March 23, 2008


Filed under: Economics, Vitiated by Ignorance — duncan @ 3:11 pm

“GDP… is the total value of all final goods and services produced in an economy during a given period, usually a year.” I’ve said it before, but I’ll say it again (as I stare in bafflement and frustration at these pages of elementary macroeconomics): the distinction between ‘final’ goods and services and ‘intermediate’ goods and services is arbitrary nonsense (like the parallel distinction between consumption and investment). We have here two mututally supporting visions of the economy (which do not altogether correspond to the ‘money’ and ‘real’ economies): call them the circular and heirachical visions. On the one hand, the economy is a closed system of circulation, in which the concept of ‘final’ or ‘end’ purchase makes no sense. On the other hand, the economy is a system of appropriation, production, and consumption/expulsion, which receives inputs from outside the closed system (natural resources, say), and produces output that does not return to the closed system (which is consumed, in the double meaning of used and destroyed… or which is simply expelled, as with, say, pollution). The concept of ‘final product’ seems to belong to the second system, yet is understood in terms of the first.

And yet this second system is very hard to understand in a way that doesn’t reinscribe it within the idea of circular flow. As I’ve said before – the apparently most basic form of ‘consumption’ is eating, the ingestion of food (and drink). But this is also the most basic form of investment – the production of the productive resource of human labour. When the economy is divided between the two general institutions of households and firms, with firms’ output ‘consumed’ by households, this can be understood as part of the general social production of the category of labour. And this is in turn, no doubt, connected to the fact that, except for its function as the source of consumption, the institution of the ‘household’ falls entirely outside the system of economic valuation that finds its expression in GDP. The category of labour is, of course, created by the elision of domestic labour. But this may be just an example of the peculiar status of the ‘household’ among the institutions of our economy.

Blog at

%d bloggers like this: