GDP - Summary

 GDP

Summary:

• GDP is not a Marxist term, but Marxists understand it differently to orthodox economists

• Both understand GDP as being equal to the new value (added value) created during the year. Both understand it as, then, being equal to total incomes received during the year.

• Orthodox neoclassical economics believes that total incomes equal total expenditures, so that income equals expenditure equals total output. Keynesian economics introduced the role of savings and investment spending, but accepts the underlying tautological relation, which flows from Say's Law, that supply creates its own demand, which, in turn, flows from Adam Smith's argument that the value of commodities resolves entirely into revenues (wages, profit, interest, rent) – what Marx calls Smith's “absurd dogma”.

• Marxists reject Smith's “absurd dogma”, and Say's Law, and so understand GDP differently to either neoclassical economics or Keynesian and post-Keynesian economics. The value of commodities does not resolve entirely into revenues – the new value created – but also into the constant capital (raw materials, wear and tear of fixed capital) consumed in their production. In other words, into c + v + s, not just into v + s. So, the value of total output also must resolve into c + v + s, not just v + s, and so not solely into incomes, or new value added.

• Total output value is equal to the new value added (incomes) – which divides into consumption plus savings – plus the value of raw materials and wear and tear of fixed capital consumed in production, which forms an income for no one, and is bought not from income but from capital. GDP is equal to new value added, which is equal to incomes, which is equal only to the consumption fund plus savings/net investment.

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