Morris Copeland and Flow of Funds accounts

Social Accounting Ideas

  • NIPA – Simon Kuznets, Wesley Mitchell, Richard Stone, James Meade
  • Flow of Funds Accounts – Morris Copeland
  • Input Output Tables – Wassily Leontief
  • Social Accounting Matrix – Richard Stone, Graham  Pyatt, Erik Thorbecke


Morris Copeland and Financial Accounts



In 1944, Copeland was commissioned by the National Bureau of Economic Research (NBER) to create a statistical framework for the money circuit. The project was carried out in collaboration with the Federal Reserve, in particular the Board’s Division of Research and Statistics. After the First World War, Wesley Mitchell had built annual estimates of national income while working at the NBER.2 Copeland started from an unpublished memo that Mitchell had written in 1944, in which the economy was divided into four groups of units. Each group makes payments to and receives payments from the others. In double-entry accounts, the payments made by each group are recorded on one side and the payments received on the other. All payments appear among the liabilities of one group and the assets of another.

Copeland’s work was first published in 1947, in an article in the American Economic Review. His principal work, published in 1952, analysed the moneyflows of U.S. institutional sectors from 1936 to 1942.3 The initial project envisaged two sectors – households, and an aggregate of the other sectors – and six types of moneyflows. The analysis was later extended to eleven sectors: households; farms; industrial corporations; business proprietors and partnerships; the federal government; state and local governments; banks and US monetary funds; life insurance companies; other insurance carriers; other financial intermediaries not included in the above categories; and the rest of the world.

Copeland identifies four origins of moneyflows, or motivations: households’ distributive shares, households’ product transactions, secondary distribution (i.e. transfer payments), and flows through financial channels. There are fourteen types of moneyflows, all of which can be traced to one of these four motivations. Four moneyflows can be attributed to households’ distributive shares: wages and salaries, cash dividends, cash interest, and net owner take-outs. A further four are the result of production transactions: customers’ payments to firms for goods and services; rents; instalments to contractors; payments for real-estate sales. Five moneyflows – insurance premiums, insurance benefits, taxes collected, tax refunds, and public purpose expenditures – fall into the category of transfer payments. The fourteenth moneyflow consists in financial transactions and constitutes the fourth motivation.

The statistics built by Copeland provide information on the distribution of moneyflows between production transactions, transfer payment transactions, and transactions through financial channels. Every sector has its own balance sheet, with its own assets and liabilities. A distinction is maintained throughout between aggregates measured on a cash basis and those on an accrual basis, although Copeland himself prefers the first method. Moneyflows are presented as an extension of the national accounts, on which Copeland had written extensively since the end of the 1920s; moneyflows are constantly compared with the concept of national income, underlining analogies and differences. Copeland states that both his approach and the national income one are based on the notion of the economy as a circuit. The moneyflows approach makes it possible to analyse debit and credit movements that are not part of the concepts of production and income distribution.


Copeland describes his work as an extension of ‘social accounting to moneyflows measurement’,4 highlighting the advantages of his approach over the equation of exchange. In particular, the disaggregate approach produces ‘money inflows’ and ‘money outflows’ for each sector. Despite the different definition given to the institutional sectors, Copeland maintains that Leontief’s work is similar to his own.5 Moneyflows go from one sector of the economy to another, with liabilities financing assets. Leontief talks of inputs producing outputs. There is a visual similarity between the two approaches, as the phenomena are measured by constructing large double-entry matrices.

In addition to moneyflows, Copeland also considers stocks, which are measured by loanfunds, that is financial assets and liabilities of institutional sectors. He cites Irving Fisher’s The Nature of Capital and Income of 1906, which draws a distinction between stocks and flows. Copeland stresses the importance of using financial statements in economics, following an approach already adopted by Robertson, Mitchell, Hawtrey, Lutz, Hicks and others.6 He recalls the difficulty of communication between accounting and statistics, principally because of the different conventions they employ.

Copeland makes a sharp distinction between consolidated statements, in which positions between sectors are net of reciprocal transactions, and combined statements, which include all transactions between sectors. He examines issues on which economists and statisticians are still working, such as the differences between real accounts and financial accounts, and, in the case of business proprietors, the distinction between assets belonging to the business and assets of the proprietor’s family. He points to the difficulties of ‘balancing’ the total assets and liabilities of the economy caused by three differences: in the timing of entry of transactions; in their classification of identical items; and in the evaluation criteria applied to assets and liabilities.


As mentioned earlier, Copeland’s work ties in with various lines of analysis, which are themselves linked to one another. The first connection is with the developments in national accounts that followed Keynes’s General Theory. As Federico Caffè recalled, Keynes invented not only a discipline, but also the words to describe it, setting the national accounts on a new basis. The process was not an easy one. Blanchard described macroeconomics before the Second World War as ‘an age of confusion’. After Keynes, progress in national accounts can be attributed mainly to Kuznets, Stone, and Hicks (the first edition of The Social Framework is dated 1942); a major effort of organisation produced the United Nations’ System of National Accounts (SNA) of 1947. Copeland had already studied the national accounts before the Second World War, publishing papers in the NBER series Studies in Income and Wealth. His essays of 1935 (‘National Wealth and Income – An Interpretation’) and 1937 (‘Concepts of National Income’) were cited by Richard Stone in the preparatory work for the SNA. Afterwards, when the concepts of real national accounts had been codified, it was a natural step to move on to the notion of financial accounts.

Another inspiration for moneyflows was the debate on the business cycle, in particular Mitchell’s efforts to collect relevant statistics. Mitchell and Copeland were very close and the moneyflows project was the last Mitchell undertook before retiring. Moneyflows are part of the American tradition of institutionalism – stretching from Veblen to Commons and from Ayres to Mitchell himself – which stresses the importance of an empirical approach to the interpretation of economic phenomena and the need to build statistics based on time series.10 It is not an obvious approach: Koopmans’s cutting verdict, ‘measurement without theory’, appeared in 1947 in a review of Burns and Mitchell’s book on the measurement of economic cycles.11

Copeland’s approach was also predominantly empirical. He reproaches Keynes that the latter’s theoretical approach was one of the reasons the General Theory had been assimilated in the Neoclassical Synthesis.12 Copeland had already attacked the abstraction of the neoclassical approach in 1931, causing Frank Knight to express several reservations.13 However, it would be wrong to classify Copeland’s contribution as empirical only, and to level against him the same accusation that Koopmans made against the Burns-Mitchell duo. Copeland has in mind not only the work of Keynes, but also that of Hicks, notably Value and Capital, which was first published in 1939, and in particular Chapter 14 on the difficulties of defining and measuring an economy’s income, and Chapter 19 on the demand for money. He asserts that a similarity exists between his ideas and those put forward in Value and Capital, underlining that Hicks focuses only on households and firms. Basically, Copeland has a vision of an economic system with a wealth of specialised and interconnected activities that is co-ordinated by institutions of the law: property rights, regulations governing contracts and negotiable instruments, rules on compensation and bankruptcy, and freedom of association. Money and other ‘pecuniary institutions’ are further elements that allow an economy to function.14 After the essays on moneyflows he remained interested in money, particularly the origin of monetary economies and the development of bank money. His interest in all the institutional sectors of the economy led him to study the US general government debt, with strong emphasis on relations between the federal government, on one side, and state and local bodies, on the other.15


Key Sources of Research:




by Louis Bê Duc and Gwenaël Le Breton



Click to access ecbocp105.pdf


Balance Sheets, Transaction Matrices and the Monetary Circuit

Lavoie and Godley 2007

Book of Monetary Economics chapter 2


Click to access Godley%20Lavoie%202007%20chap02-1.pdf


The Flow-of Funds Approach to Social Accounting: Appraisals, Analysis, and Applications

Conference on Research in Income and Wealth

Published in 1962 by Princeton University Press


Copeland on money as electricity

Anne Mayhew



Click to access Mayhew53.pdf


A Study of Moneyflows in the United States

Morris A. Copeland



Credit Aggregates from the Flow of Funds Accounts

Milton P. Reid, III and Stacey L. Schreft


Financial Accounts of the United States

Flow of Funds, Balance Sheets,
and Integrated Macroeconomic Accounts


Click to access z1.pdf


Financial Accounts:
History, Methods, the Case of Italy and International Comparisons

Papers presented at the conference held in Perugia, 1-2 December 2005


A Guide to the Integrated Macroeconomic Accounts


By Takashi Yamashita


Click to access 0413_macro-accts.pdf


U.S. Flow of Funds Accounts


Click to access USflow.pdf


The U.S. Flow of Funds Accounts and Their Uses


Click to access 0701lead.pdf


De Bonis, Riccardo, and Alfredo Gigliobianco.

“The origins of financial accounts in the United States and Italy: Copeland, Baffi and the institutions.”

The Financial Systems of Industrial Countries. Springer Berlin Heidelberg, 2012. 15-49.


Financial Accounts in Historical Perspective


Studi e Note di Economia, Anno XVI, n. 1-2011, pagg. 105-114


Author: Mayank Chaturvedi

You can contact me using this email mchatur at the rate of AOL.COM. My professional profile is on

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