Balance mechanics

The balance mechanics (of balances from the accounting or the credit system as well as the mechanics for characterizing the strictly generally valid overall structure of the identities) can be assigned to economics . Statements of the balance mechanics are not based on the assumptions and prerequisites of a model, but are of a trivial arithmetic nature, usually in the form of an equation, and are generally valid without restrictions. The balance mechanics was developed by Wolfgang Stützel and published in his book Volkswirtschaftliche Saldenmechanik 1958.

overview

The balance mechanics are relationships, the validity of which does not depend, as with most economic postulates, on the correctness of assumptions about human behavior. The balance mechanics make it possible to place the regularly necessary behavioral assumptions of economic theories and postulates on a logical foundation of macroeconomic thinking (size mechanics). Previous false conclusions in price, money and business cycle theory from individual economic thinking (partial clause) are overcome by correct microfoundation and the introduction of the real existing credit industry into the model formation (global theorem, size mechanics / relative theorem).

For example, from microeconomic experience it seems absolutely logical that increasing total expenditures of an economy go hand in hand with an increased demand for cash in the sense of quantity theory. From a balance mechanical point of view, if you take the offsetting entry into account, you can see that growing expenditure also means growing income for the economy as a whole. B. in payment lockstep is no correlation between total revenues and cash requirements.

In addition to the mechanics of the actual identities, in particular of excess purchases and excess sales, it is precisely the knowledge of balance mechanics that many facts are not mechanically linked, which in many models have so far often been thoughtlessly connected. Stützel uses the term "problem entanglements" when, for example, the equilibrium of plans for changes in financial assets with the step of such changes and the unchanged total expenditure or the capital stock are inappropriately identified. The same applies to the financial asset and means of payment operations, which are strictly considered separately in the balance mechanics, which only allow a consistent clarification of the connections between the monetary system and the real economy through a clear distinction.

Balance mechanics uses the connections between actual identities and reveals serious errors in the model formation from incorrectly assumed identities ( ex ante equilibrium conditions / ex post identity equations ).

Dynamic economic models that take into account the relationships between the balance mechanics are referred to as stock-flow consistent models .

Basic concepts

Any additional credit claim ( net ) that is not used by debtors for loan repayments leads to a surplus of income of the same amount for creditors .

Credit creation and credit mechanics

Balance mechanics takes into account the mechanics of private credit creation and appreciates the credit mechanics that can be traced back to Otto Pfleiderer and Wilhelm Lautenbach (Wolfgang Stützel often speaks of Lautenbach credit mechanics ). From the mechanics of lending becomes apparent: Once a borrower from the loan obligation which its liability to standing credit used to pay the debt of a purchase, balances mechanically produced an excess of its expenditure over its revenue. The rest of the economy thus has a surplus of income over expenditure. Through this relationship is (temporarily) additional deposit money created (if the seller with the resulting credit not open credit accounts receivable operated ), which tends to result in economic value. This relativizes common statements of classic teachings (according to which so-called capital collection centers would lend deposits from savers to borrowers). Since the excess expenditure of a debtor allows the economy (initially) additional wealth (reduction of liabilities, increase of financial assets), the opposite applies in no way. ${\ displaystyle I => S}$

Business units, groups and the overall economy

Stützel differentiates between the totality of all economic units (the entire economy) and groups of economic units. A group is defined as the totality of all business entities minus at least one business entity:

Group of business entities <sum of all business entities (total economy)

A group can also be a single business entity. Each group has a complementary group, so that the sum of the group and the complementary group forms the total of all business units:

Group + complementary group = overall economy

Examples of groups are all private households in an economy or all companies in an economy. The group of private economic entities (the private sector) is the sum of all companies and all private households.

A national economy is also a group. It is the sum of all economic units in a country (according to the domestic concept this is all economic units within a state territory, according to the national concept it is all economic units with the same nationality). Groups can be defined arbitrarily and depending on the purpose.

The complementary group to the private household sector is made up of all non-households (government, companies, foreign countries). The complementary group of a national economy are all other national economies, i.e. the foreign sector etc.

Sentence categories

Three sentences on the relationship between groups and the economy as a whole can be drawn up:

Partial sentences: These are sentences that apply to groups and individual business units.
Global rates: These are rates that apply to the entirety of all business units .
Size mechanics: Indicates under which conditions (the behavior of the complementary group) statements for groups and individuals (partial clauses) apply.

If one applies a Partialsatz on the totality of all economic units, one commits the fallacy of generalization (fallacy of composition).

Partial clause: A company increases its sales when it lowers its prices
Global proposition: If all companies lower their prices, sales will remain unchanged, but the price level will decrease.
Size mechanics: A company can only increase its sales by lowering prices if its complementary group (all other companies) keep their prices unchanged.

The example is an application of the competitive paradox .

Individual economic and macroeconomic financial wealth formation

For individual business units and groups of business units, the partial rate applies that they can increase their net financial assets through income surpluses (partial rate):

Income - expenses = Δ net financial wealth

It also applies that the output of a business entity A is necessarily the income of another business entity B :

Issue A = Income B

The purchase of goods by a customer leads to an income for the seller, the payment of wages by an employer leads to an income for an employee, etc. Since every expense is offset by an income (and every income an expense), the sum of all expenses is necessarily equal to the sum of all income :

Total income = total expenses

This results in the global rate that the expenditure-income balance of the economy as a whole (the current account) is zero. This applies to the global economy and closed economies . Open economies are groups because they can have current account balances. For them, the partial rate applies that their net financial assets can deviate from zero. In addition, every claim of a business entity corresponds to the liability of another business entity, so that the sum of all claims necessarily corresponds to the sum of all liabilities:

Total receivables = total liabilities

This results in the global rate that the net financial wealth of the economy as a whole (all claims minus all liabilities) necessarily equals zero. The same applies to changes in receivables and liabilities:

Total Δ claims = total Δ liabilities

The global principle here is that all economic entities cannot increase or decrease their net financial wealth.

Change in net financial assets because excess expenditure = excess income of the general partner group

Finally, the size mechanics shows the conditions under which the partial rate applies so that individuals and groups can change their net financial wealth through income and expenditure balances:

A group can only increase its net financial wealth (through an income surplus) if its complementary group (the rest of all economic entities, literally the rest of the world) reduces its net financial wealth by the same amount (through an expenditure surplus).

The balance sheet of a single business entity

Every economic unit (individuals, private households, companies, states, national economies, etc.) has a balance sheet that consists of assets and liabilities. On the assets side, there are real assets (e.g. machines, houses, etc.) and receivables (e.g. money or means of payment, bonds, shares, etc.), on the liabilities side, liabilities and net worth (also called equity ) ). The following applies to every business entity:

Net worth = real assets + accounts receivable - liabilities

Receivables minus liabilities are equal to net financial assets:

Net financial assets = receivables - liabilities

The receivables can be divided into means of payment and other receivables:

Receivables = means of payment + other receivables

In general, all “other claims” can be converted into means of payment through monetization. Claims against commercial banks are monetized claims because they are generally accepted as bank money as a means of payment.

application areas

Analysis of financial wealth flows

The most important application area of balance mechanics in economic theory is the analysis of changes in net financial wealth. Net financial assets are the difference between accounts receivable and payable and changes due to income-expenditure balances. In contrast to this, the money creation of the banking system generates means of payment against indebtedness (although it is not possible to precisely define means of payment as part of financial assets).

Income surpluses of a group are only possible if the complementary group enables an expenditure surplus. Economic relations are always two-sided because every expense corresponds to an income and every debt corresponds to a claim. If a business entity earns more than it spends, the complementary group must spend more than it earns: Income surpluses of a group = expenditure surpluses of the complementary group

If individual economic units cut their expenditures so that their expenditures are lower than their revenues, the global rate is: A decline in expenditures always leads to a decline in revenues and never to a surplus of revenues.

In the case of every economic entity (in the sense of each individual), income and expenditure can differ from one another; in the case of all economic entities (in the sense of all together ), income and expenditure are necessarily the same.

For example, the following applies: Household income surpluses (financial saving) = corporate spending surplus + government spending surplus (government deficit) + foreign spending surplus (national current account surplus ). The macroeconomic financial accounts take into account the income and expenditure surpluses (financial balances) of the individual sectors of the economy and it can be seen from this that the sum of the financial balances of the individual sectors (difference between income and expenditure) is zero .

Lock step and credit needs

Lock step is related to income and expenditure balances of a group of economic subjects within an economic period and describes their similar changes in financial assets. Stützel defines step in step as follows: "There is step in step if by chance the same applies to each individual economy as applies to the economy as a whole." If, for example, revenues in full and directly are passed on to other economic agents and all other (receiving) economic agents continue to do so do the same - strict income-expenditure lock-step takes place - the credit requirement for all individuals is zero . According to the principle of magnitude mechanics, there is only a need for credit if the complementary group builds financial assets from its income: "The need for credit is a function of the deviation from the spending pace, not a function of the level of expenditure."

Balance mechanics and business cycle theory

Balance mechanics is not itself a business cycle theory, but allows the correct microfoundation of the necessary behavioral assumptions.

In buyer's markets, the plans for consumption and investment determine the total expenditure, thus also the total income and the economy. The balance mechanics allow, by modeling the real existing credit economy, instead of an imaginary exchange economy, to map the influences of the financial system on the decisive spending plans.

Balance mechanical relationships

The starting point are the balances of the microeconomic and government plans for the formation of financial assets. If the balance shows an excess of the plans to build up financial assets (plans for sales surpluses) over the plans to reduce financial assets (plans for purchase surpluses), this generates a negative impulse, and conversely a positive impulse. Economists can be expected to spend less in the following periods if, as a result of the constellation, they reduce their financial assets unplanned, and they can be expected to spend more if, in the reverse case, their financial assets increase beyond planning.

This impulse is then reinforced by the multiplier, which results from the average willingness of economists to accept unplanned changes in their financial assets.

Wolfgang Stützel describes a theoretical borderline case in which the state absolutely wants to enforce an increase in financial assets, but no private person wants to accept a reduction in financial assets: “The economy would stand still for a moment.” big; for the sum of the plans to increase financial assets would exceed the simultaneous plans to decrease financial assets at any income level. "

The balance mechanics, based on the ex-post analysis of the financial balances in the national accounts and the balance mechanics of the national debt in connection with a few behavioral assumptions, allow very specific recommendations for economic policy in the areas of the economy as well as the limitation of national debt and the euro crisis .

In 2002, Ewald Nowotny , for example, already stated : “In terms of economic policy, there is a compelling balance mechanical relationship that a policy to reduce budget deficits ( “ budget consolidation ” ) can only be successful if it is possible to reduce the financial surplus of private households (e.g. Eg through increased private consumption) and / or to increase the willingness of companies to borrow (eg through investments) and / or to achieve an improvement in the current account (eg through additional exports). "

Literature (selection)

Wolfgang Stützel: Economic balance mechanics. A contribution to monetary theory. Mohr (Siebeck). Tübingen 1958, reprint of the 2nd edition. Tübingen 2011, ISBN 978-3-16-150955-1 (preview, books.google.de ).
Wolfgang Stützel: Paradoxes of the money and competitive economy. Scientia. Aalen 1979, ISBN 978-3-511-09029-6 .

Web links

Johannes Schmidt: Saving - a curse or a blessing? Notes on an old problem from the perspective of the balance mechanics. (PDF; 125 kB)

Individual evidence

^ Adolf Wagner: structural change, unemployment and distribution. Marburg 2003, p. 491.
^ Adalbert Winkler: Financial system development, consumer credit and economic growth. In: Wolfgang Stützel. Modern concepts for financial markets, employment and economic constitution. (Eds. Schmidt, Ketzel, Prigge) Tübingen 2001, p. 492 f. ( books.google.at ).
↑ Wolfgang Stützel: Economic balance mechanics. Tübingen 2011. p. 232 f.
↑ Johannes Schmidt: The importance of the balance mechanics for macroeconomic theory formation. (PDF; 150 kB) p. 6 ff.
^ Michael Frenkel, Klaus Dieter John: National Accounts. Munich 2011, p. 30 ( books.google.at ).
↑ Fritz Voigt (ed.), Wolf-Albrecht Prautzsch: The structure of the demand of commercial enterprises and private households for financial assets in the Federal Republic of Germany. Berlin 1971, p. 33 ( books.google.at ).
↑ Deutsche Bundesbank, 2012: Monetary and Monetary Policy. P. 72: "Commercial banks create money by lending."
^ Wilhelm Lautenbach (Ed. Wolfgang Stützel): Zins, Kredit und Produktion (PDF; 1.2 MB), Tübingen 1952, p. 48: "If a creditor pays a debtor, the loan amount shrinks, if a debtor or someone who becomes a customer through the payment to someone who is not a customer, the loan amount increases. But it remains the same if a customer pays to another customer or a vendor pays another vendor. "
↑ Deutsche Bundesbank, 2012: Monetary and Monetary Policy. P. 78: "Lending and the associated creation of money therefore tend to lead to investments and preferred consumption and in this way to increased production and economic value creation."
↑ Wilhelm Lautenbach (Ed. Wolfgang Stützel): Zins, Kredit und Produktion (PDF; 1.2 MB), Tübingen 1952, p. 34: “In order to emphasize the contrast to traditional theory, one can express the facts in a pointed way : it is not the investment that is determined by the savings, but, conversely, the savings through the investment: the savings are purely a distribution concept. Saving does not decide on the total size of the investment, but only on the share of economic agents in the wealth growth that the economy experiences through the investment. "
↑ Wolfgang Stützel: Economical Balance Mechanics Tübingen 2011 p. 76.
↑ Johannes Schmidt: The importance of the balance mechanics for macroeconomic theory formation. (PDF; 150 kB) p. 3.
^ Ewald Nowotny: Reasons and Limits of Public Debt. In: Economics in theory and practice. Berlin and Heidelberg 2002. p. 261.
↑ Wolfgang Stützel: Economic balance mechanics. Tübingen 2011. p. 73 and footnote on p. 74, where Stützel E. Lundberg and B. Senneby cited: The dilemma of the new monetary policy (= quarterly report of the Skinddaviska banks. III / 1956, Stockholm)
↑ Wolfgang Stützel: Economic balance mechanics. Tübingen 2011, p. 86.
^ Ewald Nowotny: Reasons and Limits of Public Debt. In: Economics in theory and practice. Berlin and Heidelberg 2002. p. 261 (excerpt without side view, books.google.at ).

[1] Adolf Wagner: structural change, unemployment and distribution. Marburg 2003, p. 491.

[2] Adalbert Winkler: Financial system development, consumer credit and economic growth. In: Wolfgang Stützel. Modern concepts for financial markets, employment and economic constitution. (Eds. Schmidt, Ketzel, Prigge) Tübingen 2001, p. 492 f. ( books.google.at ).

[3] Wolfgang Stützel: Economic balance mechanics. Tübingen 2011. p. 232 f.

[4] Johannes Schmidt: The importance of the balance mechanics for macroeconomic theory formation. (PDF; 150 kB) p. 6 ff.

[5] Michael Frenkel, Klaus Dieter John: National Accounts. Munich 2011, p. 30 ( books.google.at ).

[6] Fritz Voigt (ed.), Wolf-Albrecht Prautzsch: The structure of the demand of commercial enterprises and private households for financial assets in the Federal Republic of Germany. Berlin 1971, p. 33 ( books.google.at ).

[7] Deutsche Bundesbank, 2012: Monetary and Monetary Policy. P. 72: "Commercial banks create money by lending."

[8] Wilhelm Lautenbach (Ed. Wolfgang Stützel): Zins, Kredit und Produktion (PDF; 1.2 MB), Tübingen 1952, p. 48: "If a creditor pays a debtor, the loan amount shrinks, if a debtor or someone who becomes a customer through the payment to someone who is not a customer, the loan amount increases. But it remains the same if a customer pays to another customer or a vendor pays another vendor. "

[9] Deutsche Bundesbank, 2012: Monetary and Monetary Policy. P. 78: "Lending and the associated creation of money therefore tend to lead to investments and preferred consumption and in this way to increased production and economic value creation."

[10] Wilhelm Lautenbach (Ed. Wolfgang Stützel): Zins, Kredit und Produktion (PDF; 1.2 MB), Tübingen 1952, p. 34: “In order to emphasize the contrast to traditional theory, one can express the facts in a pointed way : it is not the investment that is determined by the savings, but, conversely, the savings through the investment: the savings are purely a distribution concept. Saving does not decide on the total size of the investment, but only on the share of economic agents in the wealth growth that the economy experiences through the investment. "

[11] Wolfgang Stützel: Economical Balance Mechanics Tübingen 2011 p. 76.

[12] Johannes Schmidt: The importance of the balance mechanics for macroeconomic theory formation. (PDF; 150 kB) p. 3.

[13] Ewald Nowotny: Reasons and Limits of Public Debt. In: Economics in theory and practice. Berlin and Heidelberg 2002. p. 261.

[14] Wolfgang Stützel: Economic balance mechanics. Tübingen 2011. p. 73 and footnote on p. 74, where Stützel E. Lundberg and B. Senneby cited: The dilemma of the new monetary policy (= quarterly report of the Skinddaviska banks. III / 1956, Stockholm)

[15] Wolfgang Stützel: Economic balance mechanics. Tübingen 2011, p. 86.

[16] Ewald Nowotny: Reasons and Limits of Public Debt. In: Economics in theory and practice. Berlin and Heidelberg 2002. p. 261 (excerpt without side view, books.google.at ).