Measuring national welfare (GDP)

It occurred for the first time 350 years ago, in the 17th century England that it would have been useful for the state to measure the economic performance of the country. William Petty, a physicist, chemist and polyhistor was the one who published in 1665 his work titled "Political arithmetics", which was the first publication to contain a calculation concerning the national income of a country.

The first estimation of national income by William Petty from 1665

Source: André Vanoli: A History of National Accounting (IOS Press, 2005)

In making estimations of national income Petty was followed by many in the 17th, 18th and 19th centuries both in England and France. The political power had a controversial relation to these individual initiatives. Although the results were interesting, these types of calculations were considered dangerous. Both English and French official bodies made efforts to keep these publications secret, and even banned them. The works of the French Vauban or Boisguillebert could be published only abroad, while the Russian Radishchev was exiled to Siberia. However, from the 19th century their followers, i.e. scientists engaged in calculations of national income or GDP did not have to face such difficulties.

In the Hungarian economic literature the issue of calculating national income and national wealth - which make part of national accounts today - arose first in 1855, in Gyula Kautz’s then published work titled "Statistics in the Austrian Empire, with a special regard to Hungary". The prominent, internationally recognized figure in the development of national economic calculations in Hungary was Frigyes Fellner, who started his career at the end of the 19th century. His Academy Prize-winning work, titled "Estimation of national wealth" was issued in 1893, which became widely known abroad, and made Fellner well-known and recognized. His last statistical book of a significant effect - "The national income of Small Hungary" - was published in 1930. This work of his can be called a pioneer one not only in Hungary but also in international terms.

Today, after the Stiglitz report, identifying the national welfare as the size of national income is a little bit strange but Fellner’s opinion was in line with the spirit of that age. "Measuring national welfare is undeniably one of the economic statistical tasks of the highest interest from the point of view of not only theory but also practical life. Unfortunately, the difficulty of the solution is proportionate to the importance of the task" - as he wrote.

After this the Hungarian Central Statistical Office also included in its programme the calculation of the national income, which calculations were made by Gyula Szigeti. These calculations were far from today’s interpretation both in terms of their concept and the sources used.

The works of Frigyes Fellner are available in HCSO’s Library, and one can also read about his scientific achievements in the "Great Hungarian Statisticians" series of HCSO’s Library.

Nowadays - on the basis of the above-mentioned Stiglitz report - there is a lively discussion among statisticians and economists on measuring social welfare and on the role of gross domestic product (GDP) in measuring this phenomenon. Although statisticians never claimed that GDP was the only measure of welfare, it was widely used by economists and the media as the sole indicator of welfare. GDP is one but not the only important - highlighted by economists - indicator of national accounts, an enormous economic statistical system. This system was elaborated after World War II under the professional direction of Richard Stone, a professor at Cambridge - rewarded with the Nobel Prize in 1984, primarily in the framework of the UN and the OECD. Basically, the indicator of GDP is used widely as an indicator "substituting" national income, which is much more difficult to determine. The indicator proved its usefulness over the last more than one and a half centuries, and despite the debates remains the central indicator of economic statistical measurements. Its characteristics and method of calculation are described in internationally approved manuals, and within the European Union it is regulated by a legal act, the European System of Accounts (ESA95).