Social Accounting

Social Accounting

Social Accounting - Each internal economic activity and transaction with the rest of the world has a receipts row and a payments column. For instance, the receipts in the production row consist of consumption plus investment plus exports, and the total receipts finance the total payments to the factors of production and for imports in the production column. 'Exports' means all payments due from abroad and 'imports' all payments due to other countries. When 'exports' exceeds 'imports' the country is investing (accumulating) the difference abroad, and when 'imports' exceed 'exports' the country is 'disinvesting' the balance abroad, i.e. selling investments. Since gross saving must equal gross investment expenditures, when 'exports' are greater than 'imports' saving is equal to home investment plus investment abroad, and when 'imports' exceed 'exports' saving is equal to investment less disinvestment abroad.

In practice it is impossible to collect this information for each transactor in the economy; to compile the accounts transactors are grouped into sectors': persons, companies, public corporations, central Government and local authorities. Normally only consumption ('appropriation') and accumulation ('capital') accounts are prepared for these sectors. The sector accounts form the units that are then consolidated into single accounts for the whole economy. The production ('operating') account is invariably a national account.

All this implies that the sector account for each economic activity is drawn up on the 'double entry' principle and records all the receipts from and to each sectors other accounts and from and to other sectors. In each account receipts and payments must balance. In what is called a completely integrated or articulated' system, both ends of each monetary flow can thus be seen a payment in one account becomes a receipt in another. In a - detailed system with numerous accounts, complete articulation is rarely achieved because the statistical data is incomplete, but reducing the number of accounts by grouping makes it possible to reach complete articulation.

Social accounting has been developed in recent years with the increasing use of macro-economics. Some economists are sceptical of its uses on the ground that it treats the economic process as 'purely objective and mechanical . a sort of huge waterworks' (Wilhelm Ropke), and that summarizing concepts like averages and totals 'substitute constants for preferences, judgments and decisions and can be misleading unless accompanied by independent consideration of the problem of individual choice and pricing involved in adapting scarce means to alternative ends' (W. H. Hutt).

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