Balance Sheets, Transaction Matrices and the Monetary Circuit

  • Wynne Godley
  • Marc Lavoie


Contemporary mainstream macroeconomics, as it can be ascertained from intermediate textbooks, is based on the system of national accounts that was put in place by the United Nations in 1953 — the so-called Stone accounts. At that time, some macroeconomists were already searching for some alternative accounting foundations for macroeconomics. In the United States, Morris A. Copeland (1949), an institutionalist in the quantitative Mitchell tradition of the NBER, designed the first version of what became the flow-of-funds accounts now provided by the Federal Reserve since 1952 — the Z.1 accounts. Copeland wanted to have a framework that would allow him to answer simple but important questions such as: ‘When total purchases of our national product increase, where does the money come from to finance them? When purchases of our national product decline, what becomes of the money that is not spent?’ (Copeland 1949 (1996: 7)).


Gross Domestic Product Central Bank Balance Sheet Capital Gain Financial Asset 
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Copyright information

© Wynne Godley and Marc Lavoie 2012

Authors and Affiliations

  • Wynne Godley
    • 1
  • Marc Lavoie
    • 2
  1. 1.King’s CollegeCambridge UniversityCambridgeUK
  2. 2.Department of EconomicsUniversity of OttawaCanada

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