4 ms·

I believe double-entry bookkeeping needs more attention. I think double-entry bookkeeping is, at least to me, as fundamental to economics (and of course busine

by mo_42 2y ago

I believe double-entry bookkeeping needs more attention. I think double-entry bookkeeping is, at least to me, as fundamental to economics (and of course business) as logic to math. Even if some actors don't use it explicitly, it still holds. If I buy ten apples for 10 bucks, I have ten more apples in stock and ten bucks less. Many economic discussions (not only on HN) get out of hands because people don't try to see the full picture or deliberately choose to see one side. I've even seen a professor of economics claim in public that the world is too much in debt. Well, double-entry bookkeeping tells you that there are always two sides to consider. For example, in case of governmental debt they ignore the other side of that debt, which might be assets. Assets like airports, schools, bridges, etc. Usually, we call such things useful. Another typical example is the central bank "prints money". Well, double-entry bookkeeping tells us that it's not possible. If they hand out currency, the counterpart needs to trade something in (typically repurchase agreements with commercial banks). (Leaving aside here the idea of helicopter money, which could even go into neg. equity or a loss.)

pcrh 2y ago
Agreed. The "magic" of double entry bookkeeping is that it is a financial version of the Principal of the Conservation of Energy. It isn't as strict in that it allows for assets to alter in value, for profits or losses to be made. But it does keep track of the way that money and "value" circulates in different forms, e.g. as cash, assets, debts, depreciation, etc. The "double entry" keeps track of the transformation of the nature of "value". This is hard to do using a simple household-style "cash-in" and "cash-out" set of accounts.
xphos 2y ago
Economics is funny because its very anti complex math. For the local economics (household even company level) that makes total sense but for anyone doing research or systems modeling for things bigger than a company the total distain for calculus and non-equilibrium systems really prevents any discussion. I think its because if you remove stability most of supply and demand arguments fall apart. Its crazy because stable systems are extremely rare in natural complex systems its weird to apply it to large parts of economics as a given. But here I'd caution against the idea that banks (not even central) cannot increase money supply because that's not really true. If a Bank is the backer of both sides of loans or engage in fractional reserve banks (i.e all banks), they can effectively increase money supply which in my opinion is equal to printing money. Especially since in the loan case, the loan is not necessarily a guaranteed asset (think cars in a crash). This effect is called the money multiplier effect via fractional reserve banking. https://www.youtube.com/watch?v=93_Va7I7Lgg https://www.youtube.com/watch?v=93_Va7I7Lgg The multiplier is more of ceiling to the amplification rather than it actually happening on loans. None of this necessarily bad loans and investment are really important to other parts of economics but none of it is simple and non of it is stable in the traditional sense
- jacques_chester 2y ago
  I find that economics is drenched in maths, depending on the school. Take Chicago's undergraduate program, for example[0]. It requires calculus classes before you even get to the starting line for the economics classes, and they encourage students to go further: "Students who have an interest in the major should take calculus at the highest level for which they qualify." [0] http://collegecatalog.uchicago.edu/thecollege/economics/#Fundamentals http://collegecatalog.uchicago.edu/thecollege/economics/#Fun...
- mo_42 2y ago
  Banks don't have that limitation for creating credit/money [1]. Technically, they just need to extend the balance sheet. Limitations are rather that they need to find good projects that yield enough returns to cover the interest rate. I think this is yet another good example of thinking with double entry bookkeeping. [1] https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp https://www.investopedia.com/articles/investing/022416/why-b...

by mo_42 2y ago

pcrh 2y ago

Agreed. The "magic" of double entry bookkeeping is that it is a financial version of the Principal of the Conservation of Energy. It isn't as strict in that it allows for assets to alter in value, for profits or losses to be made. But it does keep track of the way that money and "value" circulates in different forms, e.g. as cash, assets, debts, depreciation, etc. The "double entry" keeps track of the transformation of the nature of "value". This is hard to do using a simple household-style "cash-in" and "cash-out" set of accounts.

xphos 2y ago

Economics is funny because its very anti complex math. For the local economics (household even company level) that makes total sense but for anyone doing research or systems modeling for things bigger than a company the total distain for calculus and non-equilibrium systems really prevents any discussion. I think its because if you remove stability most of supply and demand arguments fall apart. Its crazy because stable systems are extremely rare in natural complex systems its weird to apply it to large parts of economics as a given. But here I'd caution against the idea that banks (not even central) cannot increase money supply because that's not really true. If a Bank is the backer of both sides of loans or engage in fractional reserve banks (i.e all banks), they can effectively increase money supply which in my opinion is equal to printing money. Especially since in the loan case, the loan is not necessarily a guaranteed asset (think cars in a crash). This effect is called the money multiplier effect via fractional reserve banking. https://www.youtube.com/watch?v=93_Va7I7Lgg https://www.youtube.com/watch?v=93_Va7I7Lgg The multiplier is more of ceiling to the amplification rather than it actually happening on loans. None of this necessarily bad loans and investment are really important to other parts of economics but none of it is simple and non of it is stable in the traditional sense

jacques_chester 2y ago
I find that economics is drenched in maths, depending on the school. Take Chicago's undergraduate program, for example[0]. It requires calculus classes before you even get to the starting line for the economics classes, and they encourage students to go further: "Students who have an interest in the major should take calculus at the highest level for which they qualify." [0] http://collegecatalog.uchicago.edu/thecollege/economics/#Fundamentals http://collegecatalog.uchicago.edu/thecollege/economics/#Fun...
mo_42 2y ago
Banks don't have that limitation for creating credit/money [1]. Technically, they just need to extend the balance sheet. Limitations are rather that they need to find good projects that yield enough returns to cover the interest rate. I think this is yet another good example of thinking with double entry bookkeeping. [1] https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp https://www.investopedia.com/articles/investing/022416/why-b...