economic picture is therefore missing if natural assets are omitted in creating the national balance sheet. Likewise, consuming stocks of valuable subsoil assets such as fossil fuels or water or cutting first-growth forests is just as much a drawdown on the national wealth as is consuming aboveground stocks of wheat, cutting commercially managed forests, or driving a truck.

History of Augmented Accounting

General Developments

From the perspective of environmental accounting, the key point to recognize is that gross domestic product (GDP) is conceptually defined to include only the final output of marketed goods and services, that is, goods and services that are bought and sold in market transactions. This point is clearly stated in a comprehensive discussion of the National Income and Product Accounts (NIPA): "... the basic criterion used for distinguishing an activity as economic production is whether it is reflected in the sales and purchase transactions of the market economy" (U.S. Department of Commerce, 1954).

There are, however, important exceptions to this basing of the NIPA on market transactions. One is the exclusion of illegal activities such as drugs, prostitution, and illegal gambling; thus GDP will rise as gambling moves into the legal market sector. In addition, there are imputations for near-market services that are not recorded in market transactions. For example, there is an imputation for the services of owner-occupied housing so that these services can be included in output and income as are the rent and output associated with rental housing. There is also an imputation for the fuel and food produced on farms and consumed by the farmers themselves. A further large imputation is made for banking and other financial services furnished by financial businesses below cost in lieu of interest payments.

The key issue involved in environmental and other augmented accounts is whether to broaden the above boundaries and if so, how and how far. It has long been recognized that drawing the line at the limits of the market distorts the value of the NIPA as a measure of economic activities and well-being (see also Chapter 1). There is a vast and changing amount of productive nonmarket activity that produces goods and services quite similar to those produced in the marketplace. Commercial laundry services are reckoned as part of GDP, while parents' laundry services are not; the value of downhill skiing at a ski area is captured by GDP, while the value of cross-country skiing in a national park is not.

At the same time, while recognizing the importance of considering



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