As always, the reader is advised to have at hand for ready reference the Diagram of Rates of Flow from page 55 of CWL 15 and available in this website’s Bank of Images. That image will aid the reader to understand the interconnections, internal conditioning, and external conditioning of the monetary functions of the economic process.
- production of consumer goods for the standard of living
- production of capital goods for maintenance of existing capital and foracceleration of the process by expansionary capital
- Issuance of money to enable transactions
The maintaining of a standard of livingis attributed to a basic process(distinct process 1), an ongoing sequence of instances of so much every so often. The maintenanceand acceleration(distinct process 2) of this basic process is brought about by a sequence of surplus stages, in which each lower stageis maintained and accelerated by the next higher. Finally, transactions that do no more than transfer titles to ownership are concentrated in a redistributivefunction, whence may be derived changes in the stock of money (distinct process 3) dictated by the acceleration (positive or negative) in the basic and surplus stages of the process. … So there is to be discerned a threefold process in which a basic stage is maintained and accelerated by a series of surplus stages, while the needed additions to or subtractions from the stock of money in these processes is derived from the redistributive area. … it will be possible to distinguish stable and unstable combinations and sequences of rates in the three main areas and so gain some insight into the long-standing recurrence of crises in the modern expanding economy. [CWL 15, 53-54]
To review for emphasis: The objective economic process is a threefold process of flows of goods and flows of dummy money:
- A basic production stage producing and selling consumer goods
- A series of surplus production stages producing and selling capital goods serving to a.) repair and replace wear and tear of existing capital goods, and b.) to accelerate the next lower stage with more capital goods
- A money-supplying process effected by the Central Bank and the commercial banks as product magnitudes and dollar requirements expand in an expanding economy
The basic stage sells its consumer goods “down” into the standard of living and purchases capital products from the next level “up” (the lowest surplus stage). Each stage in the series of surplus stages sells its capital products to the next level “down” and purchases capital products from the next level “up.” The process is hierarchical. And the payments between level nand level n-1are called crossovers.
Compensated human workers (including owner-entrepreneurs) in all stages purchase either consumer goods for a standard of living or capital goods for the maintenance or for the expansion of their unit of enterprise.
The functional relations of interaction and interdependence among the functioning stages of the production process determine the implicit definitions of the functionings on which the explanation of the productive process is based. Likewise, the relations of interaction and interdependence among the monetary functionings of the process constitute the implicit definitions of the fundamental terms of the “laws of motion” of the process. The functional relationsdefine the functions; and the interactions of the functions, as functional, define the relations.
Let us anticipate our advance from description of the threefold process to the explanation of the threefold process: the intelligibility of the whole velocitous process will be based on general differential equations reflecting faithfully the functional interrelations of the constituent aggregate productive and monetary flows. The general equation of production will contain a velocity on one level f’n, an acceleration of another level f”n-1, a lag (t-a), and a multiplier of acceleration kn:
Using another set of symbols and removing the differential or difference operators with respect to time, d/dt or Δ/Δt, from each term,we can state algebraically the two general equations of the functional interrelations of money movements will be:
The above three equation are the general equations governing the flows of money in the Diagram of Rates of Flows. Please refer to the pages given in the footnotes for elaboration of the three equations if and when desired.
On such a methodological model (i.e. implicit definition according to functional relation)…Classes of payments quickly become rates of payment standing in the mutual conditioning of a circulation; to this mutual and, so to speak, internal conditioning there is added the external conditioning that arises out of transfers of money from one circulation to another; in turn this twofold conditioning in the monetary order is correlated with the conditioning constituted (in the hierarchical productive order) by productive rhythms of goods and services; … There results a closely knit frame of reference that can envisage any total movement of an economy as a function of variations in rates of payment, and that can define the conditions of desirable movements as well as deduce the causes of breakdowns. … [CWL 21, 111]
The threefold process consisting of 1) a basic process, 2) a surplus process, and 3) a money-infusion process is not to be confused in any way with the three types of production products and correlated incomes: 1) basic products and incomes, 2) ordinary surplus products and incomes, and 3) pure surplus products and incomes.