Shameless self-quoting:

Dan Z: the circular flow is a huge part of both my micro and macro text book, it’s stupid.
David Z: what you have to ask is this: “Where does it start?” The Circular Flow Diagram doesn’t answer this question. It can’t. That’s the most fundamental problem with Keynes’ General Theory (which, I might add, wholly neglects the price mechanism…) But you also might ask why capital is considered to be homogeneous on the macro level, when it most definitely is not. And this isn’t even bringing up the problems of GDP as the primary measure of an economy, or the problem of price indices and inflators … Keynes is a limp dick.