Review of Income and Wealth Series 43, Number 2, June 1997 VALUE AND INCOME IN THE NATIONAL ACCOUNTS AND ECONOMIC THEORY Statistics Netherlandr National accounting concepts of value and income differ from their economic theoretic counterparts in two respects. Firstly, they are more precise in order to give concrete guidelines for measurement, e.g. with respect to the concept of capital formation and the treatment of taxes. Secondly, they are fundamentally different. Valuation in the national accounts is not forward-looking and not based on a notion of perfect competition. Similarly, concepts of income in the national accounts are not measures of net return to wealth or welfare and they do not intend to show income as a reward for some specific factors of production. The national accounts concepts of value and income are descriptive concepts that can only be well understood in view of the specific accounting framework to which they belong. The relationship between national accounts and economic theory is com- monly misunderstood by economic theorists as well as by national accountants. The purpose of this article is to demolish some of the myths surrounding this relationship. In section 2, we provide an historical background. In sections 3 and 4, the spotlights are on value and income respectively, as they are at the heart of both national accounting and economic theory. These sections discuss the prin- ciples of valuation and concepts of income in the national accounts and compare them with their economic theoretic counterparts, such as net present value, net return to wealth, factors of production and welfare. Conclusions are drawn in section 5. National accounting and economic theory have a long joint history, both in persons and in concepts.' Some important cases in point are: -King and Petty are not only the founding fathers of national accounting, but should also be remembered for their contributions to economic theory.' King's law of demand can be regarded as the first statistical demand curve. Petty is known for his work on the velocity of money. He also acknow- ledged the importance of the concept of human capital, by making an estimate of its value in England. Note: The views expressed in this paper are those of the author and do not necessarily reflect those of Statistics Netherlands. The author would like to thank Keith Hayes, Steven Keuning, Carsten Stahmer and two anonymous referees for their comments. 'on the history of national accounting, see Bos (1992a) and Kenessey (1994). 'see Schumpeter (1954, p. 213).