The Invention Of 'The Economy' : Planet Money Until the Great Depression, nobody talked about "the economy." In a sense, it hadn't been invented yet.

The Invention Of 'The Economy'

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We're going to cut through some numbers now that can sound like bureaucratic gibberish. The U.S. economy grew at an annual rate of 2.4 percent in the last three months of the year, according to government figures released this morning. Got it? Jacob Goldstein from our Planet Money team sheds some light on what that means.

JACOB GOLDSTEIN, BYLINE: If you'd asked somebody 100 years ago, how's the economy doing? Is it growing? Is it shrinking? They would not have known what you were talking about. Back then, people talked about banking panics and national wealth, and trade. But this thing we call the economy wasn't really invented until the 20th century.

ZACHARY KARABELL: It was invented because of the Great Depression.

GOLDSTEIN: Zachary Karabell is the author of a new book called "The Leading Indicators."

KARABELL: And it was invented because there was clearly a perception that there was something really, really bad going on but they didn't really know what. I mean, you could see there were homeless people on the street, you could see there were farmers, you know, the Okies heading from their Dust Bowl farms off to California by the tens of thousands, but there was no way of really grasping it.

GOLDSTEIN: So the government starts calculating this single, official number called national income. It's the forerunner of today's Gross Domestic Product, GDP, and it's basically the value of all the goods and services produced in the country in a year. When it's released in the Depression, this wonky statistic becomes an overnight sensation.

A report on national income submitted to Congress makes the bestseller list. And pretty soon, you can't turn on the radio without hearing those numbers and what they're measuring, this new thing called the economy.

KARABELL: Then, you start hearing about in 1937, Roosevelt starts talking about the economy and he starts talking about national income going up.


PRESIDENT FRANKLIN D. ROOSEVELT: That national income had amounted in the year 1929 to $81 billion dollars.

KARABELL: You'd never hear Abraham Lincoln or Teddy Roosevelt or George Washington talking in this way. One of the things that's remarkable to me is how quickly we went from a world where none of these terms and none of this conversation was part of our national consciousness to it being at the center of our national consciousness.

GOLDSTEIN: In the decades that follow, national income becomes gross national product and eventually GDP and it sweeps the world.

KARABELL: The first thing you do in 1950s and '60s if you're a new nation is you open a national airline, you create a national army, and you start measuring GDP.

GOLDSTEIN: That's because if you want help from the World Bank or the U.N., they're going want to know, how does it affect your economy? But somewhere around this time, Karabell says, people start to make too much of GDP. Rather than a limited measure of the economy, it becomes this Cold War gauge of who's doing better or who's winning. And, so, perhaps inevitably, all that success leads to the GDP backlash.

Robert Kennedy famously calls out its shortcomings in 1968.


ROBERT KENNEDY: Gross National Product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages.

DIANE COYLE: It does what says on the tin, it measures the economy. We shouldn't make it do something it was never intended to do.

GOLDSTEIN: Diane Coyle is an economist who just wrote a book called "GDP, A Brief But Affectionate History." Coyle says GDP was never intended to measure overall well being or a nation's standard of living. Certain things that are clearly bad actually make GDP go up, like hurricane damage that costs a lot to fix. And here's another thing. The history of GDP is full of debates about what you should count when you're adding it up.

For example, should you count the black market, which means everything from off-the-books babysitters to mafia drug deals? The U.S. doesn't, other countries do. Back in the '80s, Italy started counting its black market and overnight the Italian economy became bigger than the U.K. economy. The Italians celebrated. They called it Il Sorpasso. Coyle says this points to a common misconception.

COYLE: We tend to think about GDP as if it's a natural object. It's like a mountain, and we have methods of measuring it that are better or worse and more or less accurate. But there is a thing there to be measured. And actually, that's not just true with the economy. There's no natural entity called GDP in the universe.

GOLDSTEIN: In other words, maybe the most important thing to remember about GDP is it's not a thing, it's an idea. And that idea keeps changing. Just last year, the U.S. tweaked the way it calculates GDP and in an instant, the economy was $500 billion bigger. Jacob Goldstein, NPR News.

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