Abstract
The input–output model of an economic production system assumes that a specific motion takes place: natural substances transform into finished and semi-finished things, the latter transform into other things and so on, until all this is finally consumed, and the substances return into the environment as waste. Simultaneously with the motion of products, one discovers the motion of money, which has to be considered as a separate, special product. The money is circulating in the economy, providing the exchange of products. To describe the phenomenon of money circulation, in this chapter, we shall consider fluxes of money in a simplified system, consisting of the government and many production firms, and where the sector, which produces money, consists of a central bank and many commercial banks. A system of dynamic equations is formulated to describe the money circulation in the production system. The set of equations is investigated for both steady-state and unsteady situations. The description of money circulation is impossible beyond the description of real production fluxes; therefore, an optimal quantity of money is apparently defined by the social production, though the basic features of real production can be described on their own.
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Notes
- 1.
Production units distributing shares can receive money to cover expenses directly from consumers. These primary securities are promissory notes on which emitters undertake to pay the cost of the securities and a percentage on them through a certain time and in a certain way. Money from securities is directed by the emitters to cover investment expenses, which after a while results in an additional product.
- 2.
The relation of the quantity theory of money is also known as Fisher’s relation [3], though, according to Harrod [10, p. 26] this law was classically exposed in the report of the British Bullion Committee in 1810. Moreover, Harrod notes: ‘Of course, the Bullion Committee did not invent the quantity theory. Traces of it may be found in writers dating back for centuries before that.’
- 3.
As known financier Lietaer [11, p. 254] writes: ‘The world has been living without an international standard of value for decades, a situation which should be considered as inefficient as operating without standard of length or weight.’ To demonstrate the indispensability of a constant unit of measure for production efficiency, we shall imagine a contractor who builds houses. It is possible to utilise any measure of length to build a house, a good house, which is pleasant not only to the customer, but also to another customer who will hasten to place an order. At the construction of the second house the contractor does not notice that its measure of length has decreased a little bit; this will not prevent him from building precisely the same house, but a little bit smaller in size, which allows the contractor to save building materials. And what will occur, if the measure of length changes during construction of the house? Certainly, the cunning contractor has realised for a long time that the skillful manipulation of a measure of length brings good income, and he does not have any interest in changing that. And what do his clients think?
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Pokrovskii, V.N. (2012). Monetary Side of Social Production. In: Econodynamics. New Economic Windows. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-2096-1_3
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