From Cambridge to Eternity: “Flow to Stock to Flow”
A
moment is to a period what a dot is to a line. There is no dimension in the
moment and in the dot, while one time dimension (T1) in the period
and one length dimension (L1) in the line. As the naught (0) does
not exist on Earth neither does the moment or the dot; all the three are
imaginary and mathematical.
Theories are approximations, as
Eugene Fama at Chicago Booth once quipped. Let us take the survey period (T-1)
for the approximate moment (T0). Now, we somehow have the stock (T0)
of a certain measure, for instance, the volume of water in the tank.
The tank is empty in the beginning.
Then the flow comes in at a certain speed, say, F litters per hour. We have 1∙F liter
of stock in an hour, 2∙M
in 2 hours and n∙F
in n hours. The three R’s tell us
that the flow stacks up at the incoming
speed of F over n hours so as to build the stock
S= n∙F as at the end of the nth
period. To double-check the metrics, the flow is in litters/ hour, the
running time in hours and the stock in litters: or, T-1∙T1=
T0. Could any of us imagine the running
time possibly be “a constant” in whatever dimensions?
Next on, why in the first place
would we accumulate water in the tank? For fun? Yes, that can be a legitimate answer
because we cannot consume fun without
paying a cost. In other words, the time spent for fun is not a waste of time.
The benefit earned deserves the cost paid.
More commonly, the purpose of accumulation
is to use the water for some other benefit such as washing dishes. How long can
the dish washer use the stock of water n∙F
litters? Probably, the answer depends on the
number of cookie-cutter dishes to wash and productivity of the washer. Assuming
the private productivity away for the purpose of approximation, the question
boils down how many dishes can technically be washed per hour by an ordinary
laborer. Then on, the speed of water outgoing per hour will be determined. All in
all, the duration of time the water stock can endure depends on the speed of
outflow. No “constant” is involved in the process of water-stock “depreciation.”
Where in the equation of a stock on
one side and a flow on the other is the place for “a constant”? Nowhere except
for in the liquidity preference model to the IS-LM model.
As a matter of definition, “the
market” is a paradigm, that is, the
way of thinking, imagining and dreaming for the sake of idealizing the reality before
a theory. On the other hand, the economy is an organism which is by definition way
beyond “modeling.”
Life is not a dream, in the first place. On the way of life, “Time flies
like an arrow.” Is the maxim real, nominal, virtual, metaphorical or analogous?
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