The Office for National Statistics (ONS) is to revise the way Britain’s Gross Domestic Product (GDP) is calculated. According to the Times (26 February) “from 2008 the ONS will also add into GDP an estimate of the output generated by banks related to the higher rates of interest they charge on loans compared with deposits”. Output generated by banks? What are they talking about? Banks don’t produce anything.
It is just that, given the way a country’s output is calculated, banks have to be assumed to produce something. The value of the new national output produced in a year has theoretically to equal the total annual income of the country’s inhabitants as wages, profits, rent, interest, fees, etc in that year (national income). One way new national output is calculated is to add up the monetary value of the goods and services on which the national income is spent (final consumption). To do this it is assumed that whatever a sum of moneyfor this purpose is spent on is an “output”.
Thus, interest paid to banks is assumed to be a payment for the bank’s “output” (the service of lending the money). Similarly, taxes are assumed to be a payment for the government’s output (the “service” of providing “defence” and “law and order” as well as health and education).
This is all right for statistical purposes, but wrong if this statistical device is taken for reality. In reality neither banks nor governments produce anything. They – or rather, the workers employed by them – do of course do something, but the activity of banks and governments is in the end paid for out of the surplus value produced in productive industry which transforms materials that originally came from nature. In the case of the government this is obtained through taxes. For banks, it’s through interest.
An ONS paper explains how banks work, better in fact that most economics textbooks: “In essence, financial institutions provide services in two ways; by direct charging (overdraft fees, mortgage arrangement fee), and by an interest differential; that is paying depositors less than they charge borrowers . . . For example, current accounts are usually maintained free by financial institutions,
and the associated costs are met by the difference between the low interest payments awarded on credit balances maintained in such accounts whilst the bank lends funds from such accounts at a higher rate to borrowers”.
In other words, no nonsense about banks “creating” credit or deposits, but a recognition that they make their money by lending out money deposited with them at a higher rate of interest than that paid (if at all) to those who deposit money with them. Even so, this description is still tied to the concept that banks provide a service, i.e., that they are selling something. But what?
Because of the theoretical and practical problems involved in the idea of banks selling something, the national income statisticians have till now not included in GDP any value for the “output” of banks for the services they are regarded as providing – banking facilities for depositors – and for which they don’t charge. The solution they have come up with, and which will be applied in Britain as from 2008, is to regard the income of banks from “paying depositors less than interest than they charge borrowers” as a notional payment for these notional services.
It’s a bit of an artificial solution and it will increase GDP by a one-off 1.9 percent or so – which is more than normal growth in some years – by a mere stroke of the pen. But one held by statisticians rather than the bankers of currency crank myth.
No comments:
Post a Comment