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The problem here is not so much that cash flows do not map to physical reality in a straightforward way. The problem is that cash flows are, in all conventional economic models, presumed to map to physical transactions and physical flows of goods in a straightforward way.

In other words, cash flows are important to analyse in their own right, but not the way economists think and not for the reasons economists normally assume.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 6th, 2010 at 06:12:08 AM EST
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Not unrelated: my Keynes and the monetarization of economics from July 16th, 2006. In it I quote Keynes' argument to do without real GDP and price level and use only nominal quantities because, after all, cash flows and (more importantly, from Minsky's point of view 50 years later) debt contracts are denominated in money and the nominal, not "real", value is what determines its legal impact (which is what has visible consequences in the real world).

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Sat Feb 6th, 2010 at 06:44:34 AM EST
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