Stock-Flow Consistent Modeling

Economic Modeling with CircuitJS1

Introduction to SFC Modeling

Stock-Flow Consistent (SFC) modeling is a rigorous approach to macroeconomic modeling that ensures all stocks and flows in an economy are properly accounted for. Every financial asset has a corresponding liability, and all income and expenditure flows are tracked across sectors.

Key Principles

Stock-Flow Consistency: - Every financial asset is matched by a corresponding liability - All income flows have corresponding expenditure flows - Sectoral balances must sum to zero - The accounting identity: Assets = Liabilities + Equity holds at all times

Sectoral Accounting: - Government deficit = Private sector surplus (simplified two-sector) - Complete tracking of all inter-sectoral flows - No “black holes” where money disappears - Conservation principles similar to electrical circuits

Steve Keen and Modern Monetary Theory

Professor Steve Keen

Professor Steve Keen is an Australian economist known for his work on:

  • Debt Dynamics: Pioneering research on the role of private debt in economic instability
  • Financial Instability: Building on Hyman Minsky’s financial instability hypothesis
  • System Dynamics: Applying engineering approaches to economic modeling
  • Post-Keynesian Economics: Developing models that incorporate realistic banking systems

Key Contributions: - Predicted the 2008 Global Financial Crisis based on private debt analysis - Developed endogenous money models showing how banks create money - Critiqued mainstream economic models for ignoring private debt - Created accessible tools for teaching complex economic dynamics

The Minsky Program

Minsky is a free, open-source system dynamics software developed by Professor Steve Keen specifically for economic modeling. Named after economist Hyman Minsky, it provides:

Features: - Visual system dynamics modeling with stock-flow diagrams - Built-in support for Godley Tables (sectoral balance sheets) - Integration capabilities for stocks (accumulation over time) - Equation-based modeling with full mathematical capabilities - Double-entry bookkeeping enforcement

Purpose: - Teaching monetary economics and banking - Researching debt dynamics and financial instability - Modeling complex economic systems with realistic banking - Making sophisticated economic analysis accessible to students

Website: https://minsky.sourceforge.io/

CircuitJS1 and Economic Modeling

Inspiration from Minsky

The economics components in CircuitJS1 draw inspiration from Steve Keen’s Minsky program, adapting system dynamics concepts to a circuit simulation environment:

Godley Tables → Table Elements: - CircuitJS1’s Table and Godly Table elements implement sectoral balance sheet accounting - Support for Assets, Liabilities, and Equity columns - Automatic enforcement of accounting identities - Integration capabilities for stock accumulation

Stock-Flow Diagrams → Circuit Diagrams: - Stocks represented as accumulated values in Godly Tables - Flows represented as voltage levels and equations - Mathematical operations using circuit-like components - Visual representation of economic relationships

Key Differences

While inspired by Minsky, CircuitJS1 takes a different approach:

Aspect Minsky CircuitJS1
Primary Focus Economics Electronics + Economics
Visual Metaphor Stock-flow diagrams Circuit diagrams
Stock Accumulation Native stock elements Godly Tables with integration
Flow Representation Wires with flow arrows Voltage-based signals
Target Audience Economists, researchers, educators Electronics students, educators, economists
License GPL GPL

Economic Models in CircuitJS1

BOMD Models

The Bank Originated Money and Debt (BOMD) models available in CircuitJS1 demonstrate SFC principles:

BOMD Simple: - Two-sector model: Banks and Private Sector - Demonstrates credit money creation - Shows balance sheet symmetry

BOMD with Government: - Five-sector model including Treasury and Federal Reserve - Complete fiscal and monetary operations - Government deficit accounting - Bond market operations

Example: BOMD with Government in Action

Below is a screenshot of the BOMD with Government model running in CircuitJS1, showing the complete five-sector economy with real-time balance sheets and debt dynamics:

BOMD with Government - Full Circuit View

What you see: - Top row: Treasury and The Fed (Federal Reserve) balance sheets - Middle row: Banks balance sheet with reserves, debt, and government bonds - Bottom row: Borrowers and Savers balance sheets - Circuit elements: Mathematical operations showing money flows, lending, interest, and government operations - Right side: Oscilloscope displaying GDP and debt trajectories over time

The oscilloscope trace shows the dynamic behavior of the system:

BOMD Scope Output - GDP and Debt Over Time

Key observations from the scope: - GDP (green): Shows oscillating growth with periodic fluctuations - Government Debt (green): Accumulates over time at approximately 33.657 $ - Private Debt (red): Shows cyclical behavior at 13.978 $ - LRC trace: Displays an LRC circuit to show the electronic variables still work

This demonstrates how: 1. Government deficits accumulate as debt 2. Private sector debt oscillates with economic cycles 3. GDP responds to both fiscal and monetary flows 4. All sectoral balances remain consistent (every credit has a corresponding debit)

Educational Applications

For Economics Students: - Visual understanding of double-entry bookkeeping - Real-time observation of debt dynamics - Interactive exploration of monetary policy - Hands-on experience with sectoral balances

For Electronics Students: - Application of circuit concepts to social systems, 🤣 - Understanding feedback loops and stability - Learning system dynamics through familiar tools - Cross-disciplinary thinking

Credit and Acknowledgments

Steve Keen’s Contributions

CircuitJS1’s economic modeling capabilities would not exist without the groundbreaking work of:

Professor Steve Keen - For developing accessible tools and frameworks for understanding: - Endogenous money creation - The critical role of private debt - Financial instability dynamics
- Stock-flow consistent modeling approaches

The Minsky Program

Minsky Software - For pioneering the integration of: - Godley Tables for sectoral accounting - System dynamics with economic modeling - Visual modeling tools for complex systems - Open-source economics education

Intellectual Heritage

The SFC modeling approach builds on the work of:

  • Wynne Godley - Cambridge economist who developed sectoral balance analysis
  • Hyman Minsky - Financial instability hypothesis and endogenous money
  • Post-Keynesian economists - Realistic modeling of money and banking

Further Learning

Online Communities

  • Patreon: Support Steve Keen’s Research
  • Minsky User Forums: Discussion and support for economic modeling
  • Post-Keynesian Economics Community: Academic discussions and resources

Using CircuitJS1 for SFC Modeling

Getting Started

  1. Review the Examples: Start with the BOMD models
  2. Understand Table Elements: Read the User Guide
  3. Experiment: Modify parameters and observe sectoral balance changes
  4. Build Your Own: Create custom models for specific economic scenarios

Best Practices

Maintain Consistency: - Always ensure Assets = Liabilities + Equity - Check that sectoral balances sum to zero - Verify all flows have sources and destinations

Start Simple: - Begin with two-sector models - Add complexity gradually - Test each addition thoroughly

Use Scopes: - Monitor key stocks (debt, deposits, reserves) - Track important ratios (debt-to-GDP) - Observe system stability

Contributing

We welcome contributions to improve CircuitJS1’s economic modeling capabilities:

  • New Models: Share your SFC models with the community
  • Documentation: Help explain complex concepts
  • Bug Reports: Report issues with Table elements or calculations
  • Feature Requests: Suggest improvements for economic modeling

See our Contributing Guide for details.

Acknowledgment

CircuitJS1’s economic modeling tools are inspired by and built upon the pioneering work of Professor Steve Keen and the Minsky program. We gratefully acknowledge their contributions to making complex economic concepts accessible and understandable. This implementation is an independent adaptation and is not officially affiliated with Professor Keen or the Minsky project.

For serious economic research and advanced SFC modeling, we recommend using the Minsky program directly.

Explore Economic Models: View Examples | User Guide | Launch App