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The history of National Accounting and its economic relevance

National Accounts in the UK

The Office for National Statistics collects data from many sources such as businesses, manufacturers and services so that it can produce statistics on GDP, indices of services, manufacturing and production. These estimates form part of the UK National Accounts.

What are National Accounts?

National Accounting is the method by which consistent estimates of economic activity are produced. While the methods and applications of national accounting have changed over time, the purpose has always been to provide data to inform policy.

How old are the current National Accounts?

The National Accounts group within ONS has provided a framework for measuring levels of economic activity in the UK since 1996. This role was previously carried out by the Central Statistical Office.

When were the first National Accounts?

The national accounting concept originated in the 17th century. An English economist, William Petty, created the first estimate of national income in 1665. Petty aimed to prove mathematically that the state could raise larger revenue from taxes to cover peace and wartime costs. He estimated that the average personal income was £6 13s 4d per annum, meaning that national income would be £40m based on the then-population of six million. This compares with a national income in 2012 of over £1 trillion.

In 1696, George King improved the Petty estimate by using three separate ways of measuring domestic product (income, production and expenditure). Other estimates only covered one or two of these methods. King also used this time series to forecast income, expenditure and tax revenue for the first use of national income figures in helping determine policy.

National Accounts and inflation

National Accounts did not allow for inflation until 1823 when Joseph Lowe, a Scottish journalist and political economist, used inflation figures to deflate national income. This crucial development allowed the government to calculate the real tax burden on society resulting from a spending increase.

Input-Output analysis

Input-output analysis was developed in 1936 by Wassily W. Leontief and provides an overall view of the interdependence between industries. Input output tables show all the outputs in the economy broken down into the different inputs used, and can be transformed into a Leontief inverse matrix. From this matrix, you can estimate the effect on all the industries of an increase in demand for just one product. Leontief won the Nobel Prize in Economics in 1973 for this work.

John Maynard Keynes

John Maynard Keynes published his “General Theory” in 1936 which helped launch the Keynesian school of thought. He believed planning a national economy needed accurate national accounting. Keynes commissioned James Meade and Richard Stone to create estimates of National Income and expenditure. Stone received the Nobel Prize in Economics in 1984 for his work on national and international accounting.

International guidelines

The United Nations introduced international guidelines in 1947 to promote better international comparisons of economic indicators. By agreeing on the definition of different monetary transactions, such as what counts as investment by businesses, national accounts figures became more comparable between countries.

The International Monetary Fund published the first balance of payments manual (BPM) in 1948 with updates in 1950, 1961, 1977, 1993 and 2008. The “Simplified System of National Accounts” was written in 1951 under Richard Stone’s direction to aid in the adoption of national accounting systems. The latest version of the System of National Accounts guidance was published in 2008 (SNA08). The system is only a guide and it is for individual countries to decide the extent to which it is reflected in their national accounts.

National accounting practices are co-ordinated at the European level through the European System of National and Regional Accounts (ESA). The latest version was published in 2010 (ESA10). The European system is fully consistent with the UN guidance and adds more detail on national accounting within the European Union.

The ESA and BPM are legal requirements with which all member states must comply due to the need for comparability and the ESA manual determines EU contributions (specifically GNI). ONS contribute to the development of the European system and is conducting the implementation of ESA10 for the United Kingdom. All EU member states should be compliant with the methodology of ESA10 by September 2014.

 

This timeline was produced by the National Accounts Methods and Development Division. If you have any questions, please contact John Chawner at john.chawner@ons.gsi.gov.uk.

 

References

Bos, F. (1992). The History of National Accounting

Bos, F. (2011). Three Centuries of Macro-economic Statistics

Keynes, J.M. (2009). The Development of National Accounts in Britain

Categories: Economy, National Accounts, National Income, Expenditure and Output, GDP by Category of Expenditure, GDP by Category of Income, GVA by Category of Output, Main Aggregates of National Accounts
Content from the Office for National Statistics.
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