Invention

GDP

Its inventor warned Congress it could not measure welfare. Congress used it to measure welfare.

United States · 1934

In the early 1930s, the U.S. Senate needed to know how badly the Great Depression had damaged the economy. No standardized system existed for answering this question. The Senate commissioned Simon Kuznets, a Russian-born economist at the National Bureau of Economic Research, to create one.1

Kuznets and his team delivered their report, National Income, 1929–1932, to Congress in January 1934. It showed that national income had fallen by half between 1929 and 1932.2 For the first time, the country’s entire economic output could be expressed as a single number.

In the same report, Kuznets warned against reading too much into his measure. "The welfare of a nation can scarcely be inferred from a measure of national income," he wrote.3 He specifically noted that his calculations excluded non-market activities such as unpaid household labor and that they measured production, not well-being.

The warning went unheeded. During World War II, the metric proved useful for estimating how much production the country could redirect toward the war effort. After the 1944 Bretton Woods Conference, gross domestic product became the standard tool for comparing national economies worldwide.4

50%

Drop in U.S. national income between 1929 and 1932, as Kuznets’s report first revealed

The U.S. Bureau of Economic Analysis described GDP in 2000 as one of the great inventions of the twentieth century, comparable in influence to the development of standardized national accounting itself. Economists Paul Samuelson and William Nordhaus called it one of the most significant innovations in economic measurement.5

Robert F. Kennedy, in a 1968 speech, listed what GDP counted, including air pollution and cigarette advertising, and what it did not, including the health of children and the quality of education.6

Kuznets received the Nobel Prize in Economics in 1971, in part for the work that produced GDP. He had spent the intervening decades arguing that quantity of growth and quality of growth are different things, and that goals for more growth should specify more growth of what and for what.7

Timeline

1934

Kuznets delivers National Income, 1929–1932 to the U.S. Senate, the first comprehensive measure of national output.

1944

After the Bretton Woods Conference, GDP becomes the international standard for measuring national economies.

1971

Kuznets receives the Nobel Prize in Economics, partly for his work on national income accounting.

1991

The United States officially switches from GNP to GDP as its primary economic measure.

Endnotes

1 U.S. Bureau of Economic Analysis, "GDP and the National Accounts: One of the Great Inventions of the 20th Century," bea.gov.

2 Simon Kuznets, National Income, 1929–1932, Senate Document No. 124, 73rd Congress (Washington: GPO, 1934).

3 Kuznets, National Income, 1929–1932, 7.

4 Diane Coyle, GDP: A Brief but Affectionate History (Princeton: Princeton University Press, 2014).

5 Paul Samuelson and William Nordhaus, Economics, 19th ed. (New York: McGraw-Hill, 2009).

6 Robert F. Kennedy, Remarks at the University of Kansas, March 18, 1968.

7 Nobel Prize Committee, "Simon Kuznets: Prize in Economic Sciences 1971," nobelprize.org.