Ravel seems to be designed to deal with the financial economy (debt assets and liabilities), although I have been able to use it with the real economy too by distinguishing the real and financial components of equity.
When we're only dealing with the financial economy, then the sum of changes to RNW (I distinguish between RNW and equity) is zero. It's also true for *transfers* of tangible assets — but not production and consumption, which are net positive and net negative respectively.
If we just count all the debt assets and liabilities, they are all paired up, so the total is zero. The sum of everyone's RNW is just the sum of all *tangible* assets. See here: https://www.economics21st.com/p/an-unassigned-loss
I have the financial / non-financial or real issue with Ravel as well. The problem is that non-financial assets are affected by inflation which would have to be modeled. But otherwise I think both systems can be separately modeled.
I have been doing quite a bit of Ravel modeling but I use it differently to Steve Keen. Steve adopts a phenomenological approach by assuming that the unknown flows can be modeled as exponential relaxations. This is fine to show moist simply generalised results but it acn mask causation. I use the matlab script generated by Ravel to model impulse government spending and bond sales. This way I can see what happens when.
I have followed your 10 post analysis of the UK Exchequer. Did I understand correctly that the net flow was from the CF to the recipient and that this establishes the MMT result that the Gov issues new money when it deficit spends?
I have been using Ravel to try and establish this result for a simple economy consisting only of Treasury, CB, Banks and Non-banks. I am considering the full funding rule and only T-bond sales to banks. I start the simulations at t=0 with initial bank reserves. If I start with all stocks initially = 0 then they remain zero forever of course. I follow the simulation for 15 cycles of bond sales and spending. I find that if the government spends on non-bank recipients (as in your case), then the non-bank recipient's bank deposits increase stepwise monotonically with time by each increment of the spend. In the absence of bank loans and interest on bonds, the banks equity remains constant. Thus "from a bird's eye perspective" it looks like the treasury is just creating new deposits for the recipient. In reality this is offset by the negative equity of the Treasury resulting from bond liabilities to the banks.
HOWEVER each deficit spend causes the CB to generate new reserves to balance them and I think that this is NEW money.
The problem of inflation is one of several reasons why I moved to the idea of "Raw" Net Worth as a heterogeneous (vector) measure rather than converting everything to the quantity of money which it's "worth". If you buy a house for £200K, and over a 10 years, similar houses start selling for £500K, you still just have the same house you had 10 years earlier. Of course, if you sell it, you end up with £300K more than you started with, but the rest of the world has £300K less than it started with as a result.
Not assigning monetary values to assets and liabilities is one of the 3 unusual features of the Raw Net Worth model which combine to avoid the fallacy of composition. This makes it a macroeconomic model.
I agree that the real and financial parts of the economy can be modelled separately. The only way they need to interact is that some transactions involve an exchange of something from the real economy for something from the financial economy. I have a series on this approach to macroeconomics here: https://www.economics21st.com/i/151547522/macroeconomics
It's not necessarily true that government deficit spending leads to an increase in money. It all depends on the level of net bond issuance. You can say that a government deficit leads to an increase in *net financial assets* for the private sector, but that's just an accounting identity which applies to any sector. E.g. the toothpaste manufacturing sector's deficit spending leads to an increase in net financial assets for the non-toothpaste-manufacturing sector.
As to your model, yes the banks (including the CB) just pass through the government spending, so their equity isn't affected. The government pays the CB £5 to pay the recipient's bank £5 to pay the recipient £5. The recipient's bank gains a new reserve asset and a new deposit liability. The clearest example of this is probably step 2 in this article: https://www.economics21st.com/p/the-uk-exchequer-9.
I don't like to describe this as "the treasury creating deposits for the recipient" because deposits are a liability of *the recipient's bank*, not of the treasury itself. Seeing it as an indirect payment implemented by a chain of payments shows exactly how it works. This corresponds exactly to the accounting entries shown in the Berkeley, Tye and Wilson study. The new reserves created by the CB in this process are an increase to the monetary base, MB (which is all cash + reserves), but not to M1 (which is all deposits + cash circulating outside banks). But as I say in this article here, I'm convinced the quantity of money is far less important than many economists think.
Sorry that was a bit long, but I wanted to address all the points you raised! Thanks again for your comments.
Does not Ravel handle this correctly. According to
https://www.patreon.com/file?h=107942051&m=328188559
The sum of equity flows must be zero - a conservation law. However I dont believe that they are implying that the sum of equity stocks is zero.
Thanks for the comment!
Ravel seems to be designed to deal with the financial economy (debt assets and liabilities), although I have been able to use it with the real economy too by distinguishing the real and financial components of equity.
When we're only dealing with the financial economy, then the sum of changes to RNW (I distinguish between RNW and equity) is zero. It's also true for *transfers* of tangible assets — but not production and consumption, which are net positive and net negative respectively.
If we just count all the debt assets and liabilities, they are all paired up, so the total is zero. The sum of everyone's RNW is just the sum of all *tangible* assets. See here: https://www.economics21st.com/p/an-unassigned-loss
Does that make sense to you?
I think I do understand. I will read the link.
I have the financial / non-financial or real issue with Ravel as well. The problem is that non-financial assets are affected by inflation which would have to be modeled. But otherwise I think both systems can be separately modeled.
I have been doing quite a bit of Ravel modeling but I use it differently to Steve Keen. Steve adopts a phenomenological approach by assuming that the unknown flows can be modeled as exponential relaxations. This is fine to show moist simply generalised results but it acn mask causation. I use the matlab script generated by Ravel to model impulse government spending and bond sales. This way I can see what happens when.
I have followed your 10 post analysis of the UK Exchequer. Did I understand correctly that the net flow was from the CF to the recipient and that this establishes the MMT result that the Gov issues new money when it deficit spends?
I have been using Ravel to try and establish this result for a simple economy consisting only of Treasury, CB, Banks and Non-banks. I am considering the full funding rule and only T-bond sales to banks. I start the simulations at t=0 with initial bank reserves. If I start with all stocks initially = 0 then they remain zero forever of course. I follow the simulation for 15 cycles of bond sales and spending. I find that if the government spends on non-bank recipients (as in your case), then the non-bank recipient's bank deposits increase stepwise monotonically with time by each increment of the spend. In the absence of bank loans and interest on bonds, the banks equity remains constant. Thus "from a bird's eye perspective" it looks like the treasury is just creating new deposits for the recipient. In reality this is offset by the negative equity of the Treasury resulting from bond liabilities to the banks.
HOWEVER each deficit spend causes the CB to generate new reserves to balance them and I think that this is NEW money.
The problem of inflation is one of several reasons why I moved to the idea of "Raw" Net Worth as a heterogeneous (vector) measure rather than converting everything to the quantity of money which it's "worth". If you buy a house for £200K, and over a 10 years, similar houses start selling for £500K, you still just have the same house you had 10 years earlier. Of course, if you sell it, you end up with £300K more than you started with, but the rest of the world has £300K less than it started with as a result.
Not assigning monetary values to assets and liabilities is one of the 3 unusual features of the Raw Net Worth model which combine to avoid the fallacy of composition. This makes it a macroeconomic model.
I agree that the real and financial parts of the economy can be modelled separately. The only way they need to interact is that some transactions involve an exchange of something from the real economy for something from the financial economy. I have a series on this approach to macroeconomics here: https://www.economics21st.com/i/151547522/macroeconomics
It's not necessarily true that government deficit spending leads to an increase in money. It all depends on the level of net bond issuance. You can say that a government deficit leads to an increase in *net financial assets* for the private sector, but that's just an accounting identity which applies to any sector. E.g. the toothpaste manufacturing sector's deficit spending leads to an increase in net financial assets for the non-toothpaste-manufacturing sector.
As to your model, yes the banks (including the CB) just pass through the government spending, so their equity isn't affected. The government pays the CB £5 to pay the recipient's bank £5 to pay the recipient £5. The recipient's bank gains a new reserve asset and a new deposit liability. The clearest example of this is probably step 2 in this article: https://www.economics21st.com/p/the-uk-exchequer-9.
I don't like to describe this as "the treasury creating deposits for the recipient" because deposits are a liability of *the recipient's bank*, not of the treasury itself. Seeing it as an indirect payment implemented by a chain of payments shows exactly how it works. This corresponds exactly to the accounting entries shown in the Berkeley, Tye and Wilson study. The new reserves created by the CB in this process are an increase to the monetary base, MB (which is all cash + reserves), but not to M1 (which is all deposits + cash circulating outside banks). But as I say in this article here, I'm convinced the quantity of money is far less important than many economists think.
Sorry that was a bit long, but I wanted to address all the points you raised! Thanks again for your comments.