According to the glossary of the U.S. Bureau of Economic Analysis, "Value Added" is
The gross output of an industry or a sector less its intermediate inputs; the contribution of an industry or sector to gross domestic product (GDP).
So I'm thinking that Gross Value Added is the gross output of an industry or sector, including the intermediate inputs. And total GVA would be greater than GDP.
The rest of the glossary entry:
Value added by industry can also be measured as the sum of compensation of employees, taxes on production and imports less subsidies, and gross operating surplus.
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Value added for business and government adds up to 100% of GDP:
The rest of us are just consumers who add no value to the world. (Now you know.) So much for the wisdom of Adam Smith:
Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it.
and Maynard Keynes:
Consumption — to repeat the obvious — is the sole end and object of all economic activity.
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The whole paragraph from Smith:
Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the [modern]mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.
3 comments:
Keynes quotes Hobson in the General Theory, Chapter 23, section VII. The short form:
"The object of production is to provide “utilities and conveniences” for consumers ..."
The purpose of production is to satisfy consumption.
And the long form:
"The object of production is to provide “utilities and conveniences” for consumers, and the process is a continuous one from the first handling of the raw material to the moment when it is finally consumed as a utility or a convenience."
Come to think of it, the defenders of Say's Law had to know that the purpose of production was to satisfy consumption. I'm looking at 'Supply Creates its Own Demand': A Discussion of the Origins of the Phrase and of its Adequacy as an Interpretation of Say's Law of Markets (downloadable from ResearchGate) (12 pages) by Steven Kates.
Kates finds the concept (though not the exact words) "supply creates its own demand" in James Mill's Commerce Defended. Kates quotes Mill and describes Mill's statement as "reminiscent of Keynes":
Mill: ‘How great soever that annual produce may be it always creates a market to itself’.
Kates: "Supply always creates demand."
Then Kates adds: "But Mill also provides the central qualification to goods exchanging against other goods. It is not just any goods that will exchange themselves for other goods; they must be precisely those goods which are demanded by other sellers."
As the transaction is described, both participants are "sellers". There is no "buyer". No "consumer". If we call one a "buyer" and the other a "seller" -- standard practice, these days -- then Mill's qualification means that the seller must provide what the buyer wants or the transaction will not take place. Eureka! The purpose of production is to satisfy consumption.
In an old post, JW Mason writes:
"The classical economists are full of blunt statements that the only possible end of exchange is consumption."
This is not exactly the same as what Smith and Keynes said.
Adam Smith: "Consumption is the sole end and purpose of all production".
J M Keynes: "Consumption — to repeat the obvious — is the sole end and object of all economic activity."
I see Smith and Keynes as giving guidance regarding the way the economy works; this is something that would be useful for understanding the economy and therefore useful for developing effective economic policy. I see nothing useful in Mason's blunt statement.
So it goes.
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