Affiliations: [a] Emeritus Professor, Keio University, Tokyo, Japan | [b] Professor of Economics, Meisei University, Tokyo, Japan | [c] Lecturer of Economics, Rissho University, Tokyo, Japan | [d] Research Economist, Keio Economic Observatory, Keio University, Tokyo, Japan
Abstract: The 1920s was a decade of great inventions and of substantial productivity growth; people found it difficult to understand why the Great Depression could follow a decade of unprecedented prosperity. Wesley Mitchell and Morris Copeland, who have initiated the flow of funds analysis, urged a better understanding of the circulation of funds between the financial and nonfinancial economy. Since funds, which is the sole currency in the pure credit economy we live today, exist only in the bank’s balance sheets, accounting is a necessity for the virtual currency. Furthermore, the assets and liabilities in the bankers’ accounts mean claims and obligations so that law is another prerequisite for the existence of funds. The present paper is an attempt to detail the historical background of the ‘flow of funds’ analysis tracing back to ancient Rome to clarify the interdependence between law, accounting and economics; and to revive the original idea of Mitchel and Copeland – to understand the interactions between the financial and nonfinancial economy.
Keywords: Pure credit economy, virtual currency, ancient Rome, argentarii, double entry system