LINKAGES BETWEEN MACRO AND MICRO BUSINESS ACCOUNTS: IMPLICATIONS FOR ECONOMIC MEASUREMENT

The paper shows the relationship between microbusiness accounting based on double-entry bookkeeping and macroeconomic accounting based on quadruple-entry bookkeeping. In order for microaccounts to successfully aggregate into macroaccounts (i.e. preserve macro/micro linkages), quadruple-entry bookkeeping requires that the traditional double entries, recorded by transacting microbusiness units, be "consistent" with each other. In fact national economic accounting implicitly assumes that such consistency is maintained when national "aggregates" are uniquely extracted from national accounts and when national "identities" are claimed to hold true.
The main purpose of the paper is to show important examples where quadruple-entry consistency is not satisfied. These examples typically involve "complex" economic transactions between business units in which the legal form of the transactions do not necessarily represent their economic substance. When this occurs, different business units have genuinely divergent conceptions and perceptions with respect to their mutual economic transactions. Therefore, microbusiness accounts cannot be successfully aggregated into macroeconomic accounts without violating the integrity of microdecision making records.
The conclusion of the paper introduces a new theory called Perpetual Imbalanced Accounting. The theory shows that inconsistent (or imbalanced) economic accounting does tend to become consistent (or balanced) over sufficiently long time periods. Therefore, we must adopt a more dynamic view of national accounting if we desire to preserve successful macro/micro linkages. However, the problems of imbalanced macroaccounting and its statistical consequences cannot be entirely avoided no matter how long the accounting time period is taken. All of the above have important implications for the revision of the United Nations System of National Accounts.     

THE ACCOUNTING TREATMENT OF HUMAN INVESTMENT AND CAPITAL

Defining investment as outlays that increase income- and output-producing capacity, the author presents estimates of human investment in the United States 1929–69, comprising rearing costs, education, training, health, safety and mobility outlays. He develops an economic accounting framework to accommodate human investments and research and development in national and sector capital accounts, with appropriate adjustments to the current accounts to provide consistency. The associated balance sheets and wealth statements are also developed.
The wealth and corresponding income estimates are used to compute rates of return on human, non-human, and total capital. In the business economy the average net rate of return on total capital was 10.6 percent in 1969, compared with 10.0 percent in 1929. The average and marginal rates of return on human capital were generally somewhat higher than on non-human capital throughout the period.     

Bookkeeping conventions and the micro-macro link

The formal accounting logic of the national accounts and other macroeconomic statistics is not always well understood. In addition, the relation between macro statistics and micro accounting data often is not clear. This paper starts out by summarizing the main bookkeeping conventions at the macro level. A distinction is made between vertical and horizontal double-entry bookkeeping, which, if applied simultaneously, result in quadruple-entry bookkeeping. Vertical bookkeeping refers to the double-entry bookkeeping used in business practice. Horizontal bookkeeping requires that the transactions and other economic relationships between agents answer strict consistency rules regarding valuation, timing, and classification. At the micro level, this consistency is not guaranteed. The article reviews three options to reinforce the micro-macro link (proposals by Nancy and Richard Ruggles, proposals by Harry Postner, and the intermediate accounts in France), and concludes with a few suggestions that could be used in the upcoming revisions of the international statistical manuals.     

THE DEVELOPMENT OF NATIONAL ACCOUNTS IN ARGENTINA*

The history of national accounting in Argentina is presented in brief. The use of the production method as a basis for GDP estimates is explained and sources and methods of deriving the estimates for different sectors are commented on in some detail. Next the reliability of the estimates is examined for sectoral product, national income by factor shares and the components of final expenditure in terms of the comparison of two different estimates for the period 1950–1963. The degree of accuracy is judged to be generally sufficient, but the importance of economic censuses in the process of estimation is stressed. The importance of detailed studies on several different aspects of the economic structure (input-output, personal and family income by size and regional accounts) is also stressed as a basis for improving the reliability of estimates.     

HOUSEHOLD PRODUCTION AND NATIONAL PRODUCTION: AN IMPROVEMENT OF THE RECORD

1 By no means is the home based production of housewives the only or even the most important aspect of nonmarket production. The entire question of work vs. leisure, and the distinction between leisure and nonmarket oriented production, are currently under intensive scrutiny. See for instance the work of Nordhaus and Tobin [7, especially appendix section A.3], Gronau [2] and items cited in Gronau. The omission from the national income accounts of work performed at home by males, non-married females, and “working wives” is extremely important. This paper is concerned only with married females because (1) they are the subject of what must be one of the oldest jokes in the subject of social accounting, and (2) the relationship of production by housewives to total production has changed in the past ten years or so, and that deserves some attention even if it is not the most important thing which has been happening with respect to the GNP.
Specifically, we will present estimates of the value of home based nonmarket production by housewives. These estimates will then be used to supplement various national product aggregates in order to calculate more accurate growth rates for the U.S. economy. We find that the value of nonmarket production by married women during the 1960's has averaged approximately thirty percent of the GNP and close to 40 percent of the national income. The inclusion of the nonmarket work of housewives in GNP would reduce the measured rate of growth of real GNP per potential worker by about ten percent, the exact amount depending on how the value of nonmarket work is estimated. Our estimates indicate a reduction in the absolute rate of growth of almost 0.25 percent.     

DEVELOPMENT OF AN ALGORITHM FOR THE COMPILATION OF NATIONAL ACCOUNTS AND RELATED SYSTEMS OF STATISTICS*

The present article includes a proposal for a national accounts algorithm to be applied in the computerization of the national accounts compilation process. While aiming at the estimation and reconciliation of data from different statistical sources, it is based on the application of a linear programming technique applied to a system of identities and inequalities that define the accounting and analytical relations between the data categories of a national accounting framework. The technique is flexible in the sense that it can be used with any configuration of available statistical sources and data requirements of the national accounts. The algorithm is illustrated graphically with help of a simple example and thereafter applied to an extended but still simple national accounting scheme for Suriname with data for 1965 that was compiled by the author many years ago. As the present study is only a first step in the development of the algorithm, more work is needed to make it operational and the last section of the article includes suggestions about the direction of that further work.     

ENVIRONMENTAL ISSUES AND THE SNA

The concept of environmental accounting is developing as the system of national accounts (SNA) is being revised. A basic difference at present is that environmentalists regard natural resources as assets analogous to man-made capital, whereas they are treated as free gifts of nature in the national accounts. In this paper the author examines the consequences for the SNA of adopting the environmentalists approach to capital.     

RELIABILITY OF THE QUARTERLY NATIONAL INCOME AND PRODUCT ACCOUNTS OF THE UNITED STATES, 1947–1971*

The reliability of the quarterly national income and product (NIP) accounts of the United States is examined from several standpoints. First, possible sources of error in the quarterly NIP accounts are explored, the most important being the lack of appropriate data, seasonal adjustment errors, sampling errors and biases, and the nature of the U.S. statistical system. Next, four ways of assessing the reliability of the accounts are considered. The most weight is given to measures of revisions in early estimates of the quarterly NIP aggregates. Results of previous studies of revisions are reviewed, and a summary of a major study of revisions for the period 1947–71 is given. The other ways of assessing reliability which are examined are the effect of errors on economic policy making, analysis of the statistical discrepancy, and expert judgment on sources and methodology. The degree of accuracy is judged to be generally sufficient for the policy decisions for which the NIP estimates are used. The early estimates of a quarter's change in GNP almost always distinguish whether the ultimate estimate will be large or small and will usually distinguish whether the ultimate estimate will be larger or smaller than the preceding quarter. While the accuracy of the estimates has generally been sufficient, the accuracy for 1965 was judged insufficient by policymakers. There is some evidence that errors have been reduced over time.     

TAKING THE ENVIRONMENT INTO ACCOUNT: THE NAMEA APPROACH

The National Accounting Matrix including Environmental Accounts (NAMEA) shows environmental burdens that are consistent with the economic figures in the national accounts. In the NAMEA, the existing national accounts matrix has been extended with accounts in physical units. On the basis of the expected contribution of each polluting substance to a particular environmental problem, emissions are converted to theme equivalents. This results in six summary environmental indicators that are directly comparable to the conventional economic aggregates. In addition, this meso-level information system can be used as the core data framework for integrated analyses and forecasts of economic and environmental changes.     

THE UNITED NATIONS SYSTEM OF NATIONAL ACCOUNTS IN THE MIDDLE EAST

After an introduction setting out the general state of work on the national accounts in the Middle East the author considers the principal uses of national accounts statistics in less developed countries. The first group of uses discussed is in connexion with the measurement of growth and the making of international comparisons. The author is of the opinion that in many cases the primary statistical series are so weak that the fact they they are combined together into a series called national income or gross domestic product lends to them a significance which they do not really possess. The real problem is to improve the quality of the primary series. A second use of national accounts statistics is in connexion with fiscal and budgetary policy. In the statistically advanced countries this is one of the most important uses but in the less developed countries budgetary policy has not yet reached a level of sophistication which would call for the use of national accounts data. Moreover, the time factor involved in assembling accurate national accounts estimates militates against their effective use for short term forecasting. The author considers that the most important use for national accounts statistics is to provide a framework for development planning. The United Nations system is not altogether appropriate for this purpose. It grew up primarily as a system for recording income flows but in development planning one is concerned equally with commodity flows with a great deal of attention being focussed upon intermediate products. The proposals of the working group of African Statisticians for an adaptation of the S.N.A. to African countries represents a most important advance in this respect. In the final section of the paper the author advocates a broader definition of capital formation to include developmental expenditure which is not properly defined as fixed capital formation. Education expenditure is cited as an example. It is suggested that in the national accounts it would be desirable to operate with gross concepts. However, the growth of the capital stock is obviously important in less developed countries and it is suggested that statistical techniques be devised to measure it directly wherever possible. Finally, attention is drawn to the ambiguities and weaknesses in the concept of residence as used at present in the S.N.A.     

PROBLEMS OF RECORDING ENVIRONMENTAL PHENOMENA IN NATIONAL ACCOUNTING AGGREGATES

Is it expedient or possible to modify the content of the national accounting aggregates like GDP so that they reflect also the effect of environmental changes like pollution and noise–this is the question the author tries to answer. He points to some analogies with other national accounting problems, where the basic question is also how far should we go in modifying our measuring scale, the market price, in order to get closer to the measurement of some kind of economic welfare. Reviewing the various possibilities for modifications of the national accounting concepts, the author does not propose any substantial changes. The harm done to the environment as such cannot be measured in monetary terms. The cost of prevention is not a good approximation of the harm done to the environment, since the correlation between these two variables is not strong enough. Nor is the cost of restoration a good measure of the disfunction. Some damages, like noise, lung cancer caused by air pollution, cannot be restored. If–as proposed by some authors–the compensation for the disfunction (e.g. a swimming pool built to compensate for the water pollution) were deducted from GDP, this would not provide a good solution either, since the trouble is the disfunction itself and not the remedying action. (If no swimming pool is built, there is nothing to be deducted?) On the whole, there is no sufficiently sound basis for evaluating the monetary value of environmental damages. The author attaches great importance to getting more information on environmental phenomena. However, he prefers to supplement the national accounting information by a series of physical, chemical, biological, etc., indicators, instead of changing the national accounting concepts themselves.     

THE ROLE OF MICRODATA IN THE NATIONAL ECONOMIC AND SOCIAL ACCOUNTS*

Microdata sets—samples of data relating to individual reporting units—can provide a valuable extension of the national economic accounts as they presently exist, making it possible to meet many of the criticisms being leveled at the accounts over their failure to include much nontransactions information that is essential to the evaluation of economic and social performance. To serve this purpose, however, the microdata sets must be integrated with the aggregate accounts, and with one another. A microdata sets relating to any given sector should add up (with appropriate weighting) to the economic constructs for that sector in the national accounts, and the microdata set for one sector should be articulated as appropriate with those of other sectors. This paper discusses techniques for constructing such microdata sets, including necessary adjustments of the macro accounts, techniques of alignment of microdata with the macro accounts and the creation and development of synthetic microdata sets. Synthetic matching and other techniques of merging data sets are discussed. The paper concludes with a consideration of the methodological implication of the integration of microdata and national accounts.     

PROBLEMS OF DETERMINING AND MEASURING THE RELIABILITY OF NATIONAL ACCOUNTS IN DEVELOPING COUNTRIES

Most developing countries have compiled national accounts on a regular basis only for the last few years. It has not yet been possible for them to collect many of the statistics necessary to obtain good coverage of their economic activities by methods which would generally be accepted as reliable. Consequently the checks on reliability imposed by the framework of the national accounts are often absent, and the accounts prepared contain many estimates of doubtful quality. These doubts can usually only be removed as statistics collected by better methods become available. This is proving to be a slow process, partly because of the shortage of trained statistical staff and the competing demands of social and demographic statistics and partly because of the inherent difficulties in collecting good statistics from small businesses and traditional households. The need to define traditional households as producers as well as consumers leads to our demanding extra information from this difficult sector. In addition it is often difficult for the national accounts statistician, and even more so for the user, to find out in the time available exactly how some of the statistics with which he is presented were obtained. When this cannot be done it is impossible to assess their reliability. Thus assessing the overall reliability of national accounts in developing countries for even a limited range of uses is at present largely a matter of personal judgment. The information necessary to make more objective assessments rarely exists and hence the problems which developed countries face in using such information are not yet within the experience of most developing countries.     

THE ROLE OF NATIONAL ACCOUNTS IN CONJUNCTURAL RESEARCH—THE CASE OF CZECHOSLOVAKIA

This article discusses the revival of interest in research on cyclical behavior in the socialist countries, and the resulting shifting requirements placed upon the national income accounts. The first section discusses the economic experience and the institutional factors leading to this shift in emphasis. The second section deals with the use of national accounts in cyclical analysis, with particular reference to the Czechoslovak experience. The third section extends the discussion to the use of national accounts data for economic forecasting. The final section discusses the theory of economic fluctuations under socialism, and compares it with cyclical behavior in capitalist economies.     

ESTIMATING VALUE ADDED OF ILLEGAL PRODUCTION IN THE WESTERN BALKANS

Several economists continue to assert that the official national accounts of many countries do not cover a large “hidden” or “underground” economy. This article looks at one component of the underground economy, namely illegal activities. According to the UN System of National Accounts, production of goods and services that are illegal should be included in the Gross Domestic Product (GDP) if both the producers and consumers are willing partners to the transactions involved. We examine the estimates of illegal production recently made by several countries in the Western Balkans and conclude that, if illegal activities were fully included in their official GDP estimates, they would increase by about 1 percent. Trade in narcotics and prostitution are the two most important kinds of illegal activities in most countries and we look in detail at how estimates for these activities were made by the Western Balkan countries.     

THE DISTRIBUTION OF INCOME BETWEEN SOCIO-ECONOMIC GROUPS IN THE NETHERLANDS

This paper reports on a study designed to improve the information on income flows and income distribution in the Netherlands national accounts by building a bridge between the national accounts and income tax statistics. The methods used are described in some detail, and the significance of the results obtained is discussed. The figures show rather substantial fluctuations in the share of proprietors relative to that of wage earners. This result is not unexpected, since the share of proprietors is much more sensitive to the level of economic activity, but it does limit the usefulness of the figures for short-run economic policy determination. In the longer run, however, they do show what the development of the average incomes of the various social groups has been, and to what extent government action has contributed to that development.     

PROBLEMS OF INTERNATIONAL COMPARISONS OF NATIONAL ACCOUNTING AGGREGATES BETWEEN COUNTRIES WITH DIFFERENT ECONOMIC SYSTEMS

This paper discusses a number of problems arising in comparisons of levels of national accounting aggregates between countries with different economic systems, notably between countries with market economies and countries with centrally planned economies. It considers problems arising from differences in the national accounting concepts used and problems arising from institutional differences, both of which are viewed as relating to the concepts on which the comparison should be based and the adjustment of national data to these concepts. The final section considers index number problems.