Closed Circuit System Sectors of the Economy.

Found this at "Naked Capitalism", my favorite site where I find so much.  Thank you Yves Smith.

http://neweconomicperspectives.org/2012/10/sectoral-balances-within-the-domestic-non-government.html

Paul Meli presents this analysis: Sectoral Balances within the Domestic Non-Government

It is something that requires some thought in order to get, even more thought if you are not familiar with the terms and concepts he uses.  The following discussion takes him to  to task for his failure to give a definition of terms, which he belatedly presents.  So if the symbols used confuse you jump to their belated explanation by Paul in the comments.

Paul presents an academic model of a sector of the economy as a closed circuit system discusses the objects in it and their relationship to other objects connected by actions resulting in net flows of money.  Based on this model he presents conclusions about the Economy of this Sector (Income minus Savings Sector or symbolically: I-S).  I-S equals the amount of money that is spent.  All income is either saved or spent.  To say the same thing in other terms:  If you did not spend your income then by definition you saved it.

I lived in a closed circuit system for many years.  Two navy ships.  For long periods of time we were self contained.  The 1200 psi steam plant was a closed steam system.  So were all the other numerouss systems on the ship.  Perhaps we operated in reality closer to an academic closed system model over an extended period of time than any other combination of people and the complex physical/social systems they create.

Self contained but cconsuming resources within that self contained bubble we called a ship.  Fuel, food, spare parts, sailors too.  All things that we had to replenish from other ships and ultimately renew in port.  One of my ships was a replenishment ship, a Combat Stores Ship.  The other was a receiver of replenishment at sea; A Guided Missile cruiser.  I was a Supply Officer on one, the Supply Officer of the other.   

Eventually we had to replenish expended resources.  The abnormally extended period of time during which we did not have to replenish and could operate close to a self contained mode facilitates me understanding closed systems!  Only a submarine is more closed circuit system for a longer period of time.  The constraint being food or expenditure of all weapons and therefore completion of mission.

Interesting aside, to me if not to you but I write this for myself and can detour at will.  There is a common result in running a ship or running an economy without input renewal.  Eventually it needs something from the outside or the line on the endurance chart that describes how long it can continue to meet its mission objective dramatically says that it can't.

The thing that binds the economy to my experiences on a ship is that the source of replenishment, renewal and even expansion is government spending.

Returning now to the subject matter purpose of this closed circuit system of letters, words, sentences and paragraphs.

Paul Meli concludes:

"The purpose of this exercise was to demonstrate that no series of transactions within a closed system is capable of generating net nominal growth, even through ever-expanding debt. Nominal growth can only occur as a result of net government spending."