Monday, October 21, 2013

The Circle of Life, with Mr. Keynes.

The Circle of Life, with Mr. Keynes.

The Keynesian Circular Flow is a diagram that depicts the flow of economics that includes a single person and his/her income and outcome course. I think this is an excellent visual aid for his General Theory paper. One of my favorite connections he made was when he tied the leakage of the system to be in the savings area. This was perfect and you see it all the time. The idea is that people who save their money are supposed to press savings toward financing. In the 1930-40 depression, people were not doing that. By saving the money and doing nothing with it, it broke that link and money was going away and not being circulated to strengthen the economy.

This is common for myself as I see it with my bank account right now. I save money but I'm not getting any return from it other than interest. Now granted the banks are then using this money for loans to collect interest and all, I myself am not contributing to personal wealth as much as I should. If I were to take a portion of that money and put it into stocks then I would (hopefully) have a return. This would benefit three times more than it would if it were in my bank account. First, it would benefit a company of my choice to grow. Second, it would increase return if the company grew. Finally, it would not be benefiting a bank. Now other than that last one, the first two reasons are legitimate reasons that benefit both personal and public economies. 

I'm just marveling at Keynes's General Theory paper and now I should read it.

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