National Income and Welfare

We come finally to what some may consider the gravest omission —the deliberate exclusion of the human cost of turning out the net product; i.e., such disadvantages as are concomitants of acquiring an income and cramp the recipients' (and others') style as a consumer. One example would be long working hours. If to turn out a net product of a given size requires a work week that leaves little time for leisure, the producers cannot derive much satisfaction as consumers, i.e., as individuals who have certain wants and preferences. Another example would be the strain some jobs impose. If by and large a task is disagreeable, exhausting, dull, monotonous, or nerve wracking, the cost to the producer as a consumer is higher than when the task is light, instructive, diversified, or amusing. The range of illustrations is wide—from these obvious ones to more tenuous allegations concerning the costs of unpleasant features of the business-urban civilization such as blatant advertising and the ruthless despoiling and defacing of the countryside.

National income is not intended to measure such costs. It gauges the net positive contribution to consumers' satisfaction in the form of commodities and services; the burden of work and discomfort are ignored. And it may well be questioned whether such costs are measurable; or if measurable, could be estimated in terms comparable to those in which net product is estimated. Nor is it easy to say whether the long term trends or short term fluctuations in these costs parallel those in net product or are in opposite directions. Some of these trends are clear. Working hours have been progressively shortened, and many of the heavier jobs, demanding stamina and endurance, are now performed by machinery. On the other hand, it is claimed that the monotony and dissatisfaction to the individual as an individual due to greater specialization and the repetition of a few motions have increased, and that so has the nervous tension. The balance of such claims and counter-claims cannot be struck.

The reason for calling attention to this aspect of economic activity, completely neglected in national income measurement, is its possible contribution toward understanding some of the longer term trends. It warns us against too easy an acceptance of the thesis that a high national income is the sole desideratum in theory or the dominant motive in fact in a nation's economy. The reduction in working hours, the decisions made by countries that discourage as rapid a growth of population and of national product as could be attained (consider immigration restrictions); the willingness of some business men to adopt a policy of live and let live when they might expect a greater net return from vigorous and aggressive competition; the emphasis some individuals put on the importance of other than economic incentives proper—are all indications that both in society at large and among the groups and individuals it comprises definite limits are set upon a maximum net product as measured in national income. Both recently and in the past a potentially larger net na

tional product has been forfeited for the sake of mitigating some intangible costs of the type illustrated above. Though unable to measure them, we must recognize that their omission renders national income merely one element in the evaluation of the net welfare assignable to the nation's economic activity.

Consistent Valuation

After we agree upon what to include in national income and what to exclude, the next task is to find a common denominator for the various goods so that we can add them. The thousands of commodities and services must be converted into homogeneous values and added before we can study changes in them from year to year or the shares of various sectors for a given year. The problems that arise in the attempt to devise such a common denominator are perhaps more intricate than any discussed so far: in them inhere all the questions of inclusion and exclusion, but in the more difficult form of assigning quantitative weights (which can range from zero to very large numbers) rather than just marking the items by a plus (to be included) or by a minus (to be excluded).

If the various items included could be measured in terms of some physical property by precise instruments, and if we could agree that the estimates reflect consistently (across time and space) the economic significance of the items, valuation would be easy. But neither if is valid. It is in fact impossible to measure the physical properties of the full contents of national income, for the simple reason that some parts have no recognizable physical identity. Thus, even on the most tangible level, i.e., product, national income includes such items as net construction or net flow of producers' equipment, which are not congeries of physically identifiable buildings or machinery. Moreover, no imaginable physical property of goods could be accepted as in any way reflecting consistently their economic significance, i.e., their importance in terms of costs and returns.