Basics of the Wolfgang Stützel’s Balance Mechanics

Abstract

Introduction, Purpose. The article considers the aspects of the Balance Mechanics developed in the middle of the XXth century by the German economist Wolfgang Stützel. Balance Mechanics aggregates all the interactions between the financial and real economic sectors. Since general orthodox neoclassical equilibrium DSGE models failed to predict the global financial crisis of 2007-2008, and due to their fundamental failure to simulate crisis situations in the economy, the post-Keynesian stock-flow consistent approach appears to be the main alternative in building macroeconomic models. Methods. A key feature of the SFC models is that they aggregate the full integration of real and financial sectors of the economy. These models use the system based on double-entry and four-entry accounting principles. Results. On the basis of the analysis of Stützel’s Balance Mechanics, it is possible to define some important concepts and terms, i. e. expenditure and revenue which influence the net value of financial assets of the economic agent; payments and revenue receipts which influence the volume of payment assets of the economic agent. It has been established that the total amount of all expenses shall be necessarily equal to the total income. Therefore, the total amount of financial savings (changes in the net financial value of assets) of all the economic agents in a closed economy (or world economy) always equals zero. The only way to provide the economy with savings is to increase the amount of non-financial assets, i. e. physical capital. Discussion. In accordance with Stüzel’s approach, the analysis of the macroeconomic paradoxes performed on the basis of neoclassical approach involves the “fallacious composition”, when the facts and assumptions which are true to an economic agent or a group of economic agents are fallaciously and unreasonably transferred to the whole aggregate of the economic agents.