Grounding Economics in Commercial Reality: A Cash-Flow Paradigm

Abstract

Cash-flow rather than profit is presented as a basis for grounding the discipline of economics in commercial reality. It allows the traditional remit of economics to be expanded from the production and exchange of goods and services to also include the exchange and transformation of assets and liabilities. In the cash-flow paradigm wealth is not defined in terms of income, but according to the commercial definition which is the value of assets less liabilities. Traditional economic analysis cannot detect when investors get over-paid to create inefficiencies and inequalities and so identify either the need or means for reforming capitalism. Nor can orthodox economics based on the production and exchange of goods and services identify how individuals, corporations, governments and society increase or lose commercial wealth. The cash-flow paradigm introduces an inclusive methodology for understanding, evaluating and designing economic institutions and the process of economic development. It explains how development is achieved in commercial practice and shows why the World Bank, other international and domestic development agencies can change their operations from providing credits to providing the knowledge of how to make economic development self-financing - a condition for individuals, towns, regions and nations to achieve financial and so political independence.