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Saving-Investment Money Flows
From Financial Investment to GDP Investment
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Aspects worthy of special note:
- Actual empirical values for this type of money-flow table-diagram can be derived only from an Integrating Dynamic Money Flow (IDMF) based Flow-of-Funds (FOF) macro model which systematically nets out intermediate credit flows and uses a non-credit concept of Money.
- New Money enters the flow at top left as an exogenous input, and exits the flow on the right between internally-financed and credit-financed net investment -- as pseudo-"real" investment in money inventory.
- The busines sector does no "Primary Financial Saving." But this is true only in this oversimplified FOF-based model. In fact, a few industries (such as public utilities) do most of the business external financing, while others are net suppliers of credit. Because the FOF accounts are not yet based on the IDMF conceptual framework, they have not yet obtained data on this disaggregate basis.
- Households are both suppliers and users of credit. In contrast with the NIPA accounts, (which implicitly net houshold borrowing against household financial saving to get NIPA "Personal Saving"), the IDMF conceptual framework treats them as independent flows. A relatively few wealthy households do most of the financial saving. And even when a household is investing money in a 401k program and life insurance at the same time that it borrows money to buy a house and car, these activities are so functionally and motivationally independent that they are best treated analytically as separate flows.
When the original (more complex but more accurate) version of this conceptual diagram was developed in 1964, the height of each box was proportional to its estimated "structural" (balanced-growth) ratio to GNP during 1947-63. As the historical "Macro Structural Analysis" charts suggest, some of these basic structural relationships tend to change very little and very slowly over time. However, the American and world economy have changed so significantly since then that updating the empirical values of this diagram (from the Flow-of-Funds-based IDMF macro model) is long overdue. And there may very well be better ways of presenting the conceptual arrangement for use in economics texts.
(This diagram is the minimum size that permits screen readability. If it is too wide for normal printing, use "landscape" setting.)
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Last revised: August 31, 1999
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