Current Account Imbalances: YSI Webinar with Heiner Flassbeck

Some news: last week, Nicolas, Thomas and I (Wolfgang) participated in a INET YSI Finance, Law & Economics working group webinar on current account imbalances (within the Eurozone) with Heiner Flassbeck. We had a chance to ask Flassbeck some questions from our perspective – on the type of institution needed to coordinate national macroeconomic policies within the eurozone, for example.

You can watch or listen to the event here.

From our point of view, Thomas Wieser’s view of of existing european institutions’ current capacity to effectively coordinate the Eurozone member state’s macroeconomic policies is much more realistic than Flassbeck’s view.

Instabilities in the Web of Contracts: Deflation, Inflation and Anacyclosis

Hi everyone, today we’d like to recommend a great 30 min talk Axel Leijonhufvud gave at INET’s 2012 “Paradigm Lost” Conference in Berlin (thanks to Charlotte Bruun for reminding us of his work!).

The way he describes the 2 forms of instability the web of contracts at the heart of western civilization (which is based upon the private/public law – dialectic): deflation and inflation, and the dilemmas politicians face when trying to intervene, connects to Katharina Pistor’s Law-Finance-Paradox and comes close to a rudimentary theory of some of the economic roots of anacyclosis.   From the perspective of long cycles, we like to visualize and conceptualize the alternating pattern of deflation and inflation like this:

What is anacylosis?

It is a pattern of history well known in the history of republican thinkers (from Plato and Aristotle to Polybios, Cicero and Machiavelli): the cycle of more centralized, authoritarian and more decentralized, democratic forms of government in western civilization, of which we are witnessing another round right before our eyes during the democratic recession which started in 2005 and is in full swing world wide now (2018). From our perspective, it is directly rooted in one of the fundamental conflicts of western civilization: the conflict between the principles of private and public law (free contract/consent vs. authoritative legislation/command), and the inherent instability of an unregulated private law (property and contract) based, monetary “free market” economy.

Katharina Pistor has voiced similar intuitions more from the perspective of a lawyer in her short (9 p.) 2013 paper, “The State, the Market and the Rule of Law” (and in her “Legal Theory of Finance” paper).  Neither Axel nor Katharina, however, draw a connection to the historical pattern and the theory of anacyclosis, because they take a systematic perspective only, not doing large scale and long term historically comparative analysis.

From our perspective, the legal, economic and comparative historical perspectives must be integrated to achieve a realistic understanding of western civilization, its historical patterns and its present state & situation in Europe – that is the core of the research program we are developing:

Thinkers like Axel Leijonhufvud, Katharina Pistor, and Polybios are all important contributors to this integrative and clarifying work, culminating in Level 5 of our analysis (see above): Long Cycles – discovering larger scale historical patterns of western civilization that repeat with variations.

If you like what we do and it makes sense to you, you probably will enjoy their contributions to better understanding the anacyclosis pattern and the democratic recession we are experiencing now in the aftermath of the 2008 crisis:

Axel Leijonhufvud: Debt, Inflation and Austerity (video, 30min talk)

Katharina Pistor: The State, the Market and the Rule of Law (9 p.)

The Institute for Anacyclosis: The Crisis (2 p.)

ANEP Economics:  Overview of New European Political Economics – our own approach to Integrate Law, Business and Macroeconomics by way of making explicit the Law-Accounting-Connection and comparing this to the stateless “Non-Law”: of traditional stateless hunter-gatherer and segmentary communities and the international community of states (international “law” which, to use E.A. Hoebel’s bonmot, is “primitive law on the global level”).

6th Presentation of our Oslo Seminar is online: Charlotte Bruun on Logical Structures and Algorithmic Behavior in a Credit Economy

Charlotte was probably the first author who published on Stützel’s work in english, before Johannes Schmidt, Fabian Lindner and Severin Reissl added further introductions in the 2010’s (which we all link for you below).  Working on her dissertation in the early 1990s, and having access only to a Xerox copy of Stützel’s 1958 classic, “Volkswirtschaftliche Saldenmechanik”, she recognized the potential of his mechanics of balances framework, including the lockstep concept, for coherently integrating (1) the real and monetary sphere and (2) the micro- and macroeconomic perspective – two long standing problems in the history of monetary economics.  She used Stützels straightforward solutions of these problems as a basis for her treatment of the logical structure of a monetary economy in Chapter 3 of her excellent dissertation, “Logical Structures and Algorithmic Behavior in a Credit Economy”.

In her short presentation, she gives an overview of how her highly innovative dissertation project developed.  Watch it here:

Related Downloads:

Seminar at BI Norwegian Business School 2017: Video 5 “Conceptualizing Capitalism: Legal Institutionalism” (Prof. Geoffrey M. Hodgson) now online

The fifth presentation at our seminar at BI Norwegian Business School (Oslo) is online: Prof. Geoffrey M. Hodgson, founder of Legal Institutionalism, the World Interdisciplinary Network for Institutional Research WINIR and author of the book “Conceptualizing Capitalism”, gives an introduction to the legal institutionalist perspective.

After clarifying the nature of law (vs. custom) and arguing that law cannot be pushed into the “superstructure” as an epiphenomenon, he provides two powerful examples demonstrating the constitutive role of law for capitalism:  property rights, and the theory of the firm.  By conflating property rights with mere possession, the field of “economics of property rights” entirely abstracts from the legal institutions necessary to guarantee and enforce property rights: a state guaranteeing and enforcing private (property and contract) law, including a system of civil courts.  Viewing the firm the way lawyers routinely do – as a fictitious legal person – solves a number of problems in the theory of the firm literature in a straightforward way and demonstrates the integrating power of a legal institutionalist perspective.

Click here to view (opens in new tab):


Seminar at BI Norwegian Business School 2017: Video 4, “Stützels General Theory of Business Cycles Part II” by Prof. Johannes Schmidt now online

The fourth presentation at our seminar at BI Norwegian Business School is online:  Johannes Schmidt presents, for the first time in english, Part II of Stützel’s theory of business cycles.

Stützel’s simple general approach solves a number of recurring controversies in monetary economics – especially that of a coherent integration of the “real” and “monetary” or “nominal” spheres – and provides a general theory within which existing business cycle theories – both “monetary” and “nonmonetary” – can be integrated as special cases.

It is based on nothing more than standard business and national double entry accounting categories – plus one original concept (“Lockstep” of inflows/outflows of net financial assets and/or means of payment), which is the core concept of Schmidt’s talk.

With the lockstep concept, Stützel demonstrates in a simple way why in models that implicitly presuppose lockstep – such as the Walrasian general equilibrium model or today’s “real business cycle” models – money naturally cannot “matter” (Hahn’s Problem), whereas in Keynesian and post keynesian monetary production models, this is partially remedied as explicitly intended by Keynes, but still lacks the necessary precision and clarity.  This precision, however, can be taken simply from empirical (business and national) accounting practice:  the distinction between means of payment and net financial assets.   Stützel imported this precision into ex ante macro theory as the “bipartite division of the theory of money”, added the lockstep concept and showed (already in 1953) that existing theories can be seen as describing special cases within that general framework.  Johannes Schmidt applies this to today’s macroeconomic theories of business cycles.

View Schmidt’s Presentation here (the 3 previous presentations introduce the standard legal & accounting concepts and the first part of Stützel’s Theory needed to understand Schmidt’s talk):

Seminar at BI Norwegian Business School 2017, Video 3 now Online: Stützel’s General Theory of Business Cycles

Stützel’s goal was to render superflous the controversy between Keynesians and Anti-Keynesians by demonstrating precisely for which special cases each group is correct and for which special cases each group overgeneralizes.  Thomas Weiss’ presentation shows the first part of how he accomplished that.

To view the video, click on the image.  Read a short summary below.

Summary: Ex post, within a closed economy the sum of all increases of net financial assets (positive balances on current account) and the sum of all decreases of net financial assets (negative balances on current account) are always equal by accounting identity, since net financial assets of the world as a whole always equal zero. PLANNED aggregate expenditures (planned decreases of net financial assets) and PLANNED aggregate revenues (planned increases of net financial assets), however, are not necessarily equal since legal persons plan independently from one another on the basis of subjective, uncertain future expectations.

If in the aggregate,  plans to to increase net financial assets (to achieve positive balances on current account) prevail, aggregate supply (for goods and services) is greater than aggregate demand.  This will reduce existing seller’s markets and eventually lead to buyer’s markets, or increase already existing buyer’s market tensions. If in the aggregate, plans to decrease net financial assets (to achieve deficits on current account) prevail, aggregate demand (for goods and services) is greater than aggregate supply. This will reduce existing buyer’s market tensions and eventually lead to seller’s markets, or increase already existing seller’s market tensions.

On buyer’s markets, aggregate planned expenditures (“aggregate demand”) will determine which revenues can be realized – in this special situation, Keynesian demand economics holds true.  Thus, on existing buyer’s markets, if aggregate plans change from planned increases of net financial assets to planned decreases of net financial assets because the state announces plans to decrease its net financial assets (deficit spending), output and employment will increase.  On seller’s markets, however, planned revenues (“aggregate supply”) will determine which expenditures can be realized.  This is where Keynesian demand stimulus policy breaks down, and government austerity (as well as a central bank interest rate above the market rate) is needed to boost output & employment. Stagflation during the 1970s may be a historical example for such a special situation, as well as other highly inflationary historical situations (such as today’s Venezuela).

The fourth presentation by Prof. Johannes Schmidt, Karlsruhe (coming soon) will present the second part of Stützel’s Theory of business cycles, introducing the concept of lockstep of revenues and expenditures (increases and decreases of net financial assets) and receipts and payments (increases or decreases of the stock of means of payment).   Lockstep means inflows and outflows equal each other for a period so there is no change in stocks of net financial assets or means of payment (or both). While this is always true for a closed economy as a whole, for partial groups inflows and outflows will often deviate from each other, lockstep being the exception. Lockstep or deviation effects can happen independently of each other on the level of net financial assets and means of payment, yielding 4 possible combinations. Schmidt shows that current macroeconomic theories each describe one of those 4 special cases.  Thus, they are not really theoretical alternatives, but can be integrated as special cases into Stützel’s General Theory.

This General Theory is based on standard, precise empirical business and national accounting categories, one original concept (lockstep of inflows and outflows of means of payment and net financial assets), and a few realistic behavioral assumptions taken from everyday business practice.

Seminar at BI Norwegian Business School 2017: Second Video now Online

Watch it by clicking on the image:

Nicolas clarifies the historically specific legal nature of assets & liabilities, using legal anthropology to distinguish reciprocity based mutual obligations of exchanging favours and gifts within a “Gemeinschaft” (as described in Marcel Mauss’ 1925 classic “The Gift” or in Marshall Sahlins 1972 classic essay “On the Sociology of Primitive Exchange” – for a short intro see here) from money-denominated, state enforceable legal obligations (“financial assets”) within a roman law-based civil society (“Bürgerliche Gesellschaft”).

He then introduces a foundational concepts of double entry bookkeeping:  the balancing items net worth (equity) – this is what Luca Pacioli originally termed “il cavedale”, i.e., capital  and probably the origin of the term “capital” – and net financial assets.   The concept of net financial assets (a balancing item which, for a nation as a whole, is usually called international investment position) forms the core concept of Stützel’s mechanics of balances based ex ante theory of business cycles.  It is the core concept allowing for a coherent integration of the real and monetary spheres in macro models.

Nicolas then develops this up to sectoral accounting for a closed economy (which is standard in National Accounting and also used in Modern Monetary Theory and Stock Flow Consistent Modelling), clarifying that capitalism is a zero sum game on the level of net financial assets – but not on the level of net worth (profits&losses).   For example, it is impossible that all nations achieve positive (or negative) balances of trade/on current account within the same period – one nations surplus on current account will equal the rest of the world’s current account deficit by accounting identity.  But it IS possible that all nations increase (or decrease) their net worth within the same period.

The next two videos – Presentations by Thomas Weiss and Prof. Johannes Schmidt – will present an introduction to Stützel’s theory of business cycles.  Stay tuned, these will be published soon.

For a summary of contents of video and the complete seminar, click here.

ANEP Seminar at BI Norwegian Business School, Nov. 01-03, 2017: Papers for Download

Information on the seminar, including the programme, can be found here.  Some short introductory presentations of our approach can be found on our youtube channel.  Anyone interested in taking a more detailed look at our approach of constructing a realistic, non-universalist paradigm for analyzing capitalism by reconnecting accounting to the historically specific foundations in roman law it is empirically based upon, and then contrasting this with informal, traditional social relations in stateless contexts, can download some further material below.  Our own papers are marked by showing the author in bold print, but are augmented by papers detailing the most fundamental building blocks of our conceptual framework: Law, Legal Institutionalism, Mechanics of Balances, and Legal/Economic Anthropology. All links will open in a new tab.


  • Business Cycles
    • Stützel 1952, Preis, Wert und Macht. Analytische Theorie des Verhältnisses der Wirtschaft zum Staat
    • Stützel 1953, Paradoxa der Geld- und Konkurrenzwirtschaft
    • Grass/Stützel 1983, Volkswirtschaftslehre
    • Weiss 2017, Conceptualizing Credit & Money: Law, Balance Sheets and and the Inherent Instability within the Core Institutions of Open Societies


New Blog on Stützel’s Mechanics of Balances

On top of Legal Institutionalism, Micro-Macro Accounting and Stützel’s Mechanics of Balances are the second fundamental building block of our approach, as outlined in Thomas Weiss’ presentations at the 2016 YSI Plenary in Budapest (view here) and 2017 WINIR  Conference, “Institutions and Open Societies” (view here).

Fabian Lindner is now hosting a new blog in english on Stützel’s Mechanics of Balances.  You are invited to explore it here.  More detailed overviews in english on the basic concepts of this fundamental building block of our approach can be found here and here.

ANEP Economics Seminar at BI Norwegian Business School, Nov. 01-03, 2017

We will be giving a 3-day seminar “Introduction to New European Political Economics and Legal Institutionalism” at BI Norwegian Business School in Oslo, Norway.

It will take place from November 1-3, 2017 and feature guest speakers Geoff Hodgson (University of Hertfortshire) and Johannes Schmidt.  Geoff Hodgson is the co-developer of Legal Institutionalism, author of the book “Conceptualizing Capitalism” and co-founder of WINIR, the World Interdisciplinary Network for Institutional Research.  Johannes Schmidt is a Professor at the Hochschule Karlsruhe Technik und Wirtschaft and, together with Fabian Lindner, a pioneer in communicating Wolfgang Stützel’s work on mechanics of balances to the English speaking community.

A full description and programme can be found at BI Norwegian Business School’s website by clicking here.  Papers for download can be accessed here (links open in new tabs).

We welcome and invite anyone interested in getting an introductory overview of the current state of our work and discussing with us personally!