The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1984
18 October 1984
THIS YEAR'S PRIZE IN ECONOMICS AWARDED FOR
PIONEERING WORK IN THE DEVELOPMENT OF SYSTEMS OF NATIONAL
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.