Guest post: Jeremy Mills: Stock – Flow Consistent Economics (Post Keynesian Economics)

Great article and great diagram by Jeremy Mills. Definitely worth the read!

Every transaction has both a seller and a buyer, or more generally, there are at least two sides to every market transaction. This indisputable fact, although extremely general and abstract, is one of the only true economic laws but one which is often forgotten. One reason why this fact is often overlooked is that its ramifications are most easily seen in the world of accounting – transactions are measured via income statements which lead to changes in balance sheets. Every transaction creates at least 4 accounting entries (two for each party). Accounting relations, in themselves, say little about what caused things to happen or reveal much about key economic variables like relative scarcity or utility, but they quantify a true constraint that exists in our market economy and provide a pseudo scientific framework with which to study economies. This methodology, stock-flow consistent macroeconomic modeling, has been developed by multiple Post-Keynesian economists such as Wynne Godley and Mark Lavoie1. Read on.