12/28/2023 0 Comments Free market circular flow diagram![]() ![]() Karl Marx extended Quesnay in stressing the reproducibility of surplus by “circulation of capital” as a key driver of economic growth. For this reason Smith entrusts government only with national defense he is skeptical about the government’s effectiveness in providing public education, for example. Three agents are behind this process: The proprietary (landowner) class, the productive class (agricultural laborers), the sterile (unproductive) class of artisans and merchants, and the government (italics are Quesnay’s. This “primitive” CFM suggested that trade creates money wealth, and the supply of money influences relative prices – the so-called “Cantillon effect" ( ).įrancois Quesnay’s well-known Tableau economique acknowledged Cantillon, but disputed the suggestion that trade was a source of wealth, a dispute that appears in the background of Adam Smith ‘s notion of the “invisible hand.” There trade extends the market size, but the extent to which it does so Smith questioned as apparent from his a critique of the mercantile system (Book IV), although he was gentler than Quesnay who argued that France’s poverty was caused by mercantalism. As far as Quesnay was concerned wealth comes from “agricultural surplus” in the form of the rents, wages, and purchases the surplus generates. Entrepreneurs supply goods to property owners for commodities, and earn a profit from the commodities they sell to farmers. Farmers rent land from property owners. Artisans supply goods to entrepreneurs for commodities. The circular flow model, the first economic model in all textbooks on economic principles, has been morphing unnoticed – reflecting change afoot. For example, in Richard Cantillon’s version of the CFM shown below, labor does work for farmers for wages, and for artisans in exchange of goods. ![]() Since the preceding claim can only be demonstrate in a research, here I made haphazard observations.įrom browsing the books, I came to realize that there is a change in how decision-makers interact now as opposed to how they did it in the past, a change that has significant implications for wealth creation, unequal distribution of wealth and income, and climate change. From the economic perspective, I think one can find the answer to this question by observing changes in the circular flow model of economic activity (CFM) over time. An important question is how experts failed to anticipate these defining phenomena, and whether there were early signs of the shifting ground from economic, and other theories. The socioeconomic implications of climate change and income inequality are not too difficult to understand. On that specific occasion a little over 15 titles caught my attention, and they have been stuck in my mind since, not only because each was interesting, but also because over 75% of them were on two subjects that preoccupy experts these days: Climate change and inequality of income and wealth. Reading book titles has been my weird pastime ever since I can remember. ![]() For two hours on consecutive days I had fun in its student bookstore enjoying my absolute favorite hobby: Reading book titles. This Spring Break (March 11-17, 2019) I visited one of America’s leading universities. ![]()
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