Integration of Market Exchange and money circulation investment firms tvh honey carve noone Figure 1: Money Cireulation, an Inward-looking in Real Market The payment of an investment, say I, can be thought of as being a starting point of the whole voyage of money circulation. This amount of money, which is also equal to vi, is flowed out from the account of the investor to that of the corresponding sellers. this will realize the production of the first round enterprises and hence a certain amount of profit will be generated. the enterprises may retain a part of profit in their deposit accounts as their own saving sf, which is therefore withdrawn from the circulation in the real market. The rest of the money, including the dividends p,, the payments to labor wi and the payments to the second round firms for purchasing material my, will be continuously circulated Among the m, m, is flowed into the account of the second round firms, and w, and p, into the account of the first round households as consumer income Again part of this income will be flowed into the account of the second round firms as the pay ments of consumption C1: and the other will be retained as consumer saving sh, in their deposit accounts and hence ithdrawn from the circulation Now the total amount of money flowed in to the accounts of the second round firms is m,+Cl which is also equal to v2. A part of them sf, will be retained and hence withdrawn from the circulation and the other will be continuously flowed out. he circulation process will continue. But since in each round, a certain amount of money is withdr awn from the circulation as saving, the actual money in the circulation will be continuously contracted. We can expect that if there is no further additional money (such as through investment) injected into the circulation, the money in the circulation will finally converge to zero. this implies that the total amount of saving- which is the moneyIntegration of Market Exchange and Money Circulation 7 The payment of an investment, say I, can be thought of as being a starting point of the whole voyage of money circulation. This amount of money, which is also equal to v1 , is flowed out from the account of the investor to that of the corresponding sellers. This will realize the production of the first round enterprises and hence a certain amount of profit will be generated. The enterprises may retain a part of profit in their deposit accounts as their own saving sf1 , which is therefore withdrawn from the circulation in the real market. The rest of the money, including the dividends p1 , the payments to labor w1 and the payments to the second round firms for purchasing material m1 , will be continuously circulated. Among the m, m1 is flowed into the account of the second round firms, and w1 and p1 into the account of the first round households as consumer income. Again part of this income will be flowed into the account of the second round firms as the payments of consumption c1 ; and the other will be retained as consumer saving sh1 in their deposit accounts and hence withdrawn from the circulation. Now the total amount of money flowed into the accounts of the second round firms is m c 1 + 1 , which is also equal to v2 . A part of them sf2 will be retained and hence withdrawn from the circulation and the other will be continuously flowed out. The circulation process will continue. But since in each round, a certain amount of money is withdrawn from the circulation as saving, the actual money in the circulation will be continuously contracted. We can expect that if there is no further additional money (such as through investment) injected into the circulation, the money in the circulation will finally converge to zero. This implies that the total amount of saving — which is the money