April 7th 2019
A practical way of understanding how inefficiencies in the circular flow of income (CFI) of a neoclassical economy or contemporary economy (CE) affect productivity.
The systemic financial losses to the economy caused by operational inefficiencies in money supply are easily rationalized when how they affect output is analysed. The graph below shows a business’ performance over one month. Every business owner or manager knows that from day one of a new month when the business begins to record sales every dollar or kwacha earned must have a significant proportion set aside for “pay day”.
The business in the graph below pays its staff between the 26th and 30th of every month. But it must begin to prepare for this expense from day one. The business knows that it must set aside income from its earnings to pay workers and to provide income for the business owner and other shareholders. Therefore, for a full business cycle lasting a month a business experiences very significant losses in productivity.
Business owners and staff combined form human capital or “households”. Firms or businesses having to divert earnings from investment in productivity and output (non-human capital) “subtracts” or diverts income from productivity, a process referred to as economic “Implosion” in the GPWN. Consumption is the opposite of production and yet in the monthly business cycle, for close to “30 days”, on any one of those days (at any point in time) it retains or locks away financial resources from non-human capital that could have been contributing to growth in GDP by financing production. This retards industrialization by starving it of useful resources.
The Graph below shows the loss in output caused by an inefficient CFI
The graph below shows that businesses in the economy diverting earnings from non-human capital to ensure they have enough to cover the monthly pay-roll, the business owner and shareholders, under-perform. Over a twelve month period their capacity for productivity can be halved by this practice leading to a stunted annual GDP.
These simple graphs are a practical example and illustrate how subtraction in the circular flow of income (CFI) diminishes an economy’s capacity to grow, create jobs, end poverty and yield greater financial resources to government for its budget.
A Split Velocity system enables a central bank to correct this problem thereby accelerating growth and productivity in the national economy. Split Velocity (SVTech) solves this problem by advancing the cost equation from Profit = Total Revenue (TR) – Total Cost (TC) to the SVTech cost equation Profit = Total Revenue (TR) = Total Cost (TC).
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The Production Possibility Frontier
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