Presentation Speech by Professor Erik Lundberg of the Royal Academy of Sciences
Translation from the Swedish text
Your Majesties, Your Royal Highnesses, Ladies and Gentlemen,
Economic reality as it appears in the course of the year can be regarded as innumerable transactions (billions and billions of them) between buyers and sellers. Methods of systematic summary and aggregation have to be devised in order to survey and analyse an infinitely detailed and complex network of transactions within the economic unit constituted by a nation. A system of national accounts is one method of achieving simplification and overview.
The usefulness and importance of a system of national accounts can most readily be appreciated by returning to origins of the method and at the same time considering the actual necessity of this type of analysis. This new analytical technique was first introduced in Great Britain during the Second War. John Maynard Keynes was at that time an expert adviser to the Treasury on problems of war finance, and his assistants included Richard Stone. Keynes took as his starting point a balance between total current resources (including real gross national product) on the supply side and total consumption, investments and expenditure for the war effort on the demand side. Richard Stone’s experiments in the systematic processing of the copious flood of statistical material in the form of national accounts moved Keynes to exclaim: “We are in a new era of joy through statistics”.
Stone’s ideas on the design of national accounts were from the beginning aimed at full integration of national accounts for the various sub-sectors which between them represented the entire national management of resources. Every item of income and expenditure on one side of an account must recur as the opposite item – expenditure and income respectively – in another account. An integral system of accounts included, for example, household income and expenditure, the expenditure and revenues of the enterprise sector (expenditure, for example, including wage payments), national saving and investment, public sector spending and revenues and, finally, balances of payments vis-à-vis other countries. This double-entry accounting provided opportunities of cross-checking statistics for the numerous transactions. Figures from different sources had to tally.
Stone’s work was soon expanded to concern internationally applicable systems, instead of just applying to Britain. Immediately after the war, Stone was put in charge of an international group of experts under the aegis of the United Nations, set up to compile standardised forms of national accounting which could be recommended for international use. An initial memorandum was already published in 1945, and others followed, the most recent having issued in 1968 by the OECD. All of these memoranda were prepared under Stone’s direction. These national accounting models achieved widespread international currency and clearly had a rapid effect in encouraging the introduction of such accounts in the industrialised countries and, later on, in developing countries as well. In this way an excellent common foundation was established for statistical comparisons of countries, cyclic positions as well as economic structures. The international organisations (the various UN agencies, the OECD, and the World Bank) have greatly benefited from the existence of this type of comparable national accounting statistics.
Stone employed large systems of equations to elucidate the interdependence inside the system. Definitions and statistical data had to be made tally reasonably well. Stone and his assistants devoted a great deal of painstaking work to devising adequate methods of measurement. But there is no avoiding errors in the accounts, the most obvious of them being that a grand total for the surpluses and deficits of all countries in the balance on current account – which ought to be zero – indicates a global deficit of several hundred billion Swedish kronor.
As Stone saw it, the theoretical analysis of problems of balance in the national economy provided the starting point and raison d’être of national accounts. Although it was primarily the “Keynesian revolution” in economics which prompted the construction of national accounting systems, those systems can today be described as “neutral” in both analytical and ideological terms. They are used by all analytical schools in economics and in countries of all types. There need be no dispute between monetarists and Keynesians concerning the usefulness of national accounts. Thus through these accounts a systematic database has been created for a wide variety of economic analyses. Stone himself has played a prominent part in constructing models of various kinds based on national accounts, for example models of growth analysis.
Your initiatives and pioneering research on the subject of national accounting systems have implied vital contribution to the development of economic science. These systems have achieved a unique international impact since the 1950s and are indispensable instruments of cyclical and structural analysis, at the same time as they yield systematic documentation on which to base forecasts in the form of national budgets. It is for these fundamental contributions that the Royal Swedish Academy of Sciences has decided to award you this year’s Nobel Memorial Prize in Economic Sciences. On behalf of the Academy I wish to convey to you our warmest congratulations, and now I ask you to receive your prize from the hands of His Majesty the King.