In order to demonstrate a solved calculation problem, Model 0 had to be limited to interactions among economic sectors that were ‘economic’ in the sense of producing an output having a mensurable marginal cost of production, i.e.: generic industrial and household sectors. Model 0 is therefore merely normative as to what the economy should or might accomplish. It does not acknowledge the existence of the non-economic sectors that are impinging more and more upon economic life.
While financial intermediation occurred in Model 0, the intermediary did not absorb any assets in completing his function (which he did with both admirable precision and utter disinterest in anything other than efficiency). He did not, therefore, impinge on prices because he used nothing. There being only one intermediary in each economy, no place was given to loans among household sectors, thereby vindicating the commonplace absurdity that debt is harmless insofar as we only owe it to ourselves. A more realistic view requires expression of the possibility that one segment of the population holds the debt while another pays the interest on it.
Government sectors were also absent from Model 0, thereby subsuming governments’ activity into the household sectors. This is of course unrealistic in that ‘popular’ governments have, for more than a century, been substituting their judgment for that of their subject populations in matters of the utmost political and economic importance. Popular wisdom has, for example, disfavored entry into foreign wars by margins of 2-to-1 and more during periods of unprecedented interstate violence. The same margin disfavored making good the losses of global elites as a remedy for the financial crisis of 2008.
Chronically dependent populations are also emerging as powerful political groupings deserving of specific expression in the form of economic sectors. As government has interposed itself as the agent through which taxes are directed toward keeping these populations content, it becomes all the more important to elaborate our input/output structure to include the detailed comings and goings of government finances.
Model 1 is tasked with expressing interactions among the following sectors:
• Three generic industries.
• Three households, one of which is ‘dependent’ in the sense of doing no work and commanding no wage.
• Two governments (local and national) supported by taxation, with each contributing to support of the dependent population, and using assets and labor to perform other operations making no direct economic contribution. (Presumably these operations provide the overall context by which economic activity is made possible.)
• Two financial sectors supported by the ‘spread’ between the dividends they harvest from economic activity and the dividends they pay to their investors. One intermediary will distribute profits earned by the industrial sectors to both generic household sectors, and the other will manage the indebtedness of one household sector to the other.Model 1 will treat only one economy. It is assumed that Model 0’s treatment of international trade will be adequate as a guide for internationalizing a realized prototype of Model 1.