Inflation Accounting of Whole Economic Systems

Until recently macroeconomic theory, and also the compilation of national income accounts, has used a framework where the logical constraints on the description of whole economic systems apply to flow variables alone. Estimates of some stock variables (e.g. the stock of capital and the stock of money) have been made for a long time but national balance sheets which interrelate all stock and flow variables consistently are only now becoming available. And despite the increased importance attached in theoretical work to the way stock variables behave and to sectoral budget constraints, discussion of these habitually proceeds without reference even to hypothetical sets of accounts where all stocks and flows are consistently represented.1 These comments would apply to the relatively simple business of accounting in terms of current prices. A fortiori little attention has been paid to the logic and methodology of consistent accounting of whole economic systems at constant prices.