The Little Big Number: How GDP Came to Rule the World and What to Do about It

The Little Big Number: How GDP Came to Rule the World and What to Do about It

by Dirk Philipsen

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Overview

The story of GDP and why we need a better measurement of growth

In one lifetime, GDP, or Gross Domestic Product, has ballooned from a narrow economic tool into a global article of faith. As The Little Big Number demonstrates, this spells trouble. While economies and cultures measure their performance by it, GDP only measures output. It ignores central facts such as quality, costs, or purpose. Sustainability and quality of life are overlooked. Losses don't count. The world can no longer afford GDP rule—GDP ignores real development. Dirk Philipsen demonstrates how the history of GDP reveals unique opportunities to fashion smarter goals and measures. The Little Big Number explores a possible roadmap for a future that advances quality of life rather than indiscriminate growth.

Product Details

ISBN-13: 9780691175935
Publisher: Princeton University Press
Publication date: 05/02/2017
Edition description: Reprint
Pages: 416
Sales rank: 1,250,584
Product dimensions: 5.70(w) x 8.80(h) x 1.10(d)

About the Author

Dirk Philipsen is a German- and American-trained professor of economic history at the Sanford School of Public Policy and a senior fellow at the Kenan Institute for Ethics, both at Duke University.

Read an Excerpt

The Little Number

How GDP Came to Rule the World and what to do About it


By Dirk Philipsen

PRINCETON UNIVERSITY PRESS

Copyright © 2015 Princeton University Press
All rights reserved.
ISBN: 978-1-4008-6552-9



CHAPTER 1

MORE, BETTER, FASTER

The Beginnings

The paths to the future are not found, but made, and the activity of making them changes both the maker and the destination.

John Schaar


A measure logically requires something to be in place that can be measured. It also requires some ideas about how to define it. What is generally considered an "economy" today—some process by which goods and services are produced, sold, and bought—is an idea of very recent vintage. Indeed, it represents a concept that required many things to be in place before it could move from idea into reality. One crucial precondition was a nation-state able to articulate and enforce laws and regulations.

Given the many different purposes one could imagine for economic activities, as well as the many different ways in which goods and services could be defined, it seems odd indeed that today's modern economies all follow essentially the same goal. Marching to the same drummer, despite a multitude of cultural differences, one could even suspect, as Karl Polanyi put it, that people from the southernmost regions of South America to Greenland and everywhere in between are following a kind of "unconscious growth."

In their personal and communal lives, individuals and groups around the world pursue a wide range of different goals. This may span from spiritual salvation to rational enlightenment, from helping others to seeking wealth. How, then, did these different people succumb to one overarching economic goal? How did this globally collective "we" allow our respective economies to strive exclusively for the growth of an abstract number, often without knowledge of what it represents?

A story of many roots and several offshoots, a brief history needs to explore productivity as an essential precondition for choices, investigate theories about growth, and examine the complicated question of how to measure our collective activities.


PRODUCTIVITY, GROWTH, AND SUCCESS

The purely economic man is ... close to being a social moron.

Amartya Sen

For those of us who had an ample breakfast and can safely assume to have a plentiful dinner, it is easy to forget that we represent, historically, a minority. Even today, nearly one out of seven people in the world suffer from chronic undernourishment. And though modern earthlings may nurture many unfounded, and routinely condescending, preconceptions about so-called primitive cultures of the past, it is safe to say that our ancestors, for some 200,000 years prior to the agricultural revolution, engaged in labor only to the very extent to which it helped them survive.

While subsistence depended on many factors, ranging from climate to skills to natural enemies, work essentially consisted of securing food and shelter. Survival ordinarily involved some variety of hunting, gathering, growing, building, and, not infrequently, a battle for one's life. The goal for thousands of years, and across cultures and continents, was living, not having. For self, family, and community, the basic measure of success was to carve out an existence in direct daily interaction with nature.

Even as agricultural societies formed some ten to twelve thousand years ago, only a tiny fraction of people ever had more than the essentials. Most could not even count on those. While scholars continue to debate whether it is correct to argue "all of human history entailed an unending struggle with starvation" we do know that safety or abundance beyond one's immediate needs remained largely out of reach. This state of affairs persisted for much of human history. Prior to the late eighteenth century, "everyone on earth lived nearly the same way—moving only as fast as a horse, pulling only as much as an ox, and preparing food, shelter, and clothing by hand" To capture this reality with our modern fixation on the accumulation of things by saying that people were poor would represent a fundamental misread—understanding the past with the narrow lenses of today. What we can say, by our standards, is that life was generally slow and simple.

All this forever changed, first with the advent of global trade and then, enabled by it, with the industrial revolution. New inventions and new forms of production made possible a wholly new concept in human affairs: growth. Growth of production and output became possible through use and exploitation of resources and people. And growth in productivity allowed an increasing number of people—only capital-owning elites at first, but later majorities of entire nations—to think about life goals in material terms.

Not until growth became possible—and vastly expanded the previous confinements of biology, physics, and knowledge—did conventional forms of social interaction break apart for good. Until then, the goals people strove for followed custom and, particularly in the cultural forerunners to capitalist economies, yielded a life "of monotony and toil."

Whether in Africa, Asia, or Europe, customs and traditions remained remarkably consistent for thousands of years. Kids did what their parents had done, whether or not they spent their existence "on the edge of hunger" A closer look at what brought about this relative stability reveals causes in both material conditions and cultural norms. Together they created a kind of permanence that defies many of our deeply ingrained modern beliefs about how economic life is supposed to function.

Take work, for instance. From the cabinet-maker in the Scottish highlands to the Native American hunter to the East African fisherman, people worked in order to assure survival for themselves and their families. People did not work in order to accumulate wealth or power. With the exception of a very small elite of people who lived off of the labor of others—clergy, lords, masters—people lived directly from the products of their own labor, whether they were hunters, gatherers, farmers, or craftsmen. Communities generally supported their members. Unemployment was a concept that still awaited invention. Everybody had a role to play, defined by custom and tradition.

Wage labor—the idea that a person can freely sell her or his labor power to the highest bidder—did not become a common phenomenon until the emergence of industrial capitalism. Indeed, the need for people to sell their labor power in order to survive required another fundamental shift: the enclosure of the commons, as well as the invention of private property and the ability of property owners to exclude others from its use. Thus stripped of the capacity to make an independent living, those without property were forced into service of others, because the one and only thing over which they still possessed a measure of control was their ability to work. Today, this describes the condition of the vast majority of people, from the most unskilled laborer to the most highly trained executive.

Perhaps the most consequential transition, however, did not concern where people worked, for whom they worked, or the knowledge and technology they used in accomplishing their work. It was a much less visible, though fundamentally life-altering transition: the separation of work from its immediate purpose.

For all of human history people worked for clear and tangible goals—survival, most fundamentally, but also the physical enrichment of lords and kings, the subsistence of religious leaders, or the splendor of sacred edifices. This work was done in direct interaction with nature. By and large, people controlled the product of their labor, even if they eventually had to give up large parts of it. It seems reasonable to assume that they had a clear sense of what they were doing, and who or what they were doing it for, whether they were shepherds or hunters, small farmers or artisans.

All this changed with what we may refer to as the emerging regime of capital, and its rapid spread of markets and money. As soon as wealth became untethered from its usual physical manifestations, such as acreage of land, size of buildings, number of people in service, the floodgates of growth burst open. Wealth as expressed in money became the new coin of the realm. And once everything—labor, goods, services of all kinds—could be expressed and exchanged with money, there no longer was a limit to the amount of wealth one could theoretically own.

Unlike all traditional forms of wealth, money had no physical boundaries. While lord or king may have been satisfied with certain sizes of estates or amounts of trinkets, wealth as money was insatiable. The more was up for sale—goods, services, science, labor, land—the more the expansion of wealth also translated into control of others and power over nature.

Having stuff, in short, was no longer good enough. Using stuff, along with labor and knowledge, to create ever more stuff became the new invisible law of economic activity. Sold on rapidly growing markets, stuff was forever turned back into money, before starting yet another cycle of production in search of more money.

In its most basic form, it is this escalating cycle—using money to spawn production in order to generate more money—that launched the unprecedented growth of wealth associated with the advent of industrialization and capitalism.

But whether one was worker or capitalist—owner of little else than one's ability to work, or owner of great fortunes—the purpose of work and production was no longer clear and direct. On the contrary, people began to work for an abstraction: money. Money that could then be used to satisfy basic needs, as in the case of most wage laborers, or for starting a new cycle of acquisitions, control, and production in order to make more money.

The point was no longer to grow potatoes to satisfy one's hunger or to build a house to live in. Rather, the new goal was to obtain a means that theoretically gave one access to unlimited potatoes or houses or anything, really. Including the accumulation of unlimited wealth.

The separation of work from purpose had, and continues to have, deep and wide-ranging effects. For one, what working people experienced—and fervently resisted at first—was that the value of their skills, and the contributions of their work, could now be reduced to a cold number: whatever monetary value the market might yield. Suddenly whoever made more money was deemed more worthy; work that generated more money was seen as more important; and only goods that fetched a price on the marketplace were perceived as having any value at all. It uprooted and destroyed traditions worth thousands of years. For many, it questioned the very meaning of life.

Throughout this process, money turned into both purpose and goal. It became the expression of hopes and aspirations alike. At least in the realm of economics, it effectively obliterated other considerations about values. The object of commerce could suddenly be reduced to a simple number.

For emerging political entities—city-states, fiefdoms, and later nationstates—money understandably mattered a great deal from the beginning. Money provided rulers with an efficient means to extract surplus wealth from their underlings. What remained much less clear was this: how much money, how much wealth was actually out there?

It is here that we come to the very first impetus to possess some form of national income accounting—aggregate product, the wealth that political elites were after, expressed in money. All political entities require money to operate. All traditional functions of government—defense, security, war, public welfare—depend on people outside of government to generate the wealth.

Whether the government is a city-state or kingdom or a republic or a dictatorship, revenue comes from a common set of sources: conquest, resource exploitation, rents, taxes, or tariffs. All ultimately fill the coffers with the kind of wealth that can readily be exchanged, commonly in the form of gold or money.

One of the American founding fathers, Alexander Hamilton, provided a succinct definition of the role of government in 1791 by stating that the "power to raise money is plenary and indefinite, and the objects to which it may be appropriated are no less comprehensive than the payment of the public debt, and the providing for the common defense and general welfare" Government, in short, needed to be able to raise the money necessary for whatever functions it deemed necessary. Until the heyday of the industrial revolution, governments primarily needed revenue to maintain or expand power. War, conquest, and suppression of dissent cost money—lots of it.

It is thus not surprising to find that governments, time and again, began to seek ways to count their riches when they were in need of additional revenue. Only with data on national income could they effectively collect taxes and fees, impose customs duties or tariffs, or confiscate wealth. The better the data, the easier to get the cash.

The first such attempt in Western national accounting histories appear to be Sir William Petty's 1664 estimates of national income. Paul Studenski, author of the only large-scale history of national income accounts, refers to Petty, a physician and economist, as "the true originator of the concept of national income" Recent studies consider him to be among the most important economic writers in the "formative period of classical economics" One of these calls Petty "one of the most ingenious and practical thinkers before the days of Adam Smith."

Most accounts about Petty's conceptual contributions, however, miss what is historically most instructive about him: his use of accounting for the explicit purpose of exploitation and oppression. Briefly told, Petty was a wealthy British merchant and sometime army surgeon who accompanied Oliver Cromwell's army on its final campaign to suppress and colonize the Irish in 1652. Petty's primary task was to survey land confiscated from Irish owners. Some of the land was to be used as compensation for British troops. Most of it, however, was to go toward the enrichment of British elites such as himself.

The basic idea of the campaign was to establish a permanent British occupation of Ireland, and to remove large portions of the Irish population, Catholics in particular. The immediate result was striking: some twenty thousand Irish were slaughtered during the invasion, an estimated fifty thousand fled or were sent off to Spain and France, and another ten to twenty thousand were shipped as slaves to British-owned Caribbean sugar plantations. The aftermath, according to Petty's own conservative estimates, was even more striking: robbed of land and livelihood, more than half of the remaining Irish population died of starvation and disease.

Petty, in the meantime, became the richest commoner in the kingdom. Tasked by Cromwell to create a land inventory, he subsequently took ownership, as Irish Land Commissioner, of some six thousand acres of rich land he had, in his previous role as surveyor, labeled as "marginal" in value. Returning from his Irish exploits, Petty gained noble status at home. Apparently, in addition to his mathematical skills as assessor of national wealth, now Sir William Petty had an eye for opportunity. By the time Petty was appointed Surveyor-General by King Charles II in 1660, his Irish landholdings had so dramatically increased that they covered large parts of County Kerry, or some astonishing one million acres.

Petty's work on Irish capital stock was squarely focused on occupation, confiscation, and exploitation. It had nothing to do with advancing Irish wealth, much less Irish well-being. As one sympathetic biographer of Petty observed, in the sterile language of well-mannered academic description, "political priorities determined both the extent and the kind of quantitative knowledge he sought." Put differently, his considerable accounting skills were developed and employed in the service of imperial expansion. As such they perhaps represented the earliest case of what two admirers of Petty's accounting acumen, the economic philosophers Karl Marx and Friedrich Engels, later termed "the icy water of egotistical calculation."

A leading historian of the formation of nation-states called this the "extractive and repressive" side of government. It was true from the beginning: surveys of national income were conducted when governments needed money. Especially when they mobilized for war and conquest. It may thus be doubted that Petty was indeed the first to make such attempts, though he may well have been the first to couch his estimates in terms recognizable to modern economists.

It is probably safe to assume that Petty's perspective on the whole enterprise would have been quite different if members of his family had been forced off their land and turned into landless paupers. Indeed, viewpoints on purpose and goal of what we today call "economic activity" always depended on whether one lived off of one's own products of labor, or off of someone else's product. Petty assessed available wealth on behalf of a conquering empire. Irish farmers valued land based on their ability to make a living.


(Continues...)

Excerpted from The Little Number by Dirk Philipsen. Copyright © 2015 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents

Acknowledgments vii

Introduction: We Become What We Measure 1

Casting a Spell 9

Exploring a Path 13

1. More, Better, Faster: The Beginnings 19

Productivity, Growth, and Success 20

Goals and Measures 27

Values and Measures 32

2. The Origins of Bling: The Spirit of Economic Growth 40

The World of Growth: Refining the Measure 52

Business Accounting Goes National 57

3. The Crucible of Crisis: The Great Depression and the Need for Economic Indicators 65

4. Born from Disaster: The Making of a Key Measure 83

The Challenge 84

The Players 89

The Method 93

The Findings 99

The Big Conundrum: Translating Findings into Action 102

5. Forged in War 107

6. Global Domination: The Age of GDP 117

For Richer or Poorer 117

A Stunted Priesthood 121

Stopgap Consensus 123

Going Global 128

New Rules 130

GDP Junkies 133

Shackled in Fool's Gold 139

7. Today's ABC of GDP 143

It's an Emperor, but Does It Have Clothes? 152

Why It Matters 157

8. More Is Not Enough 160

The Little Big Number: Our Report Card for Success 174

Emerging Dissent 178

9. "The People of Plenty Are a People of Waste" 184

Breaking the Spell 204

10. From Alchemy to Reason: What If? A Thought Experiment 208

Mental Cobwebs 219

One More Time: Simon Kuznets 230

Clearing a Path 236

11. Looking Forward 243

A Daring Vision 250

A Moment of Possibility 265

Appendix A. The Measure as Guide 271

Notes 277

Bibliography 351

Index 389

What People are Saying About This

From the Publisher

"GDP is not just a number but is code for a set of economic values and principles that we're not supposed to question. Philipsen breaks that taboo by critically assessing the origins and impacts of our overreliance on this flawed metric. Anyone who wants to understand our economy's weaknesses—and how to make them better—needs to read this book."—Annie Leonard, author of The Story of Stuffand executive director of Greenpeace USA

"Philipsen brilliantly exposes the skeleton hiding in the economist's closet—the dangerously misleading talisman of GDP. He uncovers the extraordinary story of how good intentions morphed into the monstrous misconception of public progress and economic value that reigns over politics and public opinion. If society fails to heed Philipsen's message about developing new ways to measure economic gain and loss, the sustainable future is not going to be possible."—William Greider, author of The Soul of Capitalism

"The Little Big Number makes the case that GDP has become counterproductive and we need better goals and measures of progress. An excellent and timely book."—Robert Costanza, Australian National University

"Philipsen presents a well-researched, persuasively written book on what is wrong with the economic system we live in and live by. Showing that the GDP measure binds all the different fallacies of our economic world together, he offers a call to action on what we need to change now."—Floris Heukelom, Radboud University

"The Little Big Number demonstrates that the reigning measure of economic policymaking worldwide is not only inadequate but perverse in its impact on any possibility for sane social and economic discourse. This impressive and lively book will become the authoritative text for critiquing GDP."—Thad Williamson, University of Richmond

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