Network Economics of Block Chain and Distributed Ledger Technology

Network Economics of Block Chain and Distributed Ledger Technology


Quadruple Accounting System

Morris Copeland, and Hyman Minsky emphasized quadruple entry accounting system envisioning interrelated interlocking balance sheets of economic agents.  Interlocking balance sheets create a network of economic agents.

I attach a slide from a presentation by Marc Lavoie given at Minsky Summer school in 2010 at the Levy Institute of Economics (Bard College).




There are several FINTECH innovations which are bringing about dramatic changes in the financial services business.

  • Block Chain and Distributed Ledgers
  • Payment Banks
  • Retail P2P Payment services
  • Mobile Payments
  • Secured Wallets
  • Domestic Real Time Payments and Transfers
  • Cross Border Near Real time Money Transfers


Block Chain and Distributed Ledgers, in my opinion, are/can be implementation of quadruple accounting principles envisioned by Morris Copeland and Hyman Minsky.  Two economic agents engage in financial transactions which are recorded in distributed ledgers.

Some of the key components of distributed ledger technology are:

  • Peer-To-Peer Networking
  • Cryptography
  • Distributed Data Storage

In contrast with centralized ledgers, distributed ledgers store data at each node in the P2P network.  So there is no need for an intermediating institution.  From a payment system perspective, each node in the P2P network can be thought of as a bank.   Each node will have its own ledger and balance sheet which will record assets and liabilities.

Ripple is a Cross Border money transfer solution which is based on block chain technology.


Recent rise of retail P2P payment services such as

  • Xoom
  • M-Paisa
  • PayTM

indicates a trend toward real time payments/money transfers domestic and international.  This trend also indicates decoupling of these services from traditional deposit/lending banks. XOOM is a service provided by PAYPAL for international Money Transfers.  Money transfers are within a few minutes.

In USA, there are new P2P services offered to facilitate faster near real time payments/money transfers through mobile and online interfaces.

  • Venmo (Paypal)
  • Zelle (clearXchange Network)
  • Square Cash
  • Braintree (Paypal)

There are also social media payments available now through which consumers can quickly send money using social media applications such as

  • Facebook (through Messanger app)
  • Snapcash (through SnapChat)
  • Apple PayCash (through imessages app)
  • TenCent via WeChat


Rise of payment banks such as PayTM is one such example.  Reserve Bank of India has granted PayTM a payment bank status.  But transfers are still between bank accounts of transacting consumers where deposits are kept. Payment Bank acts as a technology provider and acts as an intermediary.

As per the RBI guidelines, payments banks cannot lend they can only take deposits or accept payments.

There are four payment banks in India now.

  • PayTM Payment Bank
  • Airtel Payment Bank
  • India Post Payment Bank
  • FINO Payment Bank


Mobile payments using secured wallets is another such example.

  • Consumer to Business payments and transfers
  • Consumer to Consumer payments and transfers
  • Google Wallet
  • Apple Pay
  • Android Pay
  • Alipay


Cross Border Payment Solutions:

  • XOOM
  • Earthport
  • TransferWise
  • Remitly
  • WorldRemit



Please see my other related posts:

Next Generation of B2C Retail Payment Systems

Cross Border/Offshore Payment and Settlement Systems



Key sources of Research:


Minsky and Godley and financial Keynesianism

Marc Lavoie
University of Ottawa


Click to access Lavoie.pdf


Block Chain:  A Primer


Click to access MPRA_paper_76562.pdf


Distributed Ledger Technologies/Blockchain: Challenges, opportunities and the prospects for standards

Advait Deshpande, Katherine Stewart, Louise Lepetit, Salil Gunashekar



Banking on Distributed Ledger Technology: Can It Help Banks Address Financial Inclusion?

By Jesse Leigh Maniff and W. Blake Marsh


Click to access 3q17maniffmarsh.pdf



Distributed ledger technology in payments, clearing, and settlement

Mills, David, Kathy Wang, Brendan Malone, Anjana Ravi, Jeff Marquardt, Clinton
Chen, Anton Badev, Timothy Brezinski, Linda Fahy, Kimberley Liao, Vanessa Kargenian,
Max Ellithorpe, Wendy Ng, and Maria Baird (2016).

Finance and Economics Discussion
Series 2016-095. Washington: Board of Governors of the Federal Reserve System,


Click to access 2016095pap.pdf



Distributed Ledger Technology: beyond block chain

A report by the UK Government Chief Scientific Adviser

Click to access gs-16-1-distributed-ledger-technology.pdf


Bitcoin, Blockchain & distributed ledgers: Caught between promise and reality


Click to access au-deloitte-technology-bitcoin-blockchain-distributed-ledgers-180416.pdf



Distributed ledger technology in payment, clearing and settlement
An analytical framework



Click to access d157.pdf



The Truth About Blockchain

January–February 2017 Issue






Peer-to-peer payments: Surveying a rapidly changing landscape

By Jennifer Windh

August 15, 2011


Click to access 110815wp.pdf

Economics of Money, Credit and Debt

Economics of Money, Credit and Debt

Global Financial Crisis and subsequent Global recession ( Secular Stagnation) has invoked lot of research in the causes of GFC.  Post Keynesian Economists were particularly correct about predicting the GFC.  Main stream Neoclassical Economists and their DSGE models did not predict the crisis.  Great Moderation was the main explanation given by neoclassical economists.  Low volatility in economic growth was seen as calm waters with no turbulence ahead.  GFC proved them wrong.

There are several development prior to GFC.

  • Role of Financial Sector
  • Rise of Credit and Debt
  • Rise of Shadow Banking
  • Securitization
  • Financial Globalization
  • Income Inequality
  • Lowered Credit standards
  • Lowered ratings standards by Rating Agencies
  • Global Capital flows

There are several outstanding researchers who are developing new ideas and thinking about the Banks, Money, Credit and Debt, Shadow Banking, Income Inequality, Effective demand, Low Interest Rates, Endogenous money and others.

  • Hierarchy of Money and Credit
  • Institutionalism
  • Accounting Approach
  • Quadruple Entry system
  • Endogenous Sources of Instability
  • Credit is debt 
  • Inherent Instability of Credit
  • Endogenous Creation of Money
  • Effective Demand
  • Lender of Last Resort
  • Open Economies
  • Interlinkages among economic agents 
  • Effectiveness of Monetary Policies
  • Federal Reserve Open Market operations
  • Shadow Banking
  • Fiscal Policies
  • Global Coordination and Cooperation
  • International Lender of Last Resort
  • Swap Network Among Central Banks
  • Regulation of Banks
  • Liquidity and Solvency
  • Capital, Reserve, Liquidity Ratios
  • Capital Flows across borders
  • Linkages among Financial Markets
  • Cross border Spillovers
  • Impact of Low Interest Rates
  • Stock flow Consistency
  • Essential Hybridity ( Public vs Private Money, Local vs Global )
  • Interdependence among Markets, Institutions and Market Infrastructure
  • Payment, clearing and Settlement Systems
  • Interlinked Balancesheets, Credit Chains, Repo Chains


Key People:

  • Steve Keen
  • Marc Lavoie
  • Dirk Bezemer
  • Richard Werner
  • Perry Mehrling
  • Hyun Song Shin

Also see

  • Richard Koo
  • Adair Turner
  • Gennaro  Zezza
  • Wynn Godley
  • Hyman Minsky
  • Zoltan Pozsar
  • Claudio Borio


Key Sources of Research:


The Inherent Hierarchy of Money

Perry Mehrling

January 25, 2012


Click to access Mehrling_P_FESeminar_Sp12-02.pdf



Economics of Credit and Debt

Daniel H. Neilson†

18 November 2012


Click to access inet2012neilson_economicsofcredit.pdf



The New Lombard Street How the Fed became the dealer of last resort

Perry Mehrling April 4, 2010



Why central banking should be re-imagined

Perry Mehrling


Click to access bispap79i.pdf



A Money View of Credit and Debt

November 4, 2012

Perry Mehrling

Click to access inet2012mehrling_amoneyviewofcreditanddebt.pdf



Why is money difficult?

Perry Mehrling

BCRA, Buenos Aires

June 4, 2015


Click to access JMB_2015_Mehrling.pdf



Central Bank Deleveraging and Financial Sector Regulation

Perry Mehrling

Minsky Conference, DC

April 15, 2015

Click to access minsky2015_mehrling.pdf



Modern Money: Fiat or Credit?

Author(s): Perry Mehrling
Source: Journal of Post Keynesian Economics, Vol. 22, No. 3 (Spring, 2000), pp. 397-406


Click to access Mehrling%20Fiat.pdf



Shadow Banking, Central Banking, and the Future of Global Finance

Perry Mehrling

Shadow Banking: A European Perspective City University London
Feb 2, 2013


Click to access Mehrling_Future-Global-Finance-126sn0t.pdf


Five Key Features of Modern Monetary Systems

New Thinking in Finance, London February 12, 2014

Perry Mehrling


Click to access 20140212_0930_Perry_Mehrling.pdf



Elasticity and Discipline in the Global Swap Network

Perry Mehrling1∗

Working Paper No. 27 November 12, 2015


Click to access WP27-Mehrling.pdf



The Credit Money and State Money Approaches

L. Randall Wray

Working Paper No. 32

April 2004


Click to access wray_-_state_and_credit_theories_of_money.pdf



Bagehot was a Shadow Banker:
Shadow Banking, Central Banking, and the Future of Global Finance

Perry Mehrling, Zoltan Pozsar, James Sweeney, Daniel H. Neilson

February 22, 2013


Click to access Paper_Sweeney.pdf



The rise of asset management and capital market-based financing: a cyclical or a structural shift?

Perry Mehrling

ECMI, Brussels October 20, 2015


Click to access Perry%20Mehrling.pdf




Credit theory of money



The Credit Theory of Money

By A. Mitchell Innes

From The Banking Law Journal, Vol. 31 (1914), Dec./Jan., Pages 151-168.





From The Banking Law Journal, May 1913.



Schumpeter Might Be Right Again: The Functional Differentiation of Credit


Dirk J. Bezemer


Click to access the_functional_differentiation_of_credit.pdf



The post-Keynesian economics of credit and debt

Marc Lavoie
Department of Economics, University of Ottawa

November 2012



Click to access inet2012lavoie_post-keynesianeconomics.pdf



The role of State and the Hierarchy of Money

Stephanie Bell


Click to access Bell%20The%20Role%20of%20the%20State%20and%20the%20Hierarchy%20of%20Money.pdf




Stephanie Bell



Click to access 231.pdf



Towards a theory of shadow money

Daniela Gabor and Jakob Vestergaard

Click to access Towards_Theory_Shadow_Money_GV_INET.pdf



The economic consequences of “market-based” lending

Carolyn Sissoko

May 24, 2016



Money creation in the modern economy

Michael McLeay, Amar Radia and Ryland Thomas


Click to access qb14q1prereleasemoneycreation.pdf



Money in the modern economy: an introduction

Michael McLeay, Amar Radia and Ryland Thomas

Click to access qb14q1prereleasemoneyintro.pdf



Banks are not intermediaries of loanable funds — and why this matters

Zoltan Jakab  and Michael Kumhof

Click to access wp529.pdf



Where Does Money Come From?





Explaining money creation by commercial banks: Five analogies for public education


Ib Ravn

Click to access Ravn71.pdf



The Truth about Banks 

Michael Kumhof and Zoltán Jakab



Click to access kumhof.pdf



How do banks create money, and why can other firms not do the same? An explanation for the coexistence of lending and deposit-taking 

Richard A. Werner




Can banks individually create money out of nothing? — The theories and the empirical evidence 

Richard A. Werner



A lost century in economics: Three theories of banking and the conclusive evidence

Richard A. Werner




Money and credit as means of payment: A new monetarist approach 

Sébastien Lotza, , Cathy Zhang



Head and Tail of Money Creation and its System Design Failures

– Toward the Alternative System Design


Kaoru Yamaguchi, Ph.D.

Yokei Yamaguchi

Click to access Head-and-Tail-2016_WP__-_Japan_Futures_Research_Center.pdf



Applying the Quantity Theory of Credit: The role of the ECB in the propagation of the European financial and sovereign debt crisis and the policy implications

Professor Richard A. Werner

Click to access werner_qtc_ecb_and_policy.pdf



Towards a New Research Programme on ‘Banking and the Economy

Implications of the Quantity Theory of Credit for the Prevention and Resolution of Banking and Debt Crises

Richard A. Werner

Click to access Werner_IRFA_QTC_2012.pdf






Click to access 41_Man_Sch_2011_Werner_Disaggregated_Credit.pdf



The Quantity Theory of Credit and Some of its Applications

Richard Werner


Click to access RW301012PPT.pdf



Banks As Social Accountants And Social Controllers: Credit and Crisis in Historical Perspective

Dirk J Bezemer


Click to access MPRA_paper_15766.pdf




Adair Turner



Click to access aturner_2016.pdf



Towards a New Monetary Paradigm: A Quantily Theorem of Disaggregated Credit evidence from Japan

Richard A. Werner



Click to access KK_97_Disaggregated_Credit.pdf



Do shadow Banks Create Money?

Jo Michell



Click to access PKWP1605.pdf



The political economy of repo markets

Daniela Gabor


Click to access gabor_political_economy_of_repo_markets_0.pdf

Bezemer, Dirk J.



“This is Not a Credit Crisis–It is a Debt Crisis.”

Economic Affairs 29.3 (2009): 95-97.

Click to access 0deec52ce89025980b000000.pdf



Explaining the Great Moderation: Credit and the Macroeconomy Revisited

D Bezemer



Click to access MPRA_paper_15893.pdf



Understanding financial crisis through accounting models

Dirk J. Bezemer



Click to access 00b4952ce88deab0d2000000.pdf



“No One Saw This Coming”

Understanding Financial Crisis Through Accounting Models*

Dirk J Bezemer

Click to access Study-Bezemer-No-one-saw-this-coming.pdf



Credit In Current Orthodoxy: An Appraisal

Dirk J Bezemer

Click to access Bezemer.pdf



From Boom to Bust in the Credit Cycle: the Role of Mortgage Credit


September 4, 2014

Click to access 14025_GEM_def.pdf



A Monetary Minsky model of the Great Moderation and the Great Recession

Steve Keen


Click to access JEBO_2672.pdf



Balance Sheet Recession as the Other-Half of Macroeconomics

Richard C. Koo

Chief Economist Nomura Research Institute

October 14, 2012

The World in Balance Sheet Recession: What Post-2008 West Can Learn from Japan 1990-2005


Richard C. Koo Chief Economist

Central Banks in Balance Sheet Recessions: A Search for Correct Response


Richard C. Koo

Chief Economist Nomura Research Institute

March 31, 2013












wynne godley and gennaro zezza


Click to access pn_4_06.pdf




Are Housing Prices, Household Debt, and Growth Sustainable?
Dimitri B. Papadimitriou  Edward Chilcote  Gennaro Zezza

January 2006




How Fragile is the U.S. Economy?




Click to access stratan-feb-05-draft.pdf

Stock-Flow Consistent Modeling

PK-SFC Modeling

  • Integration of Real and Financial sectors of economy.
  • Balance-sheet  accounting approach
  • Stock-flow consistent
  • Quadruple accounting


From  Post-Keynesian Stock-Flow Consistent Modeling: A Survey


PK-SFC models are a specific kind of Post-Keynesian macro model that follows distinctive accounting rules, ensuring the consistent integration of the stocks and flows of all the sectors of the economy. The models have three important methodological innovations: first, the consistency of the overall economy is maintained, since one sector’s outflows are always another sector’s inflows just as one sector’s liability is always another sector’s asset; second, the integration of the real and the financial side of the economy; third, the construction of the long run as a chain of short run periods. Nothing is lost, neither in space nor in time. These constraints are crucial in modeling modern macroeconomies which are highly complex, integrated systems.

The roots of PK-SFC models can be identified in the work of Morris A. Copeland (1949), who, with his study on “money flows,” is the father of the flow of funds approach. His intuition was to enlarge the social accounting perspective to the study of money flows. Copeland laid the foundations for an economic approach able to integrate real and financial flows of the economy. A concrete example of his legacy is represented by the quadruple-entry system: since someone’s inflow is someone else’s outflow, the standard double-entry system of accounting is doubled in a quadruple-entry system.

Copeland’s work certainly had a great influence on economics -mainly as a source of financial data- but its potential disruptive impact on the study and modeling of the interdependences between real and financial flows failed to occur. It was only in the 1980s, with the work of Nobel Laureate James Tobin, that these efforts culminated in the organizing theory advocated by Cohen. The article Tobin wrote with co-authors (Backus et al., 1980) perhaps best represents his path-breaking contribution in the foundation of PK-SFC models. Indeed, in developing an empirical model of the US economy in both its financial and non- financial sides, Backus et al combined the theoretical hypothesis on the behavior of the economy with a rigorous accounting framework based on the flow-of-funds social account developed by Copeland. The result is a stock-flow consistent model that includes some of the characteristics still peculiar in the literature, such as the matrices-based accounting approach and discrete time and other features, such as the stock- flow identity, which are fundamental in any model of this type.


Next to Tobin, the other scholar who played an essential role in the development of this family of models is Wynne Godley. Godley, head of the New Cambridge school in the 1980s, started developing models coherently integrating stocks and flows. His efforts culminated in the organized framework he developed in his more recent publications, with which he collected the legacy of Tobin. Godley’s contribution probably finds its peak in the seminal book he wrote together with Marc Lavoie (Godley and Lavoie, 2007), which is still the main reference for current PK-SFC practitioners. This paper focuses on the tradition descending from the work of Wynne Godley, hence the choice of talking of PK-SFC models rather than just SFC models.


Key Sources of Research:


Bezemer, Dirk J.

“The economy as a complex system: the balance sheet dimension.”



Click to access ACS_1250047_1st_Prf.pdf


‘No one saw this coming’ – or did they?

Dirk Bezemer

30 September 2009


A complex systems approach to constructing better models for managing financial markets and the economy

J. Doyne Farmer1, M. Gallegati2, C. Hommes3, A. Kirman4, P. Ormerod5, S. Cincotti6, A. Sanchez7, and D. Helbing8


Click to access EconFinancialFuturITC16.pdf


Money Creation and Financial Instability: An Agent-Based Credit Network Approach

Matthias Lengnick, Sebastian Krug, and Hans-Werner Wohltmann


Complex agent-based macroeconomics: a research agenda for a new paradigm

Domenico Delli Gatti

Edoardo Gaffeo

Mauro Gallegati


Click to access delligatti_gallegati.pdf



Growing fragilities? Balance sheets in The Great Moderation

Richard Barwell and Oliver Burrows


Click to access fs_paper10.pdf



Credit Money and Macroeconomic Instability in the Agent-based Model and Simulator Eurace

Silvano Cincotti, University of Genoa Marco Raberto, Reykjavik University Andrea Teglio, Universitat Jaume I



The Financial Instability Hypothesis: a Stochastic Microfoundation Framework

C. Chiarella and C. Di Guilmi


Click to access 09e4150ef5365dded1000000.pdf



The dynamics of the monetary circuit

Steve Keen



Debunking Macroeconomics

Steve Keen


Click to access 0c96051b9fcca21f5c000000.pdf



Causes of Financial Instability: Don’t Forget Finance

Dirk J. Bezemer

April 2011



Towards a New Monetary Paradigm: A Quantily Theorem of Disaggrcgated Credit, with Evidence from Japan

By Richard A. Werner


Click to access KK_97_Disaggregated_Credit.pdf



Schumpeter Might Be Right Again: The Functional Differentiation of Credit

Dirk J. Bezemer

Click to access the_functional_differentiation_of_credit.pdf



Banks As Social Accountants: Credit and Crisis Through an Accounting Lens

Dirk J Bezemer

Click to access MPRA_paper_15766.pdf


Bezemer, Dirk J.

“This is Not a Credit Crisis–It is a Debt Crisis.”

Economic Affairs 29.3 (2009): 95-97.


Godley, Wynne, and Marc Lavoie.

Monetary economics: an integrated approach to credit, money, income, production and wealth.

Springer, 2012.


Stock-flow Consistent Modeling through the Ages

Eugenio Caverzasi Antoine Godin

January 2013

Click to access 558f0a0108ae1e1f9bace43e.pdf


Fiscal Policy in a Stock-Flow Consistent (SFC) Model

Wynne Godley and Marc Lavoie

April 2007

Click to access wp_494.pdf


Copeland, Morris A.

“Social accounting for moneyflows.” 

The Accounting Review 24.3 (1949): 254-264.


Finance and economic breakdown: modeling Minsky’s “financial instability hypothesis”


Steeve Keen

Click to access Keen1995FinanceEconomicBreakdown_JPKE_OCRed.pdf


The Credit Crisis and Recession as a Paradigm Test

Dirk J. Bezemer

Click to access JEI_PARADIGM_PAPER.pdf


Keen, Steve.

“A monetary Minsky model of the Great Moderation and the Great Recession.”

Journal of Economic Behavior & Organization 86 (2013): 221-235.

Click to access JEBO_2672.pdf



“No One Saw This Coming”
Understanding Financial Crisis Through Accounting Models

Dirk J Bezemer


Click to access Study-Bezemer-No-one-saw-this-coming.pdf



Understanding financial crisis through accounting models

Dirk J. Bezemer

Click to access 00b4952ce88deab0d2000000.pdf


Can Disequilibrium Macroeconomic Models Be Used to Anticipate Financial Instability?

A Case Study

Dirk J. Bezemer

Click to access Can_Macro_Models_JEvoLEcon_1.pdf


A dynamic monetary multi-sectoral model of production

Steve Keen, University of Western Sydney

Click to access Keen2011DynamicMonetaryMultisectoralModel.pdf


Circuit Theory Extended: The Role of Speculation in Crises

Neil Lancastle


Debt cycles, instability and fiscal rules: a Godley-Minsky model

Yannis Dafermos


Click to access Dafermos%20(2015)%20Debt%20cycles%20instability%20and%20fiscal%20rules.pdf


The post-Keynesian economics of credit and debt

Marc Lavoie

Click to access inet2012lavoie_post-keynesianeconomics.pdf


Assessing the Contribution of Hyman Minsky’s Perspective to Our Understanding of Economic Instability

Hersh Shefrin


Click to access Shefrin%20Assessing%20Minsky%20Jan%2013%202013.pdf


Modeling Financial Instability

Steve Keen


Click to access Keen2014ModelingFinancialInstability.pdf



Post-Keynesian Stock-Flow Consistent Modeling: A Survey

Eugenio Caverzasi and Antoine Godin


Click to access february_2015_-_kbs_research_bulletin_pdf.pdf


Godley and Graziani: Stock-Flow-Consistent Monetary Circuits

Gennaro Zezza

April 2011


Click to access 65034-Zezza%20-%20Godley%20and%20Graziani.%20Stock-Flow-Consistent%20Monetary%20Circuits.pdf


Features of a realistic banking system within a post-Keynesian stock-flow consistent model

Marc Lavoie,

Wynne Godley,

December 2003


Click to access 1321739.pdf


Words to the Wise: Stock Flow Consistent Modeling of Financial Instability

Stephen Kinsella

November 2011

Click to access 6228912.pdf


The Minskyan System, Part III:
System Dynamics Modeling of a Stock Flow–Consistent Minskyan Model

Eric Tymoigne

June 2006

Click to access wp_455.pdf



Wynne Godley

May 2004


A foxy hedgehog: Wynne Godley and macroeconomic modelling

Lance Taylor


Click to access ramanan-20100615T083857-gsl2drg.pdf



Some Simple, Consistent Models of the Monetary Circuit

Gennaro Zezza,

May 2004


Click to access 9314338.pdf


Money and Macroeconomic Dynamics : Accounting System Dynamics Approach

Edition 2.0

Kaoru Yamaguchi Ph.D.


Click to access Macro%20Dynamics.pdf


Money Creation under Full-reserve Banking: A Stock-flow Consistent Model

Patrizio Lainà

October 2015

Click to access wp_851.pdf


Endogenous Feedback Perspective on Money in a Stock-Flow Consistent Model

Working Paper (May 5, 2016)

I. David Wheat

Click to access Wheat%20Endogenous%20Feedback%20Perspective%20on%20Money%20WP.pdf



Modeling the Economy as a Whole – Stock-Flow Models
Gennaro Zezza


Click to access memf2015-Chapter25-Gennaro.pdf






Click to access MVP%20ROPE%202014.pdf