National Income and Flow-of-Funds Analysis

By John P. Powelson | Go to book overview
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Chapter 4


In the year 17A, Nolandian society had become sufficiently complicated to require the services of a government. By this time, Nolandians could not live on brothausen alone, and they were consuming a variety of products manufactured and grown by different industries. The complexities of national customs, the machinery for neighbor getting along with neighbor, and other human foibles at last demanded a Parliament and administrative machinery. When scholars assembled in the Academy to discuss the manner in which government transactions would be recorded in the national product system, they found difficulty in deciding whether to consider the government a producer, a consumer, or other type of resident. This caused them to digress, early in their thinking, into a philosophical discussion on the nature of sectors. The Academy annals record the following conversation:*

SCHOLAR A. It seems to me we have already decided on a twofold distinction between sectors according to function. We have a producing sector which produces, and a household sector which consumes. All we have to do now is decide whether the government is a producer or a consumer, and to enter its transactions in the appropriate sector account.

SCHOLAR B. Not so fast. It seems to me that our sectors are divided not according to functions but according to people and institutions. That is, people are in the household sector, and businesses are in the producing sector.

SCHOLAR C. Does it really make much difference? Aren't the sectors classified in both ways? Institutions produce, and people consume. The one performs one function, and the other the other. I think our sectors are quite appropriately delineated both according to function and according to people and institutions.

SCHOLAR D. This is all very well when you have only two sectors, as

Scholars A, B, and C are the questioning ones. Scholar D thinks he has all the answers; and usually he does, although sometimes his answers are a matter of opinion. Scholar E supports Scholar D.


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