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

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)

Where:

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:

It does not measure production; it measures sales.
It omits all the money spent in the underground economy.
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.

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:

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 Since the 18th Amendment was repealed in 1933, the money spent on alcoholic beverages is included in GNP.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.

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.

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.

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