Richard Lipsey writes:  
>  
>In reply to Benjamin Khan: As I said in my first comment on this subject,  
>GDP and related concepts are used by governments and private research  
>agencies to study such macro variables as inflation, employment.,  
>unemployment and exchange rates. For these purposes, economic theory and  
>evidence tells us that it is market transactions that matter. If, e.g.,  
>unpaid workers work more, ceteris paribus, this will not add to inflationary  
>pressure. But if paid workers work more, earning more income which they  
>spend, this will add to inflationary pressure.  
  
Three points:  
  
(i)  The criterion "that matter" is a function of the use made of the   
evidence. When we are interested in the availability of goods and   
services, their being produced in the non-market sector is not   
necessarily relevant.  
  
(ii) If paid workers work more and, thus, produce more, there is no   
need for any inflationary pressure as long as they do not try,   
ceteris paribus, to purchase more than their additional contribution   
to output.  
  
(iii) As the writing of economic history teaches us, market-based   
estimates of standards of living are  unreliable when much of   
production is home-consumed, communally allocated without charge, or   
merely appropriated by extortion (military or criminal). All three   
were dominant for all but the last few centuries.  
  
  Until recently, a great portion of home consumption on the Israeli   
kibbutz was provided according to need and without charge. I recall   
discussing with an Israeli economist a few years ago the problem of   
GDP calculation in those old days and the procedural adjustment  to   
be made in the modern era when market exchange has become quite   
common within such communities.  
  
Jesse Vorst