Economic Growth and Change in a Material World
Appendix B: Balance equations; accounting relationships B.1 DISCUSSION OF BALANCE EQUATIONS In economics, commodities play almost as fundamental a role as ﬁrms and consumers, notwithstanding the importance of services. ‘Commodity fetishism’, despite its loud denunciation by Karl Marx, is indispensable to economics. The aim of all primary economic activity is to ensure material goods for consumption directed toward the satisfaction of human needs. Even in the modern service-oriented economy, most services are provided by material products. The role of stocks (commodities, goods, capital, money) is to satisfy both immediate and future consumption desires. As goods are physical, the laws of physics apply. The energy and mass conservation laws are rigorous bookkeepers. These balances are never violated. Let n and k be the total number of agents and goods present in an economy, respectively. Let Xa,i(t) denote the quantity of stock of good I possessed by agent a. Money can be regarded as a special good, with the index i = n. Each agent’s possessions (wealth) can be represented by its stock vector Xa,i(t) = (Xa,i(t), i = 1,2, … ,k). Elements of the vector X are measured in natural units, so they are always non-negative. Tangible goods can be measured in mass (kilogram or kg) or exergy (kilojoule) units.1 The conservation law of mass says that no mass can be created or destroyed. Mass can be transformed from one form to an other, or it can be transported from one place to another, but the total of...
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