The economic activity as a natural phenomenon

 In this article, I argue the following two points. One is that the economic activity is contained within the natural phenomena. Another is that the economic activity can be studied by the scientists.

1. Buildings created by Human-beings.

I argue that the economic activity is included in the natural phenomena. This is because all human activities do not transcend the laws of nature.

Here, I consider all buildings as a symbol of the activities of the human-beings. This is because the buildings do not exist in nature without our activity. Famous examples around the world include the ancient pyramids, the Roman aqueducts and the arenas. And in each country, there are buildings that represent the history of that country.

Important is that functions of these symbolic buildings are within the scope of natural phenomena. There is no building having supernatural functions. I know that the main materials of the modern buildings are concrete, steel, wood, and glass. These materials restrict functions and durability of the buildings.

The present technological capabilities efficiently utilize the laws of nature. However, that this technological capability does not transcend the laws of nature. This is quite natural. Many readers may think that there is no need to discuss this again.

Now, let us expand this recognition to the economy. Our economic activity does not exceed the scope of natural phenomena.

2. The complexity of human economic activity

For the past 30 years or more, the Japanese economy has been sluggish. Its reason  is discussed many times in the past. I guess, some Japanese economists had answered on this slower growth as follows,

"Because the economy is complex."

As mentioned in the previous section, "human economic activity is in the scope of natural phenomena." Considering this, I expect that scientists can fully analyze this complexity of the economy. This is because scientists have continued to study even more complex natural phenomena. And now we understand the whole picture to some extent. (But there are always unknowns!)

Although the economic activities in Japan and in the world may be complex, the human economic activities are done on the Earth. In my fantasy, the human economic activities may be as complex as the human body. However, many people would deny that the economic activities are more complex than all natural phenomena on the Earth.

The following examples are frameworks for some natural phenomena.

・Interaction between the outer space near the Earth and the Earth's atmosphere, which is influenced by the Sun.

・Weather and climate in the Earth's atmosphere.

・Life activities on the Earth, including underwater.

・Continental drift and sudden volcanic eruptions from the movement of the mantle.

In reality, there are more individual natural phenomena. The subject of scientific research is very wide. Conversely, I cannot imagine that the subject of macroeconomics is more complex than the natural phenomena.

In our lives, eating delicious food is GREAT! Going out with family and friends is a lot of FUN! Expensive and convenient tools reduce the amount of time we spend for working, and increase the amount of time we can spend! Economic activity is a wonderful activity that enriches our lives! However, is the economic activity more complex than the phenomena occurring inside our bodies?

The time scale and spatial scale of the economic activity are equal to those of our human activities. Therefore, for example, in a country that is sufficiently electronic, we will have enough data to analyze economic activity in detail.

I expect that scientific research can fully understand our economic activity. I think that the economics shows slower development than science and technology. This is because the economists do not apply the scientific methods.

Growth rate of money circulation velocity V

The subject of this article is the relationship between the average growth rate of the money circulation velocity, V, and that of government expenditure, G. The figure below shows a distribution of average values for about 20 years in 33 countries. The average growth rate of G ranges from 2% to 10%, and the average growth rate of V ranges approximately less than 1% (one example is larger than 2%). In the past 20 years, it is concluded that "the growth rate of circulation velocity V is smaller than the growth rate of government expenditure G". This explains a direct proportional relationship between the growth rate of nominal GDP and the growth rate of G.

The x-axis shows the averaged growth rate of G, and the y-axis show the averaged growth rate of V.

Our purpose for this article is to explain the direct proportional relationship between the growth rate of G and the growth rate of nominal GDP, as is shown in our previous article, "A relationship between nominal GDP growth rate and  government spending growth rate." 

In that article, the author showed that this direct proportional relationship can be explained under the money circulation, if the growth rate of V is equal to 0, and if the growth rate of G is equal to the growth rate of domestic investment, I. The above figure shows that the growth rate of V is small compared to the growth rate of G. This leads to the above direct proportional relationship.

Direct benefits lead to PQ=C+G'+I < C+G+I=C+T+S

As a conclusion of this article, under the fluid picture of money circulation, direct benefits (monetary assistance, or cash handout) lead to "PQ ≠ C+G+I''. Here an instance of direct benefits is monetary assistance during this covid-19 disaster. For measuring GDP, we should apply Y=C+G'+I=PQ, where G' is obtained by subtracting the budget for direct benefits from G.

A fluid picture of money circulation. The goods and services market is located in `A', and the household budget is located in `B'. `C' and `D' are government and financial markets.