The general accounting framework for... the capital account... Rows represent assets or debts. ...Columns represent sectors of the economy ...Entries… - James Tobin
" "The general accounting framework for... the capital account... Rows represent assets or debts. ...Columns represent sectors of the economy ...Entries in cells ...can be postive, negative, or zero. A negative entry means... the sector... is a debtor in the... asset indicated by the row. ...The sum across the row is the net exogenous supply of the asset to the economy ...For stocks of goods, this ...is the economy's inheritance from the past. For internally generated financial assets the net... supply... is zero. If from the sums in the final column the... government's holdings of an asset are subtracted (or its debt added), the net holdings of the private economy result. The sum of a column represents the net worth of a sector. The sum of the final column is the national wealth. ...[P]rivate wealth differs from this total by the amount of the government's net worth. If government is a net debtor... if its stocks of goods are ignored, then private wealth exceeds national wealth.
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About James Tobin
James Tobin (March 5, 1918 – March 11, 2002) was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He developed the ideas of Keynesian economics, and advocated government intervention to stabilize output and avoid recessions. His academic work included pioneering contributions to the study of investment, monetary and fiscal policy and financial markets. He also proposed an econometric model for censored dependent variables, the well-known Tobit model.
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For me, growing up in the 1930s, the two motivations powerfully reinforced each other. The miserable failures of capitalist economies in the Great Depression were root causes of worldwide social and political disasters. The crisis triggered a fertile period of scientific ferment and revolution in economic theory.
Treatment of the capital account separately from the production and income account of the economy is... a first step, a simplification... justified by convenience... The strategy is to regard income account variables as tentatively exogenous... and to find equilibrium in the markets for stocks of assets conditional upon assumed... outputs, incomes, and other flows.
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Keynes did not challenge the efficacy of price adjustment mechanisms in clearing particular markets in the Marshallian partial equilibrium theory on which he had been reared. He did challenge the mindless application of those mechanisms to economy-wide markets. Founding what came to be known as macroeconomics, he was modeling a whole economy as a closed system. He knew he could not use the Marshallian assumption that the clearing of one market could be safely described on the assumption that the rest of the economy was unaffected.
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