Inept Austrians: they want to add the sale of intermediate goods to GDP!!!!!

GDP can to totted up in different ways. E.g. in a very simple economy consisting just of firms selling goods to people, GDP would equal the total of goods sold to people, plus it would equal total wages paid by firms to people.

In the case of “total goods sold to people”, note that stuff sold by firms to other firms (i.e. “intermediate” stuff) is not counted. But Austrians, it seems, DO WANT to include this intermediate stuff.

E.g. see Huerta de Soto’s “Money, Bank Credit and Economic Cycles” p.305 under the heading “Criticisms of the Measures in National Income Accounting”.

For another Austrian making the same point, see here. (Hat tip to Lord Keynes).

So let’s get this straight. Say there is a widget factory where the final stage in the production process is to paint the widgets, which is done in a special paint shop building. One day there is a management buy-out of the paint shop, but they continue just as before: painting the widgets, and selling them on at the same price as before.

Anyone with some common sense can see that nothing much has changed. Certainly neither national income or output have risen. But according to Austrians, national output or income or something HAS risen (by the total amount the new paint firm pays for unpainted widgets).

To be fair to de Soto, he does not make it 100% clear whether his “including intermediates” measure of GDP is just for the purposes of analysing the economy the way he wants to analyse it, or whether he is saying this new measure really does measure total output or total consumption. But I’m 99% sure he is saying BOTH.

He should certainly have made the latter point 110% clear.

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