Simon Kuznets, a Belarusian-American economist at the National Bureau of Economic Research, was commissioned by the US Senate in 1932 to develop a measure of national output. His January 1934 report introduced what would become Gross National Product (later GDP). The framework gave the first quantitative answer to how badly the Depression had hit — US national income had fallen from $87.8B in 1929 to $39.3B in 1932, a 55% collapse. Kuznets himself was deeply ambivalent: the welfare of a nation can scarcely be inferred from a measurement of national income. GDP measures production, not welfare; counts pollution-causing activity and the cleanup of it equally; values a divorce lawyer's billings as economic activity but household care work as zero. The framework was extended during World War II (Keynes's How to Pay for the War, 1940), formalized at Bretton Woods, and codified globally via the UN System of National Accounts.
GDP is defined three different ways that, by accounting identity, must yield the same number. The production approach sums value added across firms — output minus intermediate inputs. The income approach sums factor payments — wages and salaries to labor, profits and rents to capital and land, indirect taxes minus subsidies. The expenditure approach decomposes spending as GDP = C + I + G + (X − M) — consumption, investment, government final expenditure, plus net exports. The three approaches' equivalence is a definitional identity, not an empirical claim. Real vs nominal: nominal GDP at current prices conflates output growth with inflation; real GDP deflates by the GDP deflator. PPP (purchasing-power-parity) adjustment is required for cross-country comparisons because non-traded goods have very different prices in different countries. GNI vs GDP tracks where the income accrues vs where production happens. The deepest theoretical issue is the production boundary — what counts as economic activity at all. The SNA boundary excludes household production (cooking, childcare, eldercare), most illegal activity, and most environmental services. Each exclusion is large: household production, if monetized at market wages, would add roughly 25-30% to measured GDP in developed economies, structurally valuing women's traditional work at zero. Environmental degradation does not subtract from GDP; the production that caused it adds, and the cleanup adds again. The informal economy is 10-15% of GDP in developed economies and 30-60% in many developing ones. The Stiglitz-Sen-Fitoussi Commission (2009, with Joseph Stiglitz and Amartya Sen among the lead authors) formalized these critiques: what we measure affects what we do, and an over-reliance on GDP has distorted policy toward growth maximization at the expense of welfare, sustainability, and equity.
The Beyond-GDP movement has produced concrete alternative frameworks. The Human Development Index (Mahbub ul Haq and Amartya Sen, UNDP 1990) combines life expectancy, education, and log income per capita. Doughnut Economics (Kate Raworth, 2017) frames a social foundation below which no human should fall and an ecological ceiling above which environmental damage becomes irreversible; Amsterdam adopted the framework as official policy in 2020. Bhutan's Gross National Happiness index is the longest-running national experiment in alternative accounting. The climate-adjusted GDP literature (Partha Dasgupta's 2021 Economics of Biodiversity review) proposes subtracting natural-capital depletion from gross output. Digital-economy measurement is the contemporary frontier issue: Google search, Wikipedia, and open-source software generate enormous consumer surplus that GDP entirely omits. Erik Brynjolfsson's GDP-B proposal would include such measures.