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Measurement of Economic Growth

  • Simon Kuznets (a1)

By a nation's economic growth we understand a sustained increase in its magnitude as an economic unit. Conversely, stagnation and decline can be defined as a sustained failure of the nation's economic magnitude to increase, or as its persistent decline.

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01 We disregard here the question of “long cycles” or “trend cycles,” whose duration is suggested as ranging from twenty to fifty years. When observed in real magnitudes (as distinct from current price levels and current dollar totals), these cycles appear as relatively minor variations in the underlying rate of secular movements, and may reasonably be treated as refinements in a careful study of rate of growth rather than as distinct cyclical phenomena. For a recent bibliography of articles on the subject, see Readings in Business Cycle Theory, edited by a Committee of the American Economic Association (Philadelphia: Blakiston Company, 1946), pp. 483–84. It has been discussed and analyzed by Kondratieff, N. D., Burns, A. F., Schumpeter, J. A., and Kuznets, S.; and most recently by L. H. Dupriez, Des Mouvements économiques generaux (Louvain: Institut de Recherches Economiques et Locales de l'Université de Louvain, 1947), II, 5276.

02 For an explicit discussion of the meaning of “nation,” see Nationalism: A Report of a Study Group of the Royal Institute of International Affairs (London: Oxford University Press, 1939), p. xx and chap, xiv, pp. 249–63.

03 See Theory and Practice in Historical Study: A Report of the Committee on Historiography (New York: Social Science Research Council, 1946), pp. 108–10.

04 Thompson, D'Arcy W., On Growth and Form (Cambridge: The University Press, 1942), p. 82.

05 For the former, sec a popular discussion in Mather's, Kirtlcy F.Enough and To Spare (New York: Harper and Brothers, 1944); for the latter, some information is provided in United States Department of Agriculture, Soils and Men, Yearbook of Agriculture for 1932 (United States Government Printing Office, 1932).

06 For a technical analysis of the difficulties in valuation of national wealth, see my article in Studies in Income and Wealth (New York: National Bureau of Economic Research, 1938), III, 173. It is significant that increasing realization of these difficulties, and perhaps a lessened emphasis on the increase in material stocks of resources, reduced the need for a decennial census of wealth in this country; and none has been taken since 1922. Circumstances have changed as a result of the last war in the direction of renewing emphasis upon material resources, particularly those of a strategic character. And it is not improbable that a census of all material resources will be revived.

07 The discussion in this section is but a brief restatement of some conceptual problems treated at length in the literature of national income. See, for example, my National Income and Its Composition (New York: National Bureau of Economic Research, 1940), I, Pt. I, and a more recent statement in my National Income: A Summary of Findings (New York: National Bureau of Economic Research, 1946), Pt. IV.

08 This example was selected largely because in recent studies I had to consider the relation of flows across boundaries to a nation's total activity. It could just as easily have been one dealing with the relation between investment and total product, or agricultural products and total output. The general lines along which the total would be defined in each case would be similar to the ones suggested by the specific example used.

09 Examples abound in recent literature. The most conspicuous is the recent reformulation of gross national product in the official literature in the United States, United Kingdom, and Canada to provide a national total with which outlays of government on commodities and services may be properly compared. See particularly Gilbert, Milton, “War Expenditures and National Production,” Survey of Current Business, March 1942.

10 The literature dates back to the political arithmeticians of the late seventeenth century, and probably even to earlier times. The most useful recent compendium, emphasizing largely national-income estimates, is that of Clark, Colin, Conditions of Economic Progress (London: Macmillan and Company, 1940). Like most such compendiums, it has to be used with caution since the measures for the different countries are subject to errors of different magnitudes.

11 On this subject, see Davis', Joseph S. stimulating presidential address to the American Economic Association, “Standards and Content of Living,” American Economic Review, XXXV (1945). 115.

In so far as the functions whose increasing satisfaction is measured as economic growth are assigned a positive value, we may speak of economic progress. But there is a big step between recognizing a function and assigning it a positive value, and I have, therefore, avoided the use of the term “economic progress” as involving an additional value judgment not present in the approaches set forth in the text.

12 This sometimes leads to a complete abandonment of comprehensive statistical measures, or to their replacement by a set of symptomatic indexes of welfare or of power (for the former, death rates, supply of certain luxuries, and so forth; for the latter, stocks of certain strategic tangible resources). Neither is a satisfactory solution since it represents intellectual abdication and stifles the incentive to a further analysis and refinement of adequately comprehensive measures of total activity.

13 Excepting some of the studies of the Kiel Institute (by Hoffman, Schlotte, and others). Also some of the tentative generalizations in Colin Clark's book already cited.

14 Also, indexes of growth might be accompanied or replaced by indexes of differentiation. The reader will have noted that throughout the discussion growth has been defined as a process of quantitative accretion rather than of differentiation among parts. Were we in a position to establish invariant associations between differentiation and accretion, measures of the former could be used as indexes of growth, and the process of the latter could be identified with differentiation rather than with merely increase in total magnitude. Such a result, or an approximation to it, may be secured by dint of cumulative quantitative study of economic growth as defined here—study that could deal not only with the total but, as it inevitably must, also with the significant parts of a nation's output.

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The Journal of Economic History
  • ISSN: 0022-0507
  • EISSN: 1471-6372
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