National Income and Flow-of-Funds Analysis

By John P. Powelson | Go to book overview

Chapter 11
SOURCES AND USES OF FUNDS

Although national product accounts embrace all transactions in the creation and distribution of a country's output, still one dimension appears to have been eclipsed. This is the field of money and finance. It may even seem curious, until one examines their functions carefully, that the accounts can be so comprehensive and yet so omissive. A multidimensional exchange economy is described almost as though it operated through barter. The various sectors contribute to output and consume output; their saving is described, not in terms of money, but as the excess of their production (or income) over their consumption. The entire set of accounts relates to an amount of goods and services produced, consumed, and saved (or invested) without any reference to the financial instruments that make these exchanges possible.

This is not to deny that money and finance are important elements in today's economic processes. Instead, the national product accounts are designed to strip away the monetary cloaks in which transactions are sometimes enshrouded, so that the essentials of production and trading are laid bare. The ultimate end of the economy is not to create a great deal of money, or even high monetary incomes; it is rather to obtain a high level of employment and real income. Nor is this aim necessarily achieved through any manipulation of the monetary processes. Millions of dollars may be printed, and people will be none the wealthier. A high level of employment is gained if goods and services are demanded and produced, and if their exchange values--in terms of other goods and services--are what the population deems to be a proper level. The processes of saving and investment and their significance to economic activity and policy may be more difficult to dissect analytically if they are at all times beclouded by the monetary instruments through which they are represented.

Despite the merits of a "real" as opposed to a "monetary" presentation, the national product accounts depict only part of the processes by which goods and services are produced and exchanged. A storyteller can often clarify his objective by concentrating on specific essentials and

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