Stock and flow

Economics, business, accounting, and related fields often distinguish between quantities that are stocks and those that are flows.

For example, U.S. nominal gross domestic product refers to a total number of dollars spent over a time period, such as a year.

Thus, a stock refers to the value of an asset at a balance date (or point in time), while a flow refers to the total value of transactions (sales or purchases, incomes or expenditures) during an accounting period.

If the flow value of an economic activity is divided by the average stock value during an accounting period, we obtain a measure of the number of turnovers (or rotations) of a stock in that accounting period.

A person or country might have stocks of money, financial assets, liabilities, wealth, real means of production, capital, inventories, and human capital (or labor power).

Stocks and flows have different units and are thus not commensurable – they cannot be meaningfully compared, equated, added, or subtracted.

However, one may meaningfully take ratios of stocks and flows, or multiply or divide them.

Stocks and flows also have natural meanings in many contexts outside of economics, business and related fields.

The concepts apply to many conserved quantities such as energy, and to materials such as in stoichiometry, water reservoir management, and greenhouse gases and other durable pollutants that accumulate in the environment or in organisms.

Climate change mitigation, for example, is a fairly straightforward stock and flow problem with the primary goal of reducing the stock (the concentration of durable greenhouse gases in the atmosphere) by manipulating the flows (reducing inflows such as greenhouse gas emissions into the atmosphere, and increasing outflows such as carbon dioxide removal).

In living systems, such as the human body, energy homeostasis describes the linear relationship between flows (the food we eat and the energy we expend along with the wastes we excrete) and the stock (manifesting as our gain or loss of body weight over time).

Thus stocks and flows are the basic building blocks of system dynamics models.

[1] A stock (or "level variable") in this broader sense is some entity that is accumulated over time by inflows and/or depleted by outflows.

Flows typically are measured over a certain interval of time – e.g., the number of births over a day or month.

Equations that change the two stocks via the flow are: List of all the equations, in their order of execution in each time, from time = 1 to 36: The distinction between a stock and a flow variable is elementary, and dates back centuries in accounting practice (distinction between an asset and income, for instance).

Polish economist Michał Kalecki emphasized the centrality of the distinction of stocks and flows, caustically calling economics "the science of confusing stocks with flows" in his critique of the quantity theory of money (circa 1936, frequently quoted by Joan Robinson).