August 11, 2015

Accounting matters

Comment on ‘Accounting for ****’

Blog-Reference

Since theories have an architectonic structure it is clear that if there is a fault in the formal foundations the whole superstructure is bound to collapse eventually. Accounting matters because it provides the natural reality check for economic theories; it plays the same role in economics as a sophisticated measuring instrument in physics.

The first thing to realize is that there is no such thing as a ‘real’ economy. Hence economic phenomena are only explicable as the outcome of the interaction of real and nominal variables. A good number of nominal variables reappear in national accounting.

With regard to saving this means that all ‘real’ models of intertemporal shifting of consumption are pointless. In the monetary economy the process of saving and dissaving is independent from real output in different periods.

For the correct theory of saving/dissaving see (2013).

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2013). Settling the Theory of Saving. SSRN Working Paper Series, 2220651: 1–23. URL

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