National economic accounts provide the empirical foundation for economic theory and policy. And at the core of all national accounts lie the production accounts, for it is the production of new wealth which has been, at least so far, the real foundation of modern economic success.
The classical economists were deeply concerned with the factors that accounted for the economic success or failure of nations. Their analysis of the structure of production led them to the recognition that not all activities resulted in a product. On the contrary, they classified certain activities – such as wholesale/retail trade, military and police, and administration – as forms of social consumption rather than of production. It followed from this that one had to distinguish between production and nonproduction labor. As we have emphasized throughout, such a distinction does not imply that one of the forms of labor is more necessary, more meritorious, or more politically correct. Nor, in spite of Adam Smith, does it imply that services cannot be production activities. The basic distinction arises from the difference between outcome and output; not all outcomes are outputs. We noted in Chapters 1 and 2 that one way to formalize the difference would be in terms of a vector of characteristics associated with each commodity, some of which would affect its status as an object of social use, and others its status as an object of distribution, et cetera.