Crown Cargo

Robert Clower and Modern Economic Thinking

May 5, 2015 by · Leave a Comment 

By Phin Upham

Robert Clower essentially created the concept of stock-flow analysis, which is a method of looking at the economy. He wrote several works today considered seminal, which explored microfoundations of theories behind money and macroeconomics.

Clower advanced a lot of theories that we take for granted today. He made us view money as the primary means for exchange, which required rethinking micro and macro economics. He also weighed wants versus the constraints of liquidity. Clower recognized that planned demand is a lot different from what a person or a business can actually do. The recent financial crisis is a good example of this theory at work, without diving too much into whether Clower himself was correct or incorrect. Consumers today have wants that sometimes exceed their income, thus the credit and mortgage crisis we saw in the mid-2000s. The flipside is that businesses predicted, and continue to predict certain levels of demand that are dependent on the greater economy. Put another way, spending habits can affect employment. If you and I both cut back, someone is likely losing a job somewhere, but we need to cut back to survive.

Therein was Clower’s solution. He proposed we begin examining money as part of a digestive system, or a plumbing system. There is healthy spend, wasted spend and everything in between. This concept also gives way to “aggregate demand,” which helps define a country’s GDP.

Clower’s theories helped shape much of modern economic thinking in ways both consumers and businesses tend to take for granted. He died in his home at the age of 85.

Phin Upham is an investor from NYC and SF. You may contact Phin on his Phin Upham website or LinkedIn page.