It makes sense that the stock of total assets is such a big pile of stuff. You can think of it as the value of all existing raw materials, like land, oil, and timber, plus everything people have produced since the beginning of time that is still here (that hasn’t been consumed or worn out yet), plus all existing paper assets like bank accounts, Tre

I ended up with a picture in my head of a market economy as a far-from-equilibrium communications network that uses prices to transmit information about wants and scarcities to people who make production and consumption decisions, exactly as Friedrich von Hayek4 explained almost 90 years ago.

According to the Fed’s most recent Z.1 Financial report for Third Quarter 2023, on 12/31/2022 U.S. balance sheets were contained $322 trillion in financial assets and $143 trillion in tangible assets . That makes total assets $452 trillion , about 18x the value of 2022’s $25 trillion GDP.

I ended up with a picture in my head of a market economy as a far-from-equilibrium communications network that uses prices to transmit information about wants and scarcities to people who make production and consumption decisions, exactly as Friedrich von Hayek [4] explained almost 90 years ago. That picture views economic activity is work produced

The two rows at the bottom of Figure 2 tell us that the demand for asset i, say government debt, at given interest rates, will increase in direct proportional to increases in net worth. We will make use of that fact below.

In my Far from Equilibrium Economics and Finance course, the first two articles I have my PhD students read are Friedrich von Hayek’s Economics and Knowledge (1937) and The Use of Knowledge in Society (1945) , von Hayek’s classic papers that describe a market economy as a solution to the division of knowledge problem. The third article I have them

In the real world, of course, financial assets grow over time as well. Figure 5, above, shows what the distribution of total assets would be like after one year in the hypothetical case where each category of financial asset has grown in proportion to the increase in net worth.

The stock of equities increases, for example, because owners of firms is

The Balance Sheet Economy is static; it measures what we own , not what we are doing*.* Its metrics are expressed as stocks of assets that exist at a moment in time. For example, on December 31, 2022 there were 142 million existing homes in the U.S.

Two Economies, Not One

As I have written in previous posts, the are two economies, not one. One is the Flow Economy that produces goods and services. The other is the Balance Sheet Economy that stores wealth