Irving Fisher and the contribution of improved longevity to living standards

American Journal of Economics and Sociology, The,  Jan, 2005  by William D. Nordhaus

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I

Introduction

AMONG IRVING FISHER'S many contributions to economics, one that is little noted and scarcely remembered is his emphasis on the economic importance of health. For the most part, his concern was in promoting healthy lifestyles. In addition, he made an early (perhaps the earliest) estimate of the impact of mortality and morbidity on national output.

This essay considers the question of how measures of economic welfare might change if they included measures of health status as well as of conventional consumption. The surprising finding is that inclusion of improvements in health status would, over the 20th century in the United States, make a substantial difference to our measures of economic welfare. While Fisher thought and cared deeply about index numbers, measurement of income, utility theory, and health, he never connected these different concepts. On the other hand, he must have had an intuitive understanding of the importance, as suggested by the following passage:

   A large part of our subjective income is due to our conditions of
   health or disease.... [A] healthy body is absolutely essential for
   receiving and enjoying the income from external wealth....
   Economists, by fixing attention exclusively on physical phenomena,
   leave out the most essential element of all, the vigor of human
   life. The true "wealth of nations" is the health of its
   individuals. (Barber 1997, Vol. 2: 204)

In the sections that follow, I begin with a brief discussion of Fisher's writings on health. I then provide an analysis of how traditional measures of income might be modified to incorporate changes in mortality and life expectancy. Finally, I make preliminary estimates of the quantitative impact of adjusting national-income measures for mortality.

II

Fisher on Health

FISHER'S CAMPAIGN FOR healthful living today seems quirky. Its origins came when he contracted tuberculosis in the summer of 1898, shortly after having been promoted to full Professor of Political Economy at Yale at the age of 31. As Fisher explained in 1917, it was this experience that opened his eyes to the importance of health:

   I feel a little ashamed to admit that as an economist and as a
   student of society I had been blind, as the average man or woman of
   today is blind, to what heath conservation means. Suddenly I
   discovered I had tuberculosis and took a long enforced vacation.
   When after three years I went back to Yale, I was unable for two
   years to do even half a man's work.... At length by dint of
   conscientious application of a dozen or more specific points of
   hygiene, not only did I succeed in winning back my previous working
   power, but acquired more than I had ever dreamed of acquiring.
   (Barber 1997, Vol. 13: 83)

As with all Fisher's passions, he set about studying and proselytizing with enormous vigor. Among his most notable contributions were the establishment of the Life Extension Institute and a book, jointly written with Dr. Eugene Fisk, which stressed rules on individual hygiene (Fisher and Fisk 1915). In this field, as in so many others, Fisher was decades ahead of his time, emphasizing the importance of individual lifestyles. He laid out the Fifteen Rules of Health (see Table 1). Fisher was open--some might say, too open--to every new nostrum, and it is easy to poke fun at them. Among more entertaining rules were "Ventilate your clothes while they are on you," "Eat slowly," and "Eat some hard foods." However, he also emphasized the importance of weight, abstinence from tobacco, alcohol, and drugs, and vigorous exercise. All these sound commonsensical today, but it is striking that the Fisher-Fisk volume was the first important pamphlet emphasizing the importance of lifestyles in addition to anti-microbial health care.

III

Including Health Status in Measures National Income

A. Current Approaches to Measuring the Contribution of Health in the National Accounts

While the GDP and the rest of the National Income and Product Accounts (NIPA) may seem to be arcane concepts, they are truly among the great inventions of the 20th century. Nevertheless, since the beginning, there have been concerns that the accounts are incomplete and misleading because they omit most nonmarket activity. To meet this criticism, private scholars as well as official statistical agencies have begun extending the national accounts to include several nonmarket sectors, including national resources, the environment, transportation, leisure time, and unpaid work. (1)

One question that has been virtually ignored in attempts to extend the national accounts is the need to account adequately for improvements in human health. It is little understood outside the priesthood of national accountants that there is no serious attempt to measure the "real output" of the health care industry. The techniques used to measure the price and quantity of health care are highly defective, and there are no attempts to account for improvements in the length of life into current national accounts.