How Do They Measure the GNP?

The United States$9,780,000,000,000.00

Japan$4,520,000,000,000.00

Germany$1,940,000,000,000.00

The United Kingdom$1,480,000,000,000.00

France$1,380,000,000,000.00

China$1,130,000,000,000.00

Italy$1,120,000,000,000.00

Canada$682,000,000,000.00

Spain$588,000,000,000.00

Mexico$550,000,000,000.00

Brazil$529,000,000,000.00

India$477,000,000,000.00

Netherlands$390,000,000,000.00

Australia$386,000,000,000.00

Switzerland$277,000,000,000.00

Argentina$260,000,000,000.00

Russia$253,000,000,000.00

Belgium$245,000,000,000.00

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24 SUCCESS MARCH 2011

how do they measure the

GNP?

The gross national product (GNP) is an indicator of the pace of economic activity within a nation. It is defined as the total of products and services produced in a country plus its gain on

overseas investments in a period of time, usually a year.

The money value of a thing is its market value, what people are willing to pay for it. You might purchase a pair of shoes that you think are worth more than the $30 you pay for them, or you might feel the price is too high for imitation leather and you’re being ripped off, but those considerations don’t count. What you pay is recorded.

A final good means the good has been purchased by its ultimate user. Intermediate sales are not counted; if all steps were included, the output of the economy would appear to be double, triple, or even more what it actually is. For example, when a gas company buys gas from a pipeline company, the sale isn’t counted; but the sale of gas from the gas company to you, the final user, is included.

Similarly, GNP reflects only the goods and services produced in a given year. If, for instance, you buy a 1970 Ford in 1980, it won’t be counted by a national statistician. GNP would, however, include the auto dealer’s mark up.

Statisticians do not, count goods and services that don’t pass through an organized market, such as gambling in Chicago and work you do for yourself in your spare time.

What about all the goods that a company produces but does not sell – the inventories that linger in the warehouse? Those goods are added, as if they’d been bought by the companies that produced them. Investment goods present another problem. The tools and machines that factories use are not sold to consumers, but are still considered final products, used by companies that buy them.

by IVY HUGHES & JOHN KOZY

SUCCESS MARCH 2011 25

Not to be confused with the GDP, see figure 4, the usual method of measuring the GNP is to compute and add up the following amounts: Household and personal consumption expenditures (C), gross private domestic investment (I), such as plant, production and equipment investments, residential foundation, government purchases (G), which accounts for the salaries of the government employees, aquirements of military equipment, and supplies used in government offices, net exports (X) which is total exports minus the imports (M), and net income from accounts that are abroad (N). Coming up with these figures is another matter. Amounts are collected both monthly and annually by different sources and organized by the National Income and Wealth Division of the U.S. Department of Commerce’s Bureau of Economic Analysis. They rely on other agencies, suchlike the Census Bureau. The Census survey data lends the basic benchmarks for gross national product. The five year figures are very important for businessmen, politicians, economists and general public to stay on top of the nation’s rate of productivity. These numbers are figured annually.

History and Facts: A Kozy View of the GNP

Many have pointed out the flaws in the GNP measurement:

yy It does not measure production; it measures sales.yy It doesn’t include the money spent in

the underground economy.yy It doesn’t tell the difference between

money spent in a gambling casino and the money spent on a car because money spent in a gambling casino doesn’t buy a product or a service.yy Also, it doesn’t distinguish between

quality and quantity.

But are these really flaws? The answer depends on the measurement’s motive. Consider these examples:

yy During prohibition (1919 to 1933), the sale of alcoholic beverages in the U.S. was prohibited, but alcohol was sold nevertheless. The money spent on it would not have been counted in the GNP. Since the 18th Amendment was repealed in 1933, money spent on alcohol was included in the GNP. But even today, the money taken in is not included in the GNP.yy For many decades, cocaine was sold

legally in the United States and since 1914, its sale has been prohibited. Up until 1914, the money spent on any cocaine would have been counted and since then, it is not.

The Department of Commerce claims that GNP measures the final value of goods and services produced in a given period of time, but it does not. But what it does measure is the money spent by consumers in a segment of the economy. Not all goods and services produced are included in the measure, but the same goods and services are included on an irregular basis. The only relevant gauge is who gets the money. If the vendor is politically approved, the money gets to be included and if the vendor is not, the money is excluded. In reality, the GNP measures the amount of money that is relocated from consumers to politically connected vendors. The GNP measures the dividends of the commercial class, refer to figure 2. As the GNP goes up, the commercial class gets richer; when it goes down, they get more poor. The GNP communicates just how well the commercial class is performing; it does not measure the nation’s well being and doesn’t account poverty, crime, hunger, homelessness, or other problems.

In reality, the [gross national product] measures the amount

of money that is relocated from consumers to politically

connected vendors.


When the initial Adam in the garden of Edinburgh ate from the special tree of patronage, he produced An Inquiry into the Nature and Causes of the Wealth of Nations. This continues to serve as the foundation of Classical economics and its numerous variations. The work was not hailed for the cogency of its dispute or the systematic nature of its accounts. Criticisms emerged almost immediately. What it did was provide means for the English commercial class to rationalize what it had always done and wanted to continue. It also gave the members of this class a “scientific” justification for immoral activities that had always been employed to increase their wealth.

The wealth of the commercial division became equivalent to the wealth of the nation; the GNP. The national wealth, however, does not reside in the nation’s treasury, and nation states have become nothing more than a way for increasing the prosperity of politically commercial classes and the political establishment.

The outcomes of this economic system have been deadly and disastrous. It was employed by all the Western European imperial nations and the British Empire from its inception to the end of World War II. Besides the English expatriates in 1945, not a single British colony was viable and prosperous. Every colony had been ravaged to increase the wealth of English commercial interests. But the English people did not fair well either, so a socialist government was put into power. Winston Churchill, their heroic and Conservative leader during World War II, was unceremoniously removed from office.

The British Empire lasted from the 16th to the 20th century. If Adam Smith had been right, then Capitalism should have increased the wealth of the nation. But England, never had wealth. Capitalism does not enhance nations. The fifteen nations that have the highest national debt also have the highest GNPs.

figure 2

Top 20 Gross National Product by Country (per capita)

#1 Luxembourg 7%#2 Switzerland 7%#3 Japan 7%#4 Norway 7%

#7 Iceland 5%#8 Sweden 5%#9 United Kingdom 5%

#10 Austria 4%#11 Netherlands 4%#12 Belgium 4%#13 Finland 4%#14 Germany 4%#15 France 4%#16 Ireland 4%#17 Brunei 4%#18 Canada 4%#19 Singapore 4%#20 Italy 4%

#5 United States 6%#6 Denmark 6%


The United States of America is now the world’s presiding imperial power. It too has the world’s highest GNP and the world’s largest national debt, reference figure 1. As time goes on, we see that the GNP has continued to fluctuate in the U.S. and other countries, see figure 3. This evidence emphasizes that time both heals and hurts which we can see in the rich history and the statistics of the gross national product.

In 1991 the United States stopped using the gross national product as the only primary measure of economic activity. While making the switch to the use of the gross domestic product, the Bureau of Economic Analysis noted both that GDP provided an easier comparison of other measures of economic activity in the United States and that “virtually all other countries have already embraced the GDP as their measure of production and economic activity.”

However, there still are those certain situations where using GNP is helpful. The information can be used to analyze the distribution of wealth of a society, or the average purchasing power of an individual. The World Bank uses GNP per capita in U.S. dollars to classify the countries for analytical purposes and to determine borrowing eligibility.

Although its use is now minimal, the GNP is still around and still calculated regularly. Used by economists and the world’s governments, the number will continue to provide useful econonmic information for years to come.

200520062007200820092010

figure 3

Gross National Product Yearly Growth Rate by Quarter

2.5%

2.0%

1.5%

1.0%

0.5%

0.0

-0.5%

-1.0%

-1.5%

-2.0%

-2.5%

-3.0%


GNP = C +I+G+( X- M)+NC = Household and personal consumption expendituresI = Gross private domestic investment expendituresG = Government consumption and gross investment expendituresX = Expenditures on goods and services exportedM = Expenditures on goods and services importedN = Net income from assests abroad

figure 5

Gross National Product Guide

figure 3

GNP vs. GDP

Gross National Product

Gross Domestic Product

GNP: Total of all business production and service sector industry in a country plus its gain on overseas investment.

GDP: An estimated value of the total worth of a country’s production and services.

GNP: To see how the nationals of a country are doing economically.

GDP: To see the strength of a country’s local economy.

STANDS FOR DEFINITION

GNP = C +I+G+( X- M)+N (See figure 5)

GDP = C +I+G+( X- M)

Both: Forcasting business and economics of a country.

FORMULA

USES

APPLICATION


Country with Lowest GDP Per Capita: Liberia ($16)

Country with Highest GNP: United States ($11.5 Trillion in 2005)

Country with Highest GNP per Capita: Luxembourg ($45,360)

Country with Highest GDP per Capita: Luxembourg ($87,400)

Country with Lowest GNP Per Capita: Mozambique ($80)

Country with Highest GDP: United States ($13.06 Trillion in 2006)

How Do They Measure the GNP?

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