Balance Sheets in a System of Economic Accounts

Abstract

The purpose of this paper is to examine some of the theoretical considerations that might provide a foundation for a system of financial accounts, and some of the practical conclusions that appear to arise from these considerations. It is not its purpose to propose a form that might be adopted for the construction of financial accounts. Most of the accounts that have so far been developed are compiled on the assumption that financing transactions are essentially passive reactions accommodating income, consumption, and investment transactions, and do not themselves induce any reactions in the other accounts. They are compiled on the assumption that, as far as the money and credit entries are concerned, the problem is to show the "main work that money and credit do in clearing markets."2 Thus, in the system of equations underlying the Netherlands Central Economic Plan, there are no equations relating to the financing items in the Monetary Survey that it contains.3 This paper, on the contrary, is based on the assumption that financial transactions are positive factors inducing reactions in income and expenditure accounts. They are not merely passive reactions to income and expenditure transactions.