[From Rick Marken (2000.03.09.0900)]
Erling Jorgensen (2000.03.08.0800 CST)--
Is there a one-sentence reminder of what "leakage" entails?
Leakage is just the fraction of GNP that is not returned to the
composite producer as payment for goods and services. According
to TCP, the quantitative amount of leakage each year is reported
in the Statistical Index as "Personal Saving" and "Undistributed
What determines whether they are classed as "leakage" or as
"savings" or as "speculations" or as something else?
Leakage is, by definition, dollars received by consumers (as
wages or profit) that are _not_ spent on goods and services.
TCP argues that "Personal Saving" and "Undistributed Corporate
Profits" are dollars distributed to consumers (as wages and
corporate profits, respectively) that are unspent. That is,
when wage and profit income is added up, "Personal Saving"
and "Undistributed Corporate Profits" are the amounts by
which wage and profit income exceed GNP (which is also a
measure of the dollar value of goods and services purchased).
This is how these two values are computed for the Statistical
Index; "Personal Savings", for example, is not a measure of
how much money people put into their savings accounts in a
particular year; it's just the excess of wages received over
goods and services purchased from wage income.
Here's an example of how "Personal Saving" and "Undistributed
Corporate Profits" are computed. If wage income for the year
is 100 billion and profit income is 200 billion and GNP is
250 billion, then "Personal Saving" is 1/3 of the difference
(50 billion) between income received and goods/services
purchased, or about 17 billion; "Undistributed Corporate
Profits" are 2/3 of this difference or about 33 billion.
Second question: Where does leakage appear in your (implied)
Leakage appears in my model as a disturbance to producer income,
which I call P'Q', where P' is the selling price of the goods
and services, Q', that are being produced. It costs the composite
producer (in wages and profits) P to produce Q'; so PQ' is the
cost of production. The model is trying to keep P'Q' = PQ'; that
is, the composite producer must get paid back for the costs of
production. If there were no leakage, P would equal P' and
everything would be fine. Due to leakage, however, the composite
consumer doesn't have enough dollars to pay itself back (as the
composite producer). That is, leakage (when it's negative) tends
to make producer income (P'Q') less than producer expenses (PQ').
To make up for this leakage, the composite producer has to mark
up the price of goods; P'>P. This is called autoinflation. This
adjustment in P' (selling price markup) is the composite producer's
means of keeping it's input (income:P'Q') matching it's expenses
(reference for income:PQ'). In the process, Q' (with leakage)
ends up being less than Q'sans leakage; the composite producer
is producing less than it is capable of producing, by a factor
proportional to the current total level of leakage. Growth rate,
which is dQ'/dt (without the P so it is "inflation corrected", as
is the case when real GNP growth is reported) happens to be
inversely proportional the rate of change in leakage (dl/dt).
Does this help at all? It may be helpful to see the model in
operation. I am happy to distribute the model (it's an Excel
spreadsheet in fairly rough form) to anyone who wants it. But
I think the best thing to do first in order to understand this
stuff is to buy and read "Leakage" (order from Benchmark:
http://www.benchpress.com/Leakage1.htm ). Chapter 1 gives some
of the basic definitions and observations and Chapter 2 describes
TCP's model of the economy.
Richard S. Marken Phone or Fax: 310 474-0313
Life Learning Associates mailto: email@example.com