Towards an 'accounting view' on money, banking and the macroeconomy: History, empirics, theory

Abstract

In this paper three views are considered which are traditionally associated with 'money cranks' and 'brave heretics'. The first is that the credit nature of money has macroeconomic significance. The second is that financial development can be bad for economic growth. The third is that macroeconomic models need to be explicitly monetary macroeconomic models. It is argued that in each of these three areas, there has been a recent shift in mainstream economic opinion. This suggests new opportunities for meaningful debate between heterodox and orthodox schools on money and finance. It is further argued, following Skaggs (2003), that a common meeting ground could be an 'accounting view' of economics. This is a mode of macroeconomic analysis which explicitly uses accounting definitions, identities (that credit is also debt, or that flows of a variable affect the stock of that variable) or accounting methods (e.g. decomposing different kinds of liabilities, or linking flows of liquidity to flows of transactions) to structure and direct the analysis. The accounting view is highly pluralist yet clearly defined. I discuss its applications to each of the three views.