Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Gross National Product (GNP): How is it Calculated? What does it Measure?

Economics / Economic Theory Aug 25, 2009 - 04:14 AM GMT

By: Global_Research


Best Financial Markets Analysis ArticleProf. John Kozy writes: Although the Department of Commerce claims that GDP measures the final value of goods and services produced in the United States in a given period of time, it merely measures the income of the politically sanctioned commercial class. GDP is used as an indicator of how well that commercial class is doing; it is not a measure of the nation's well being.

Have you ever looked closely at how Gross National Product (GNP) is calculated? Have you ever thought about exactly what it measures? Have you ever wondered why it measures that?

The basic formula adds up all the money spent by different groups for specific products and services within a region over a specified period (usually a year).

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


C = Household and personal consumption expenditures

I = Gross private domestic investment expenditures

G = Government consumption and gross investment expenditures

X = Expenditures on goods and services exported

M = Expenditures on goods and services imported

(Removing X and M from the formula yields Gross Domestic Product.)

Many have pointed out the flaws in this measurement:

  1. It does not measure production; it measures sales.
  2. It omits all the money spent in the underground economy.
  3. It doesn't distinguish between money spent in a gambling casino and money spent on a car. Money spent in a gambling casino doesn't buy a product or a service.
  4. It doesn't distinguish between quality and quality.

But are these really flaws? The answer depends on what the measurement's purpose is. Consider the following three examples:

  1. During prohibition (1919 to 1933), the sale of alcoholic beverages in the United States was prohibited, but alcoholic beverages were sold nevertheless. The money spent on them would not have been counted in GNP ("GNP" was first used in 1934). Since the 18th Amendment was repealed in 1933, the money spent on alcoholic beverages is included in GNP. But even today, if there are any moon shiners selling alcoholic beverages in the hills of Appalachia, the money taken in is not included in GNP.
  2. For many decades, cocaine was legally sold in the United States. Since 1914, its sale has been prohibited. Up until 1914, the money spent on cocaine would have been counted in GNP; since then, it is not.
  3. Some of the money spent on gambling is included in GNP and some is not. Gambling has always existed in the United States. Attempts to prohibit it began in the early 19th century. Where it was prohibited, it was carried on by various "criminal" elements, principally the Cosa Nostra. Eventually some of the wealth amassed by the Mafia was laundered and used to build the casinos of Las Vegas where gambling was and is legal. The money gotten illegally was used to build Sin City. The money spent on legal gambling is included in GNP; the money spent on illegal gambling is not.

Although the Department of Commerce claims that GDP measures the final value of goods and services produced in the United States in a given period of time, it most certainly does not. What it measures is the money spent by consumers in a segment of the economy. As the three examples above show, not only are not all goods and services produced included in the measure, the same goods and services are sometimes included and sometimes not. The only relevant criterion is who gets the money. If the vendor is politically approved, the money gets included; if the vendor is not, the money is excluded. So in actuality, GNP measures the amount of money transferred from consumers to politically connected vendors. GNP merely measures the income of the politically sanctioned commercial class. When GNP goes up, the commercial class gets richer; when it goes down, that class gets poorer. GDP is used as an indicator of how well the commercial class is doing; it is not a measure of the nation's well being; it does not account for poverty, crime, hunger, homelessness, and a host of other "people" problems.

So why is the government concerned about only the wealth of the commercial class? Why isn't it concerned with the wealth and well being of the people? Well, it's the economic system, stupid! Capitalism is about the welfare of capitalists, nobody else.

When the first Adam in the garden of Edinburgh ate from the tree of patronage, he produced An Inquiry into the Nature and Causes of the Wealth of Nations, which still serves as the foundation of Classical economics and its numerous variations. The work was not hailed for the cogency of its argument or the systematic nature of its exposition. Criticisms of it emerged almost immediately. What it did, however, was provide a way for the English commercial class to rationalize what it had always done and wanted to continue doing. It gave the members of this class what appeared to be a "scientific" justification for the most outrageous, immoral activities that had always been employed to increase their wealth. It converted the Seven Deadly Sins into the Seven Commercial Virtues. It not only took the good out of goods and services, it took the good out of everything.

The wealth of the commercial class became equivalent to the wealth of the nation; it became GNP. That national wealth, however, does not reside in the nation's treasury, and nation states have become nothing more than means for increasing the wealth of politically connected commercial classes and the political establishment, political-economic oligarchies.

The consequences of this economic system have been deadly and disastrous. It was employed by all of the Western European imperial nations. It was employed by the British Empire from its inception to the end of World War II. What did it accomplish? Well, except for those colonies populated by English expatriates, in 1945, not a single British colony was viable and prosperous. Every colony had been raped to increase the wealth of English commercial interests. But the English people had not faired well either, so they put a socialist government in power. Winston Churchill, their Conservative, heroic leader during World War II, was unceremoniously removed from office to his dismay.

The British Empire lasted from the 16th to the 20th century–almost 400 years. If Adam Smith had been right, Capitalism should have increased the wealth of England enough to make the wealth of Midas look paltry. But England, the nation, never became wealthy. In fact, it could not even finance its colonial wars. It had to borrow fifty million dollars to finance the Boer War. It borrowed money from the United States to finance its defense in both World Wars I and II. Capitalism does not enrich either nations or their peoples. The fifteen nations that have the highest national debt also have the highest GNPs.

The United States of America is now the world's dominant imperial power. It too has the world's highest GNP and the world's largest national debt. It too cannot finance its wars, the rebuilding of its infrastructure, or social programs. Yet it can finance failed commercial enterprises by borrowing money it doesn't have from nations with lesser GNPs. In the current debate over healthcare reform, the major concern of many Congressmen, especially Republicans, is making certain that the nation's medical insurance companies are not forced out of business. To those Congressmen, that concern renders the premature deaths and suffering of Americans caused by curable illnesses inconsequential. If anyone doubts that America exists merely for the welfare of its commercial elite, this analysis of GDP should crush it. Is America the land of opportunity? Yes, but not for you and me. Most of us are merely chattel to be herded, burdened, and disposed of to accommodate the interests of commerce.

Gross National Product is not about products or nations, but it most certainly is gross.

John Kozy is a retired professor of philosophy and logic who blogs on social, political, and economic issues. After serving in the U.S. Army during the Korean War, he spent 20 years as a university professor and another 20 years working as a writer. He has published a textbook in formal logic commercially, in academic journals and a small number of commercial magazines, and has written a number of guest editorials for newspapers. His on-line pieces can be found on and he can be emailed from that site's homepage.

Global Research Articles by John Kozy

© Copyright John Kozy , Global Research, 2009

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules