budget surplus develop in the weak I959-60 revival and thereby help to choke off that recovery. Similarly, it would be tragic if a premature budget balance were to weaken the momentum of the present recovery long before we have come close to healthy employment and growth levels. That I believe is the basic policy question of I962.3 My own views on how to answer the question must be obvious from the above remarks. Fiscal and monteary policy should tighten only when substantial misbehavior on the price, wage, and international fronts has developed and cannot be well met by more specific remedies. They should not be tightened as a sop to outmoded ideology. 2 Of course, all this can lead to upside-down economics. Thus, I must bear some of the credit for the following gambit: if ideology prevents us from having the needed deficit in recession times, let us channel that ideology so as to negate the built-in dampening stabilizer in our system. This involves upside-down arguments of the type, Now that recovery is rising enough to give us more tax receipts, we can afford (sic) to increase our expenditures or cut tax rates. The economics illogic is apparent: yet in political economy, two wrongs may come nearer to a right than one alone. 8An experienced observer would have to admit that the odds favor the view that the fiscal year will end up with a larger deficit than is forecast in the original budget estimates a significant factor to keep in mind.