The History of GDP: How America Learned to Measure Its Own Economy

Before the 1930s: An Economy Nobody Could See

For most of American history there was no single number describing how much the economy produced. Policymakers navigating the early years of the Great Depression worked from fragments: railroad carloadings, stock prices, steel production, scattered employment counts, and the decennial census. Herbert Hoover famously had to reason about the depth of the downturn from indicators that had never been assembled into a coherent whole. Earlier estimates of national income did exist — the English writer William Petty had attempted one in the seventeenth century, and economists including Willford King had produced American figures in the 1910s and 1920s — but they were irregular, privately produced, and methodologically inconsistent. There was no official, repeatable measure of total national output, which meant there was also no reliable way to say whether the economy was shrinking, and by how much.

1932-1934: Kuznets Builds the National Accounts

In 1932 the U.S. Senate passed a resolution directing the Department of Commerce to produce estimates of national income. The department turned to the National Bureau of Economic Research, and the work was led by Simon Kuznets, a Russian-born economist already known for painstaking statistical research. Kuznets and a small staff assembled the estimates and delivered the report National Income, 1929-32 to the Senate in 1934. For the first time, the United States had an official, internally consistent measure of the value of what it produced, broken down by industry and by type of income. Kuznets also attached a warning that is quoted to this day: the welfare of a nation, he wrote, can scarcely be inferred from a measurement of national income.

World War II: Accounting as a Weapon

The national accounts came into their own during wartime mobilization. Planners needed to know whether the enormous armaments program the country was contemplating could actually be produced without wrecking civilian supply, and the accounts turned that argument from a matter of opinion into a matter of arithmetic. Economists including Robert Nathan and Milton Gilbert worked on the wartime estimates, and it was during this period that the framework shifted toward the modern expenditure approach — consumption, investment, government purchases, and net exports — which made government spending a visible component of output rather than a subtraction from it. The war effort demonstrated the accounts could answer a concrete planning question, and that success is a large part of why they survived into peacetime as a permanent statistical program.

Bretton Woods and the International Standard

The Bretton Woods conference of 1944 created the International Monetary Fund and the World Bank, institutions that immediately needed a common yardstick to compare member economies, set quotas, and assess capacity to repay. National income accounting was the obvious candidate, and the postwar decades saw it standardized internationally. The British economist Richard Stone, working with an approach built on double-entry bookkeeping, was the principal architect of the first United Nations System of National Accounts, published in 1953, which gave countries a shared set of definitions and tables. Stone received the Nobel Memorial Prize in Economic Sciences in 1984 for that work, and Kuznets had received it in 1971. The SNA has been revised several times since, but its basic architecture remains Stone's.

The BEA Era: GNP to GDP and Continuous Revision

In the United States the accounts became the responsibility of the Commerce Department's Office of Business Economics, renamed the Bureau of Economic Analysis in 1972; the BEA still publishes the figures today. Two changes since then matter most to anyone reading the data. First, in 1991 the BEA switched its featured measure from gross national product, which counts output by American-owned factors of production anywhere in the world, to gross domestic product, which counts output produced inside U.S. borders regardless of who owns the resources — bringing the U.S. into line with international practice. Second, in the mid-1990s the BEA adopted chain-weighting for real GDP, replacing fixed base-year weights that distorted growth rates the further you moved from the base year. Comprehensive revisions continue: a 2013 overhaul, for example, began treating research and development spending as investment rather than as an expense.