The Economic Process as a Growth Spiral
The growing economy can be explained by an open-ended upward-going spiral of flows of goods and services and the corresponding monetary flows between firms and households. The spiral model differs from the circular flow model by the expansion of the economic process from period to period (cf. Fig. 9.1). This expansion results from an increase in the capital of firms, that is, by investments in connection with an increase in the size and the number of firms (F1 → F2 → F3 →), an increase in the income of households in connection with an increase in the number of households (H1 → H2 → H3 →), as well as—and this is the decisive factor—an increase in the amount of credit (loans) and money in connection with the increase of the banking system (B1 → B2 → B3 →). This occurs on the basis of an increasing use of nature and an increasing contribution by the imagination of the human mind, that is, of product and process inventions. The households provide the firms with their labor and other services. In return, they receive income from the firms in the form of wages, rents, and dividends. With this income they buy the products from the firms. To simplify the model, we neglect the government sector.
KeywordsBanking System Equity Capital Interest Payment Investment Process Growth Spiral
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