A LOOK AT THE ECONOMIC THEORIES OF E. J. MISHAN
E. J. Mishan
MOST PEOPLE believe that the gross national product ― the national income ― provides a clear indication of comparative economic performance from year to year. This being the case, most people assume that living standards have risen since the start of the century because the gross national product has risen.
However, those who take the GNP as a guide are overlooking a much larger question. Are populations in the industrial world better off in some meaningful sense than they were say 30, 50, 100, or 200 years ago? When this larger question is dealt with, the role of the gross national product takes on a whole new meaning.
For instance, a large part of the growth in the GNP is due to the increased participation of women in the workforce, the value of this growth is misleading, if not largely fictitious. For while the services that these women now provide for industry and commerce continue to add to the value of the GNP, the concomitant reduction of services they would otherwise have provided in their homes is completely ignored in the GNP computation.
E. J. Mishan, a reputable economist who was formerly Professor of Economics at the LSE, is a staunch exponent of the belief that growth in the GNP is misleading as a guide to living standards. He points out that since there is general agreement among economists that public goods tend to be over-valued compared with market goods, and since the output of the public sector over the last fifty years has grown enormously as a component of the GNP, it follows that the real growth of the GNP over that period will be significantly over-stated.
Military expenditure, one of the largest items in the budget, is also of special interest since it can be argued that if, say, an additional ￡100 billion is spent on defence over a decade, the sum should properly enter real GNP. After all, the nation has chosen, through its political institutions, to spend ￡100 billion on military defence rather than on any other collection of goods.
However, if this additional expenditure is necessary simply to maintain the military status quo ante, it really adds nothing whatsoever to the sense of security or welfare. Such additional military expenditure, while it may have been necessary, is in fact to be regarded as regrettable.
The same argument is applicable for government expenditure directed to combat new forms of pollution that are the by-products of technological 'progress'. In so far as they serve only to restore and maintain previous standards of health and amenity such expenditure (which does, in fact, enter as a component of GNP) also comes under the category of "regrettables", adding nothing to the nation's wealth or welfare.
It appears on reflection that the argument used to reject the notion that additional expenditure on defence and on anti-pollution equipment are necessarily a contribution to real income can be extended to cover all too many components of the GNP. Such components look more like "regrettables" and can be conceived more revealingly as additional costs necessary to restore and maintain standards of amenity rather than as additional value. In fact, a very large part of the expenditure of modern government which, since the turn of the century, has grown as a portion of the GNP may be placed in this category.
Thus a large part of government expenditure may be classified as additional costs of administration, infra-structure, and new agencies which are necessary to control and monitor a modern industrial economy.
G.K. Chesterton. His economic ideas have found an unexpected ally in a former Professor of Economics at the LSE.
One need not stop at public expenditure. Many of the services provided in the private sector ― by banks, by trade unions, by employment agencies, welfare agencies, travel agencies, by lawyers, by accountants, by marriage bureaux and computer-dating services, by race relations organisations and family advice clinics ― were just not needed in the older, healthier and more traditional society of small towns and villages. They come into being and grow in importance in direct relation to population growth, when populations become more mobile, when urban areas sprawl outwards, take on mammoth dimensions and engulf the surrounding countryside, and when the economy and mode of living become more interdependent and complex.
It is reasonable also to include as input costs the growing proportion of the GNP allocated to travel and commuting that is not enjoyed for its own sake (indeed, it may be actively disliked) but is incurred simply as a means of reaching a destination.
Furthermore, much of the expenditure on education, more particularly higher education, is necessary in order to replace the human capital that is lost when older people retire. This annual investment in vocational education is effectively the cost of replenishing the stock of skilled human capital without which the running of a modern industrial economy is impossible.
Taking a longer look into the past only adds to one's scepticism. With the collapse of a social life that in Britain once centred on villages and small towns, the search for new forms of diversion and solace produced the music halls, the carnivals, and the brass bands of Victorian and Edwardian eras. These were followed in the interwar period by the cinema and the radio, and in the postwar era by stereophonies, television, video, and computer games supplemented by fantasy sex and 'adult' theatre. The 'affluent' society is now also liberally sprinkled with private and public nursing homes and clinics designed to cope with the rising incidence of individual stress and breakdown arising from a lifestyle fashioned for us by the relentless advance of technology. Unable to cope with the dehumanising effects of industrialism, more and more people are turning to drugs as a means of escape into an addictive world of seductive stupor and numbness.
When all of this is taken into account it can be seen that technical and social innovations, far from being contributors to a higher standard of living, turn out to be contributors to a higher cost of living. This higher cost is paid for in a human sense with suicides, depression, drug abuse and nervous breakdowns being the visible sign of people unable to cope with their enslavement to industry and their subservience to technology. However, thanks to economists like E.J. Mishan, it can be seen that this higher cost of living is also being paid in a financial sense with large chunks of the gross national product being comprised of expenditure needed just to keep the technological society afloat.
Economists like Mishan have verified the National Front's position yet again: that so much of the nation's effort is spent today in producing sophisticated products and specialised services which cater ultimately to those basic and biological needs that were more easily and more naturally met in a pre-industrial civilisation.