The Pricing of Progress and the Origins of GDP

by Eli Cook*

In the past few years, roughly half a dozen books have come out examining the meteoric rise and profound impact of Gross Domestic Product (GDP). An economic indicator that measures the money-making capacities of a nation by aggregating together the monetary values of all market goods and services produced in a given year, GDP first came into being in 1934 (first as Gross National Product) thanks to the joint efforts of Harvard economist Simon Kuznets, the U.S. Commerce Department, and the National Bureau of Economic Research. As a result of these developments, recent histories of GDP have – save for the obligatory hat tip to William Petty and his founding of political arithmetic in seventeenth-century England – focused mostly on the twentieth-century economists, statisticians, organizations, and government policymakers who invented, disseminated, institutionalized and transformed Gross Domestic Product into the leading metric of social wellbeing, economic growth and national progress in the world. the Pricing of Progress Economic Indicators and the Capitalization of American LifeBe they celebratory or critical, the gist of these arguments is that in the wake of the global economic and social devastation brought on by the Great Depression and two world wars, an assortment of macroeconomic indicators emerged as much-needed planning tools with which economic experts and nation-states could manage and steer the novel and reified construct we moderns commonly refer to as “the economy.”
There is no denying that these important histories are all correct. Nevertheless, they are also incomplete. The meteoric rise of economic indicators has roots far deeper and broader than twentieth-century macroeconomic expertise. In my book, The Pricing of Progress: Economic Indicators and the Capitalization of American Life, I argue that the idea that one can gauge progress by quantifying the income-generating abilities of a society and its inhabitants has a far longer history than GDP and emerged out of the centuries-long rise of modern capitalism. While the pricing of progress (like capitalism) is not unique to American society, the book makes its case by tracking the rise of economic indicators  in the United States. That said, to do so it begins by tracing the first inklings of a pricing of progress back to seventeenth century England and eighteenth century Caribbean islands.
The key element that distinguishes capitalist societies from previous forms of social organization is not the existence of markets or money but rather capital investment, the act through which basic elements of society and life—including natural resources, technological discoveries, cultural productions, urban spaces, educational institutions, human beings, and the nation-state—are transformed (or “capitalized”) into income-generating assets valued and allocated in accordance with their capacity to make money and yield profitable returns.
In my book, I argue that economic indicators and the pricing of progress emerged out of such acts of capital investment as capitalist forms of quantification and valuation used to manage or invest in railroad corporations, textile factories, real estate holdings, or slave plantations slowly but surely escaped the narrow confines of the business world and seeped into nearly every nook and cranny of American society. As a burgeoning “investmentality” led American businessmen and policy makers to quantify not only their portfolio but their nation as a for-profit investment, the progress of its inhabitants, free or enslaved, came to be valued according to their moneymaking abilities.
Follow the capital, therefore, and you will find the origins of GDP and our current obsession with monetized metrics:  William Petty, who is rightly credited with the invention of national income accounting,  could value the income generating powers of English land (£8 million per year) and English  labor (£25 million per year) in 1662 only after the enclosure movement had transformed peasants into wage laborers and land into a capitalized investment whose goal was ever-increasing monetary yields. In 1746, Malachy Postlethwayt calculated that the average slave on caribbean plantations produced  £16 of income per year and that “the annual Gain of the Nation by Negroe Labour will fall little short of Three Million per Annum.” Postlethwayt could only come up with these figures because Caribbean sugar colonies were being run as absentee, for-profit investments and human slaves were being treated not only as pieces of property but pieces of capital. Postlethwayt was not shy about referring to slaves as “annuites” because he was the main pamphleteer for the Royal African Company, a for-profit joint stock company that earned returns for its investors by enslaving African bodies.  Up until the American Civil War, similar calculations of proto-GDP market productivity can be found throughout the long and ugly history of American slavery. As planter, enslaver and South Carolina Senator James Henry Hammond typically noted in his “Cotton is King” speech in 1857, “there is not a nation on the face of the earth, with any numerous population, that can compete with us in produce per capita… It amounts to $16.66 per head.”
As investment flowed out of tenant agriculture and slave plantations in the second half of the nineteenth century and into urban real-estate, railroad stocks and industrial machines, the pricing of progress spread along with it. By the 1870s, a leading American physician was pricing the “value of life” by determining not only people’s money-making capacities but also ““the cost of development of a man, or building the productive machine, and his worth to the body politic.” By the Progressive Era, economists such as Irving Fisher were openly referring to human beings as “money-making machines” and capitalizing the value of adults at $2900. Treating society as an income-generating investment and workers as human capital, Fisher and other Progressive Era efficiency experts used such price points in the first two decades of the twentieth century  in order to calculate the annual cost or benefit of such varying things as tuberculosis ($1.1 billion), government health insurance ($3 billion), prohibition ($2 billion) skunks ($3 million) or Niagara Falls ($122.5 million).
To conclude, by the time GDP was finally invented during the Great Depression, Americans already had much experience with the notion that one could measure social success by calculating the income-bearing capacities of the nation. The rise of GDP, therefore, is not the opening scene in the rise of modern economic indicators, but rather the final act of a global story that began not  in twentieth century economic departments, government bureaucracies or think tanks but rather with the enclosure of English lands, the enslavement of African bodies and the capitalization of American life in the seventeenth, eighteenth and nineteenth centuries.
* Eli Cook is Assistant Professor of History at the University of Haifa

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