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The Social Accounts

A payment made by one party is received by another—there would otherwise be nobody to whom the payment could be made—and for the same reason, what is received as income by one must have been paid out as expenses by another. Incomings and outgoings, payments and receipts, income and expenditure are from this point of view identical. Whether a given transaction is viewed as one or the other depends upon the particular account which is being drawn up at the time. But every transaction involves one who pays and one who receives; and all transactions conseąuently must be regarded 1 Below, p. 50. ! Central Statistical Office: National Income and Expenditure, 1956, Tables 51 and 52; 1946-1953, Part IV and 557 H.C. 1406-1410. both as payments and as receipts. Each transaction in the character of outlay is debited as a payment in the accounts of the spender; and the same transaction, in its character of income, is credited as a receipt in the accounts of the receiver. A set of tables constructed on these principles is now incorporated in the annual estimates of National Income and Expenditure. The statistics, with a few in-tractable exceptions, are kept by double entry and the estimates of national income and expenditure presented in a series of interlocking accounts.1 The Social Accounts, as they are now called, are divided into a production account for the United Kingdom, three income and expenditure accounts for persons (households), corporations and public authorities, three capital accounts and a current account of the transactions of the rest of the world with the United Kingdom. The production account of the United Kingdom includes all the transactions of citizens and corporations in their capacity as pro­ducers, including sole traders, privately owned businesses, municipal undertakings and nationalised enterprise. All costs of whatever sort incurred in producing output are debited to this account; and all pro-ceeds from sales and from other sources are credited as receipts. The current (income and expenditure) account of persons includes all the transactions of individuals as earners and receivers of other income and as consumers, tax-payers and savers. The corporate income and expenditure account collects the net receipts of companies and other corporations from profits, earnings and other sources and records the distribution of these proceeds. The current account of public authori­ties, as its name implies, includes the current transactions of all govern-ment authorities, national and local. Public revenues and income received during the year from all and every source are credited to this account; all public expenditures are debited. Public expenditure is incurred during the year on current account in supplying goods and services for public consumption and by payment of subsidies, social security benefits, interest on the public debt and so on. Public ex-penditures, taking the form of outlays on the construction, mainten­ance and repair of public works and other public investment, as far as these can be distinguished, are excluded from this current account and taken into the capital account, where they more properly belong.2 1 Central Statistical Office: National Income and Expenditure, 1946-1953: The Social Accounts of the United Kingdom, Table 8. This table for the year 1953 is reproduced below (pp. 30-1). 2 Ibid., 1946-1951. Introduction, Section II. It is customary in drawing up a balance of payments to represent imports and all other items for which payment must be made over-seas as debits. The credits are exports and other items for which persons resident in Britain are paid. In the Social Accounts, the usual practice has to be reversed and the title of the account is altered to correspond with the change in procedurę. Imports pur-chased as materials by business are debited to the production account and imports of services immediately consumed to the current accounts of persons. The value of export sales is similarly credited in the production account to the businesses selling them. It follows from the principle of double entry, to preserve the balance of the accounts, that imports must be credited as a sale in the accounts of the sellers and the exports debited as purchases to the accounts of the buyers. The sellers and buyers in this context are (merchants in) the countries from which the imports come and the countries to which the exports go—these being geographical regions which, for the purpose of drawing up the accounts, are conveniently grouped under one head as the rest of the world. The account of the rest of the world with the United Kingdom conseąuently shows the conventional "deficit" as a credit balance, formed by the repayment of British-owned capital held abroad, by loans to Great Britain (borrowing, that is, by Great Britain from abroad) and by grants of aid. A debit balance in the account of the rest of the world would show the amount by which the rest of the world was falling into debt with Great Britain, representing the conventional "surplus", the addition during the year, to British investment overseas. The surpluses (or deficits) which arise in the current accounts of public authorities, corporations and persons, being the excess of incomes over expenditures (or vice versa), represent the savings (or drafts on capital—"dissavings" in current jargon) of the community. The sum of these together with aid which may be drawn from abroad, makes up the fund accumulated net in the course of the year for the finance of the year's output of capital goods and other capital purposes. These surpluses and deficits, constituting the net savings for the year, are carried from each of the current accounts to the credit of the capital accounts. The payments debited to the capital accounts are the expenditures upon gross capital formation during the year, valued as the outlay on maintenance of existing eąuipment and the provision of new, together with additions to stocks and foreign lending, if any. In times of expanding income and rising prices, values expressed in money are rising throughout the year. Income tax regulations and the canons of good accounting are both designed to ensure that the money value of a capital shall be maintained. It is customary and indeed obligatory, that companies and others, before declaring net income, should put to reserve in depreciation allowances and else-where a sum sufHcient, but no more than sufficient, to preserve intact the money value of the capital stock with which the year's business was begun. What is in stock at the end of the year when prices are rising is worth more (in money) than at the beginning. The money value of a capital conseąuently can be maintained intact in times of inflation with a contribution to depreciation certainly less than would be reąuired had the goods constituting the capital not themselves been rising in value. From the income of the period assessed to tax (and from the money value of the capital itself) there has conseąuently to be deducted a sum calculated to allow for the inflationary rise which has been occurring in money values. This sum is included in the estimates of National Income and Expenditure as an allowance for "stock appreciation". "Stock appreciation" is thus deducted, before costs are distributed as earnings, as the additional sum which ought to have been put to reserve in order to preserve intact the real, as distinct from the money value of the capital stock. It is also deducted from receipts, as the amount by which the aggregate money value of all goods and services sold during the year has increased owing to rise in money value, as distinct from any increase in the actual ąuantity produced and put on sale. A summary of the Social Accounts for 1953 is reproduced in Table 1. The Production and the Income and Expenditure Accounts are ąuantified in the first four columns, though the statistics un-happily, owing to successive refinements, cannot easily be subsumed under the heads of the simplified form of accounts drawn up earlier. The formal identity of investment, domestic saving and the balance of payments is expressed in the capital accounts and is reached as the horizontal sum of those three columns. The finał surplus or deficit in the balance of payments on current account has been combined in recent years with the change in financial assets, the net foreign investment and the residual error; and the detail of the United Kingdom balance of payments is elsewhere elaborated in a White Paper of that name, published annually, generally early in April.1 1 Below, Chapter VI, Tables 4 to 9. Social Accounts of Production Account of the United Kingdom Persons Income and Expend: Companies and Public Corporation Receipts Pay- Receipts Pay- Receipts Pa 355 10,944 2,916 75 2,534 3,321 9,488 1,604 2,765 66 553 2,370 59 3,090 9,488 1,604 268 1,001 1,223 2 - 1,672 - 3 11,076 879 - 9 - 31 2,765 92 631 1,08 95 1,40 - 34 79 Items in income and expenditure accounts 1. Income payments to factors of production Income from employment Income from self-employ- ment (c) Gross trading profits of companies and public corporations.... (d) Gross trading profits of other public enterprises (e) Rent Taxes on expenditure . . Subsidies Transfer incomes (a) Current grants from or to public authorities . (b) Interest and dividend pay- ments plus income earned abroad (c) Tax payments on income and national insurance contributions (d) Personal remittances abroad (net) .... 5. Current expenditure on goods and services By persons By public authorities . 6. Payments to capital accounts (a) Saving excluding stock ap- preciation .... Stock appreciation Additions to tax and divi- dend reserves . . Capital accounts 1. Capital transfers .... 8. Gross domestic capital forma- tion 9. Change in financial assets plus net overseas investment 10. Residual error International transactions 11. Transactions with rest of the world in goods and services, by business Total 19,995 19,995 13,584 13,584 3,488 3,48 Reproduced from National Income and Expendituret 1946-53, Table 8, page 13 (Central Statistical Office, August 1954). Notes to the tables are included on pages 79 and 80 of the Blue Book. A number of attempts have been made to illustrate in a diagrammatic form the flow of income through the economy. These have become more and more complicated as the statistics of national income and expenditure are refined.* Messrs. Philips and Newlyn of the London School of Economics and Leeds TJmversity respectively, have taken advantage of the concept of income as a flow to construct a national income analyser which illustrates hydraulically many of the economic phenomena of income and expenditure,t and Mr. Arnold Tustin, then Professor of Electrical Engineering in the University of Birmingham, has more recently made use of the analogies which can be drawn with certain systems of servo-mechanisms. X d Kingdom, 1953 £ million Public Authorities Capital Accounts Companies and Public Corporations Public Authorities Account of the rest of the World with the United Kingdom Pay­ments Receipts Receipts Pay­ments Receipts Pay­ments Receipts Pay­ments 66 193 370 105 153 622 355 1,057 732 56 346 105 532 3,074 132 158 323 - 32 879 - 9 - 31 49 166 425 306 1,404 - 34 79 53 34 1,236 300 323 - 32 212 - 32 102 873 - 440 225 3,090 3,321 509 5,509 888 1,502 1,502 503 503 4,004 4,004 * R. C. Tress: "Economic Representation of National Income Flows", Economica, 1948; Edey -d Peacock: "Alternative Presentations of the Social Accounts", Accounting Research, 1951; and urdett: "Social Accounting in Relation to Economic Theory", Economic Journal, 1954. t A. W. Philips: "Mechanical Models in Economic Dynamics", Economica, N.S. 17, 1950, . 283; Walter Newlyn: Yorkshire Bulletin of Economic and Social Research, Vol. 2, No. 2, Sept. 950; Fortune, March 1952, p. 101 (illustrated). The machinę is now being manufactured by Air Trainers Ltd., Bicester Road, Aylesbury, Buckinghamshire.