Production and consumption in a modern economy, as well as savings and investment, are financed by a wide variety of fund flows among economic sectors. These flows result at any given point in time in a complex structure of assets, liabilities or debts, and net worth.

For the U.S. economy, the most comprehensive source for data on financial flows and outstanding stocks of debt, as well as total financial assets (including equities in corporate and noncorporate business) and liabilities, are the flow-of-funds accounts maintained by the Board of Governors of the Federal Reserve System. These data begin with the year 1945 and extend to the present. They are updated quarterly and annually, and they can be accessed at the Federal Reserve Internet site. The flow-of-funds accounts are voluminous and can serve a multitude of purposes. To facilitate their use, the Federal Reserve publishes a Guide to the Flow of Funds Accounts. This chapter presents a sampling of the flow-of-funds data and the stocks of assets and liabilities resulting from the flows. These data illustrate the nature of the Federal Reserve accounts and include additional tables on net debt outstanding and savings flows for years before 1945, as well as a more detailed rendering than appears in the flow-of-funds accounts of mortgage debt outstanding, by type of property and type of holder, since 1970.

The flow-of-funds accounts measure the acquisition of physical and financial assets throughout the U.S. economy and the sources of funds used to acquire the assets. In doing this, the accounts record the net volume of transactions in financial instruments. They provide a means of analyzing, for example, the development of financial instruments and the behavior of sectors over time, and they record the role of financial intermediaries, such as banks, mutual funds, and pension funds, in transferring funds from sectors that have positive savings to those that borrow funds.

In showing the relationship among various financial activities and their relation with nonfinancial activities that generate income and production, the flow-of-funds accounts provide a broad measure of investment activities. In theory, the accounts encompass all net changes in financial claims or liabilities resulting from (1) current transactions in the economy, (2) the allocation of saving between investment in physical capital and investment in financial capital, and (3) decisions to change the composition of financial assets and liabilities. The flow-of-funds accounts are consistent with, but broader than, the national income and product accounts, which focus on activity related to current production and income. Unlike the national income and product accounts, the flow-of-funds accounts include financial flows among various sectors of the economy that arise from transfers of existing physical assets, as well as shifts in the composition of financial portfolios that may be unrelated to, or only indirectly related to, current production.

The flow-of-funds accounts are a component of a system of accounts that describes the U.S. economy. Other components of the system are the national income and product accounts and the balance-of-payments accounts. The latter two components measure production and income activity and international capital flows during a particular time period. The flow-of-funds accounts and related national balance sheets detail how current investment in tangible and financial assets contributes to a buildup of the stock of assets in each sector of the economy and to the creation of national wealth. One can view the flow-of-funds accounts as combining data on the flows of savings and investment in the national income and product accounts with further details on the borrowing and lending of specific economic sectors.

The flow-of-funds accounts embody the principle that all movements of funds in the economy must be accounted for because total sources of funds equal total uses of funds. Savings equals investment in the economy, and all funds supplied by economic sectors become uses of funds by other sectors.

Sources of funds for a sector are its savings from current income and the amount it raises from sources outside the sector. Saving is equal to receipts of current income less outlays for consumption, operating expenses, interest, and other current expenses. The value of capital consumption allowances – that is, depreciation on tangible assets – is added to net saving to obtain gross saving. Funds raised from outside sources constitute the sectors' net increase in liabilities or debts to other sectors.

Uses of funds for a sector are its investment in physical assets and net increases in financial assets, such as deposits, loans made, and securities purchased.

The requirement that sources of funds must equal uses of funds applies not only to sectors but also to individual types of transactions. That is, total funds borrowed by means of each type of financial instrument must equal total funds lent through that instrument. For the economy as a whole, funds borrowed by all sectors must equal funds lent by all sectors, and funds borrowed through all types of financial instruments must equal funds lent through all types of instruments.

The flow-of-funds accounts are published in both flow and levels versions. Most flow tables have a corresponding levels table. A flow variable is one that shows an amount of change over a period of time. Examples of flows are Table Ce1–12, Table Ce13–41, Table Ce42–68, covering 1897–1949 and showing national savings by major saver groups as well as personal savings and nonagricultural individuals' saving by major components or instruments. Here one can see, for example, how much of personal savings was channeled into the stock market in the 1920s. Other examples of flow variables are personal income, the net acquisition of government securities, and the amount of borrowing from banks, all during a particular period of time such as a year.

A level, also referred to as a stock, a position, or an outstanding, shows a value at a particular point in time. An example is the balance in an individual's checking account at the end of a month or a year. Other examples are holdings of equities by households and nonprofit organizations, and the credit market debt outstanding of (owed by) households at the end of a particular year.

In the flow-of-funds accounts, many flow series are determined by calculating changes in levels between two periods. In some cases, however, the change in a level does not equal the flow. One reason is that some series are shown at market rather than book value (that is, historical cost). For series shown at book value, the flow ordinarily equals the change in the level. However, for series shown at market value, the change in the level between two periods is not equal to the flow. Corporate equities held as assets, for example, are valued in the accounts at market values. Hence, the level for corporate equities shown in the tables for any period differs from that of the previous period by the flow, or net issuance, plus the change in market value (that is, the capital gain or loss).

The flow-of-funds tables presented here for the period beginning 1945 are in levels (Tables Cj1021-1178). They show the outstanding levels of assets and liabilities by sector or by instrument at the end of each year. In most cases, the flow-of-funds tables published by the Federal Reserve (and also available at its Internet site) would have a corresponding flows table.