18 October 1984
THIS YEAR'S PRIZE IN ECONOMICS AWARDED FOR
PIONEERING WORK IN THE DEVELOPMENT OF SYSTEMS OF NATIONAL
ACCOUNTS
The Royal Swedish Academy of Sciences has decided to
award the 1984 Alfred Nobel Memorial Prize in Economic Sciences
to
Professor Sir Richard Stone, University of
Cambridge, United Kingdom,
for having made fundamental contributions to the development of
systems of national accounts and hence, greatly improved the
basis for empirical economic analysis.
The Importance of Systems in National Accounts
Economic reality - such as it appears during a given period (a
month, a quarter or a year) - may be seen as numberless (billions
upon billions) transactions between purchasers and sellers. For
the sake of survey and analysis of an endlessly detailed and
complicated mass of transactions for a nation as an economic
unit, it is necessary to find methods for systematic summarizing
and aggregating of a reality which, on the micro level, is
endlessly complicated. A system for national accounts is a method
of achieving simplification and an overview.
The utility and importance of a system for national accounts may
be realized by going back to the origin for the rise of
methodology, thus starting from the actual need for this type of
analysis. This new analytical technique was introduced during the
Second World War primarily in the United Kingdom where it was
inspired by John Maynard Keynes. As an expert at the Treasury, he
was engaged with the problems of war financing. Keynes started
from a balancing between total current resources (the real gross
national product) on the supply side, and total consumption,
investments and disbursements on warfare on the demand
side.
As expert at the Treasury, Keynes was assisted by two young
economists: James Meade
(Economics prize Winner in 1977) and Richard Stone. They were in
charge of collecting, processing and systematizing all the
enormous statistical material which Keynes required for his
analysis of the imbalances in the British national economy. In
this research environment - with all the stimulus provided by the
prevailing tight economic situation and under the great personal
influence given by Keynes himself in regard to ideas and
encouragement - the analytical technique was born which is
covered by the designation "national" or "social accounts". The
experiments with systematic processing of the overwhelmingly rich
material of budget statistics, caused Keynes to exclaim, "We are
in a new era of joy through statistics."
Richard Stone was a pioneer and the driving force in
respect of both the theoretical underpinning and the practical
application of different systems for national accounts. These
formed the basis both of the economic analysis of the prevailing
lack of balance in Britain and for the economic political
recommendations.
In the perspective of today, presentations of national accounts,
with their rows of interlinked balance calculations for the
different sectors of the economy, are seen as a self-evident and
necessary part of a systematic reporting of the countries'
financial position and pattern of development. Such reports have,
since the 1950s, been provided in varying richness of detail for
a large number of countries such as in the publications of the
UN and the
World Bank.
But then, in the early 1940s, reporting and analysis in the form
of a logically connected system of national accounts were an
epoch-making innovation, the breakthrough of a new methodology.
And for this breakthrough, Stone was primarily responsible.
Richard Stone's Work
Stone's ideas on the design of the national accounts initially
(1940) concentrated on obtaining full integration of the accounts
of a nation for the different subsectors which together
represented the nation's entire application of its resources.
Each item of revenue or expenditure on one side of an account
should reappear as expenditure or revenue, respectively, in
another account. By means of such an integrated system of
accounts - thus covering household income and outlays, the
disbursements of the business sector (such as of wages) and
revenues for national savings and investments, the expenditures
and revenues of the public sector, and, finally, payment balances
towards the outside world - a picture was obtained of the
interplay and interdependence of the entire economic system. This
double-entry bookkeeping provided, and this was significant, a
means of cross-checking the statistics for the large number of
transactions. Figures from different sources had to agree. Stone
had to pursue very extensive statistical research in order to
satisfy the requirements of the national accounts for empirical
contents.
Stone's work soon expanded from covering the United Kingdom to
providing systems which were applicable internationally.
Immediately after the war, Stone headed an international group of
experts under the auspices of the United Nations (initially the
League of Nations) for the preparation of standardized forms for
national accounts which could be recommended for international
use. His models for national accounts achieved wide international
application and obviously had a rapid effect on the creation of
such accounts in a number of industrialized countries. An
excellent common basis was thus obtained for statistical
comparisons between countries, of levels of economic activity,
and of economic structures. The international organizations (the
various UN organs, OECD) have greatly benefited from the existence of
this type of comparable national accounts statistics which now
also cover a large number of developing countries.
Theoretical and Empirical Background
The point of departure for Stone was the transactions between
households, business entities, the public sector, and foreign
countries. These transactions were generally double-sided, the
outlay of one party being the income of the other, a fundamental
identity linked to the description of the interdependence within
the system. A difficult and decisive question was how, and to
what extent an immense number of transactions in a double-entry
bookkeeping system was to be consolidated and aggregated in
meaningful account summaries by sector, and how the corresponding
account were to be presented. In the opinion of Stone, simple
mechanical bookkeeping schemes could not be considered. Economic
theory is at the back of Stone's systems for national accounts,
and these, therefore, provide a systematic base for economic
analysis, forecasts and economic policy.
Stone showed his mastery in finding routes for systematic
statistical searches based on the requirements of the national
accounts, in bringing about improvements in the statistics
through the checks provided by the bookkeeping, in finding
methods for approximations and impudent "inflation" of available
sampling figures.
The theoretical analysis of national economic balance problems
was, for Stone, the starting-point and justification for the
national accounts. Although it was primarily the Keynesian
revolution in economics which gave the strongest impulse towards
the construction of national account systems, these systems may
today be regarded as "neutral" from both the analytical and the
ideological point of view. The systems are applied by all
analytical streams within economic science and in all types of
countries. Through the national accounts, a systematic database
has thus been created for a number of different types of economic
analysis comprising the analysis of levels of economic activity,
inflation analysis, the analysis of economic structures, growth
analysis and, particularly, for international comparisons between
countries in these respects.
Richard Stone has made major contributions also in other fields such as empirical growth research. However, it is the initiatives for, and pioneering research around, national account systems which represent Stone's central contribution in the economic sciences. This technique has proved to be extremely fruitful within the fields referred to here. Systems for national accounts have, since the 1950s, had a unique international impact and are indispensable for the analysis of economic levels and structures, while at the same time, providing a systematic backing for forecasts in the form of national budgets.