<blockquote>
<p>My understanding is that many pure services result in no direct creation of global wealth, but only in a transfer of wealth.</p>
</blockquote>
<p>Your understanding is simply not correct. It is agreed by virtually all economists that wealth is the amount of net asset. See <a href="https://www.oxfordreference.com/display/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-3346?rskey=y8la9A&amp;result=1" rel="nofollow noreferrer">Oxford dictionary of Economics</a> for details.</p>
<p>It is completely possible to accumulate wealth by providing services, since services can be used to generate income, and saved income is addition to wealth.</p>
<blockquote>
<p>In the definition of GDP, I believe I understand what the sum of values of final produced goods represents. However I have more trouble interpreting services. The definition of GDP seems to not care whether final services are sold to internal or external actors, which in my view is an important distinction.</p>
</blockquote>
<p>This understanding of GDP  also does  not seem to be correct.</p>
<p>First, I am not sure what you mean by internal or external actors but:</p>
<ul>
<li><p>GDP does only measure services sold to final consumers (as with goods). It does not record B2B services.</p>
</li>
<li><p>If by external you mean people outside the country, then this is recorded in exports both for goods and services.</p>
</li>
</ul>
<p>Selling goods or services abroad still contributes to gross domestic production, so it is valid part of GDP.</p>
<blockquote>
<p>It would be surprising to me that an economic notion like that of GDP appeals to a meaning of wealth that is not the standard economics definition.</p>
</blockquote>
<ol>
<li>GDP <strong>does not</strong> measure <strong>wealth</strong>. I don’t even know where you got the idea it does. GDP measures <strong>gross income</strong></li>
<li><strong>Wealth</strong> occurs when some income is not consumed but saved.</li>
</ol>
<p>For example, if you go to museum and paid for the ticket that
provided you with value equal or greater to that ticket, that
payment becomes part of museum’s  income.</p>
<p>Afterwards the owner of the museum has 2 options. Consume the income for his own enjoyment (goods and services) or not consume the income and save it. Saving represents addition to assets and hence wealth. This is how wealth is understood by economists, financial experts and also by governments.</p>
<p>Let’s now circle back to your original question:</p>
<blockquote>
<p>Why are final services sold internally (to residents) accounted for in a country’s GDP?</p>
</blockquote>
<p>GDP is measure of gross output/income/final expenditure. I use output/income/final expenditure, because economically output and income and final expenditure are equivalent. Mathematically:</p>
<p><span class="math-container">$$GDP \equiv w+i+r+\pi \equiv C+ I + G + NX \equiv f(K,L,…)$$</span></p>
<p>Where:</p>
<ul>
<li><p><span class="math-container">$w, i, r \pi$</span> are all wages, interest income, rental income and profits respectively</p>
</li>
<li><p><span class="math-container">$C, I, G, NX$</span> are final expenditure on consumption, investment, government purchases and net exports</p>
</li>
<li><p><span class="math-container">$f(K,L,…)$</span> is all gross production that depends on capital labor and other factors of production (or some mixture of thereof).</p>
</li>
</ul>
<p>These 3 definitions of GDP are all equivalent economically.</p>
<ul>
<li>services generate income</li>
<li>people make final expenditures purchasing services</li>
<li>Services are produced</li>
</ul>
<p>They should prima facie be included in measure of gross output, so they need  to be accounted for in GDP to the best ability of statical offices.</p>

CC BY-SA 4.0
2023-08-04T17:51:23.740Z
I'm sorry if I wasn't clear, I didn't mean GDP represents wealth. 
For the layman, GDP represents "wealth production" in the crudest approximation. At least that's the propaganda you hear everywhere.
The whole issue I think here is "which wealth" are we talking about ?
I think smcc understood my point better. Thank you for the effort I'll reply later.
jam
CC BY-SA 4.0
2023-08-04T20:02:41.077Z
@jam it’s not wealth production because wealth is result of saving. No matter how large GDP is if there is no saving no wealth is “produced”. Also I am not sure what “propaganda” you refer to but whoever told you GDP is measuring wealth production. In mainstream publications such as the Economist they get it right, NGOs or government bodies such as central banks also usually get it right…
1muflon1
CC BY-SA 4.0
2023-08-04T20:30:26.397Z
I guess my question is badly formulated and now I have realized that my true question is more simple. My real question is : Why is GDP so popular ? and why isn't national net wealth increase a more popular indicator? Surely you want to define a good measure of "production of wealth", so why don't politicians use that to measure "the power of an economy"? Actually this has been asked 7years ago https://economics.stackexchange.com/questions/12919/why-isnt-national-net-worth-of-a-country-used-to-calculate-its-economic-power
jam
CC BY-SA 4.0
2023-08-04T20:32:47.353Z
Apparently there are big debates over the relevance of GDP  https://www.nytimes.com/2010/05/16/magazine/16GDP-t.html 
My personal impression is that politicians prefer maximizing GDP because it keeps people busy and they like that.
jam
CC BY-SA 4.0
2023-08-04T22:09:01.243Z
@jam 1. There are measures of national net wealth. But think about what, to gauge your current economic situation,  is more important to know. How much you make per month or how much assets you have? Not that both are not important but clearly your income is more important. Having million dollar income per month and 0 assets is much more significant for your living situation than having 1 million in assets (like home equity) but zero income and not being able to pay mortgage. Of course things are more complicated on national level but first thing you should be concerned is your income
1muflon1
CC BY-SA 4.0
2023-08-04T22:10:38.313Z
Not that wealth is unimportant but flow variables are generally more important than stock variables because flows allow the stocks to accumulate. Of course on personal level you will at some point retire and just live drawing down your assets (wealth), but countries typically aspire to live forever and add to not implicitly destroy what built by previous generations by just drawing down the assets society has…
1muflon1
CC BY-SA 4.0
2023-08-04T22:13:44.317Z
@jam 2. Yes there are controversies about GDP but there are virtually no controversies about it including wealth since that wouldn’t even make sense as wealth is stock and GDP flow. The controversies are rather about things like GDP excluding shadow economy (home labor of housewives or house husbands) or damage to common resources that are not priced like CO2 pollution. I know of no serious critique of GDP that would be due to not measuring wealth. This being said there are measures of net assets of various countries but people are less interested in that because of point 1
1muflon1
CC BY-SA 4.0
2023-08-04T17:30:06.877Z
2023-08-04T17:30:06.877Z
1muflon1
<p>My understanding is that many pure services result in no direct creation of global wealth, but only in a transfer of wealth.</p>
<p>Here I mean wealth in an economics sense as the sum of goods and liabilities owned. I don’t deny that services are useful, can make people happy, more knowledgeable, or can act as catalysts or enablers of further wealth creation.</p>
<p>In the definition of GDP, I believe I understand what the sum of values of final produced goods represents. However I have more trouble interpreting services.
The definition of GDP seems to not care whether final services are sold to internal or external actors, which in my view is an important distinction.</p>
<p>I can interpret the value of final services sold to external actors as new external wealth that comes in.
But what I really can’t put a meaning on, is the sum of the values of final services sold internally (services sold to final resident consumers, like visiting a museum, attending a local concert, being taught a new language…). It just looks like a bunch of wealth movements between domestic bank accounts, with no added value at a national level.</p>
<p>Surely visiting a museum or going to a local concert gives me a pleasant memory in my brain, which one could argue is a form of wealth I gained. But I don't think it matches the standard economics definition of wealth. It would be surprising to me that an economic notion like that of GDP appeals to a meaning of wealth that is not the standard economics definition.</p>

CC BY-SA 4.0
2023-08-04T14:17:07.667Z
How is your example of a museum visit different to a nondurable good like bread?
smcc
CC BY-SA 4.0
2023-08-04T14:32:29.747Z
Why do you think the distinction between sales internally or externally is important for services but not goods?
smcc
CC BY-SA 4.0
2023-08-04T16:27:38.373Z
If a local company creates a car worth 1000€ and a local pays 1000€ for it, the 1000€ have changed bank accounts, which doesn't create wealth. 
But now there is a new real car which is worth 1000€.  So a wealth of 1000€ was created.
If a local pays a 10€ ticket to visit a local museum. the 10€ moves from one account to another, but at the end of the visit no asset was created.
jam
CC BY-SA 4.0
2023-08-04T16:40:36.623Z
Have you thought about how you would answer the questions I asked? Why do you think that the fact that a car and a museum visit are consumed at different rates is important for how they contribute to GDP? (A car is a durable good so is consumed over a longer period whereas a museum visit is nondurable.) Presumably when someone buys a car they take account of the flow of consumption benefits they will get from that car over its lifetime just as they do when they decide whether to purchase a museum ticket.
smcc
CC BY-SA 4.0
2023-08-04T16:43:40.470Z
Because GDP is calculated once a year. We can assume the car is still there and worth approximately 1000€ at then end of the year. At the end of the year nothing is left of the bread, or of the museum visit. Here i'm implicitly assuming some time window. I agree with you that for a sufficiently large time window, the earth is destroyed and no net wealth was created, because everything ended up destroyed.
jam
CC BY-SA 4.0
2023-08-04T16:56:05.603Z
Why does it matter that nothing is left of the bread or museum visit at the end of the year? Why do you think it is relevant to whether it should be included in GDP? If only durable goods are included when calculating GDP, then an economy that produces no durable goods would have zero GDP. Why do you think that would be a better measure of output?
smcc
CC BY-SA 4.0
2023-08-04T17:04:26.580Z
Because very loosely speaking when you hear people talk about GDP, they think of it as representing the "economic wealth" of a country.
I don't see how relevant it is to call an an isolated economy that produces no durable goods a "wealthy " economy.
I agree that it should be considered as having zero wealth or growth.
I understand its a subjective choice and there are debates behind this.
I guess the definition of GDP is inclusive because of the ego of politicians who always want a higher GDP figure. I'm curious about the history of GDP.
jam
CC BY-SA 4.0
2023-08-04T17:10:21.317Z
So you don't think an economy is growing if its production of food and other nondurable consumption goods increases each year, making its citizens better off? Also, if you think of a car, the main reason it has value is that enables people to get to places and do things (like going to the museum). The value in the car (or any other durable good) is in the "services" it provides. GDP is not a measure of wealth (a stock), it is a flow measure.
smcc
CC BY-SA 4.0
2023-08-04T20:37:49.977Z
Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/147683/discussion-between-jam-and-smcc).
jam
<macroeconomics><gdp><wealth><services>
Why are final services sold internally (to residents) accounted for in a country’s GDP?
jam
# Why are final services sold internally (to residents) accounted for in a country’s GDP?

(Asked by: username_0 on 2023-08-04)

My understanding is that many pure services result in no direct creation of global wealth, but only in a transfer of wealth.

Here I mean wealth in an economics sense as the sum of goods and liabilities owned. I don’t deny that services are useful, can make people happy, more knowledgeable, or can act as catalysts or enablers of further wealth creation.

In the definition of GDP, I believe I understand what the sum of values of final produced goods represents. However I have more trouble interpreting services.
The definition of GDP seems to not care whether final services are sold to internal or external actors, which in my view is an important distinction.

I can interpret the value of final services sold to external actors as new external wealth that comes in.
But what I really can’t put a meaning on, is the sum of the values of final services sold internally (services sold to final resident consumers, like visiting a museum, attending a local concert, being taught a new language…). It just looks like a bunch of wealth movements between domestic bank accounts, with no added value at a national level.

Surely visiting a museum or going to a local concert gives me a pleasant memory in my brain, which one could argue is a form of wealth I gained. But I don't think it matches the standard economics definition of wealth. It would be surprising to me that an economic notion like that of GDP appeals to a meaning of wealth that is not the standard economics definition.

**Tags:** macroeconomics, gdp, wealth, services

> **Comments:**
> **username_1**: How is your example of a museum visit different to a nondurable good like bread?  
> **username_1**: Why do you think the distinction between sales internally or externally is important for services but not goods?  
> **username_0**: If a local company creates a car worth 1000€ and a local pays 1000€ for it, the 1000€ have changed bank accounts, which doesn't create wealth.  But now there is a new real car which is worth 1000€.  So a wealth of 1000€ was created. If a local pays a 10€ ticket to visit a local museum. the 10€ moves from one account to another, but at the end of the visit no asset was created.  
> **username_1**: Have you thought about how you would answer the questions I asked? Why do you think that the fact that a car and a museum visit are consumed at different rates is important for how they contribute to GDP? (A car is a durable good so is consumed over a longer period whereas a museum visit is nondurable.) Presumably when someone buys a car they take account of the flow of consumption benefits they will get from that car over its lifetime just as they do when they decide whether to purchase a museum ticket.  
> **username_0**: Because GDP is calculated once a year. We can assume the car is still there and worth approximately 1000€ at then end of the year. At the end of the year nothing is left of the bread, or of the museum visit. Here i'm implicitly assuming some time window. I agree with you that for a sufficiently large time window, the earth is destroyed and no net wealth was created, because everything ended up destroyed.  
> **username_1**: Why does it matter that nothing is left of the bread or museum visit at the end of the year? Why do you think it is relevant to whether it should be included in GDP? If only durable goods are included when calculating GDP, then an economy that produces no durable goods would have zero GDP. Why do you think that would be a better measure of output?  
> **username_0**: Because very loosely speaking when you hear people talk about GDP, they think of it as representing the "economic wealth" of a country. I don't see how relevant it is to call an an isolated economy that produces no durable goods a "wealthy " economy. I agree that it should be considered as having zero wealth or growth. I understand its a subjective choice and there are debates behind this. I guess the definition of GDP is inclusive because of the ego of politicians who always want a higher GDP figure. I'm curious about the history of GDP.  
> **username_1**: So you don't think an economy is growing if its production of food and other nondurable consumption goods increases each year, making its citizens better off? Also, if you think of a car, the main reason it has value is that enables people to get to places and do things (like going to the museum). The value in the car (or any other durable good) is in the "services" it provides. GDP is not a measure of wealth (a stock), it is a flow measure.  
> **username_0**: Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/147683/discussion-between-username_0-and-username_1).  

---

## 1 answers

### Answer by username_2 on 2023-08-04. Score: 1

> My understanding is that many pure services result in no direct creation of global wealth, but only in a transfer of wealth.

Your understanding is simply not correct. It is agreed by virtually all economists that wealth is the amount of net asset. See [Oxford dictionary of Economics](https://www.oxfordreference.com/display/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-3346?rskey=y8la9A&result=1) for details.

It is completely possible to accumulate wealth by providing services, since services can be used to generate income, and saved income is addition to wealth.

> In the definition of GDP, I believe I understand what the sum of values of final produced goods represents. However I have more trouble interpreting services. The definition of GDP seems to not care whether final services are sold to internal or external actors, which in my view is an important distinction.

This understanding of GDP also does not seem to be correct.

First, I am not sure what you mean by internal or external actors but:

* GDP does only measure services sold to final consumers (as with goods). It does not record B2B services.
* If by external you mean people outside the country, then this is recorded in exports both for goods and services.

Selling goods or services abroad still contributes to gross domestic production, so it is valid part of GDP.

> It would be surprising to me that an economic notion like that of GDP appeals to a meaning of wealth that is not the standard economics definition.

1. GDP **does not** measure **wealth**. I don’t even know where you got the idea it does. GDP measures **gross income**
2. **Wealth** occurs when some income is not consumed but saved.

For example, if you go to museum and paid for the ticket that
provided you with value equal or greater to that ticket, that
payment becomes part of museum’s income.

Afterwards the owner of the museum has 2 options. Consume the income for his own enjoyment (goods and services) or not consume the income and save it. Saving represents addition to assets and hence wealth. This is how wealth is understood by economists, financial experts and also by governments.

Let’s now circle back to your original question:

> Why are final services sold internally (to residents) accounted for in a country’s GDP?

GDP is measure of gross output/income/final expenditure. I use output/income/final expenditure, because economically output and income and final expenditure are equivalent. Mathematically:

$$GDP \equiv w+i+r+\pi \equiv C+ I + G + NX \equiv f(K,L,…)$$

Where:

* $w, i, r \pi$ are all wages, interest income, rental income and profits respectively
* $C, I, G, NX$ are final expenditure on consumption, investment, government purchases and net exports
* $f(K,L,…)$ is all gross production that depends on capital labor and other factors of production (or some mixture of thereof).

These 3 definitions of GDP are all equivalent economically.

* services generate income
* people make final expenditures purchasing services
* Services are produced

They should prima facie be included in measure of gross output, so they need to be accounted for in GDP to the best ability of statical offices.

> **Comments:**
> **username_0**: I'm sorry if I wasn't clear, I didn't mean GDP represents wealth.  For the layman, GDP represents "wealth production" in the crudest approximation. At least that's the propaganda you hear everywhere. The whole issue I think here is "which wealth" are we talking about ? I think username_1 understood my point better. Thank you for the effort I'll reply later.  
> **username_2**: @username_0 it’s not wealth production because wealth is result of saving. No matter how large GDP is if there is no saving no wealth is “produced”. Also I am not sure what “propaganda” you refer to but whoever told you GDP is measuring wealth production. In mainstream publications such as the Economist they get it right, NGOs or government bodies such as central banks also usually get it right…  
> **username_0**: I guess my question is badly formulated and now I have realized that my true question is more simple. My real question is : Why is GDP so popular ? and why isn't national net wealth increase a more popular indicator? Surely you want to define a good measure of "production of wealth", so why don't politicians use that to measure "the power of an economy"? Actually this has been asked 7years ago https://economics.stackexchange.com/questions/12919/why-isnt-national-net-worth-of-a-country-used-to-calculate-its-economic-power  
> **username_0**: Apparently there are big debates over the relevance of GDP  https://www.nytimes.com/2010/05/16/magazine/16GDP-t.html  My personal impression is that politicians prefer maximizing GDP because it keeps people busy and they like that.  
> **username_2**: @username_0 1. There are measures of national net wealth. But think about what, to gauge your current economic situation,  is more important to know. How much you make per month or how much assets you have? Not that both are not important but clearly your income is more important. Having million dollar income per month and 0 assets is much more significant for your living situation than having 1 million in assets (like home equity) but zero income and not being able to pay mortgage. Of course things are more complicated on national level but first thing you should be concerned is your income  
> **username_2**: Not that wealth is unimportant but flow variables are generally more important than stock variables because flows allow the stocks to accumulate. Of course on personal level you will at some point retire and just live drawing down your assets (wealth), but countries typically aspire to live forever and add to not implicitly destroy what built by previous generations by just drawing down the assets society has…  
> **username_2**: @username_0 2. Yes there are controversies about GDP but there are virtually no controversies about it including wealth since that wouldn’t even make sense as wealth is stock and GDP flow. The controversies are rather about things like GDP excluding shadow economy (home labor of housewives or house husbands) or damage to common resources that are not priced like CO2 pollution. I know of no serious critique of GDP that would be due to not measuring wealth. This being said there are measures of net assets of various countries but people are less interested in that because of point 1  

---

