How We Create the Wealth of Nations
Chapter 26: C-Innovation and the Future
The last two chapters have been about the implications of Parts I–III for the economics of innovation. This final chapter is slightly different, as some of what follows is really conjecture rather than a clear implication. I shall advance five hypotheses about common innovation and its role in the future. C-INNOVATION AND NATIONAL ACCOUNTING One of the earliest lessons I was taught about national accounting was this: if a man marries his housekeeper, or a woman marries her gardener, then national income, as conventionally measured, will fall. Why is that? The point here is that, before marriage, the man pays his housekeeper a wage and the woman pays her gardener a wage. National income is usually calculated by one or more of three different methods: income, expenditure and output. In this case, the obvious methods are income and expenditure – because measuring output is often hard in service industries. It is then clear why marriage leads to this accounting change. Before marriage, there are wages to the housekeeper and the gardener, and the householder incurs expenditures in paying these wages. But, after marriage, there are no wages, no income for the housekeeper or gardener, and no expenditures (on wages) for the householders. Does this really mean that marriage reduces national income? No, it does not. This is just an accounting issue. Suppose the former housekeeper, now wife, and the former gardener, now husband, do all the work they used to do. But now, this is part of a marriage ‘contract’, rather than a contract between employer and employee. In this case, R-wealth is unchanged. All the housekeeping is still done, and all the gardening is still done. But national income falls – as conventionally measured – because there is no wage, where there used to be a wage.
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