Stocks and Flows

Abstract

The essence of stock–flow analyses of individual or market behaviour is an explicit recognition of the interdependence of current production, consumption and asset-holding plans. The term ‘stock–flow analysis’ is used here generically to refer to any theories dealing simultaneously with the economic activities of production, consumption and asset-holding. At a market level this implies a distinction between plans to purchase a good in the current period in order to consume it during the current period (flow demand) and for the purpose of holding it at the end of the current period as an asset (stock demand), and an analogous distinction between plans to supply the good from current production (flow supply) and past production (inventories, or stock supply). In this article we review the nature of the distinction between stocks and flows and then illustrate the importance of the distinction for alternative theories of market price determination. Detailed references to the folklore of the stock–flow literature may be found in Burstein (1982), Bushaw and Clower (1957), Clower (1968) and Harrison (1980). We focus here on markets: see Archibald and Lipsey (1958), Clower (1963), Clower and Burstein (1960), Hadar (1965, 1971, ch. 11) and Johnson (1971) for important contributions to theories of individual behaviour in a stock–flow environment.