Our portrait of the physical flows to be comprehended by macroeconomic causality demonstrated that a minimal set of physical state variables can be kept continuously up-to-date by references to 1) neoclassicism’s premise of marginal revenues’ affinity for marginal costs, and 2) commodity prices. Prices were taken as given for the sake of defining the economic system’s physical state; and they will continue to be presumed known as we define an economic system’s minimal set of financial state variables.

The presentation of SFEcon’s matrix structure illustrates the interaction of physical rates of change with the money prices for the commodities J. Whether in or out of stasis, these interactions are resolved in an array of the cash flows r_IK for the sectors IK that follows from commodity prices P_JK in economy K, physical rates of change R_IJK, and exports X_IK:

The financial state variables continuously integrate monetary flows r_IK $/year into levels of investment and savings. Cash is absent from Model 0: all funds are placed so as to either require financial services or to receive financial services in the form of passive income. Because these state variables are denominated by the national currencies of the economies K, the values they represent are subject to change over time.

As we proceed, please note:

SFEcon’s sign convention has it that earnings are ideally expressed as a negative, i.e.: costs minus income. Negative r’s emanating from sectors I=1…L-1 indicate profits coming ‘back to us’ from the productive activity of industrial sectors. The household sectors I=L…N generally report a positive r’s, indicating that consumption exceeds wages — a difference that must be made up from passive interest income or withdrawn from savings.

r_0K is a negative sum on all the other r_IK’s I=1…N in a given economy K, and thus computes K’s trade balance. A trade surplus is indicated by r_0K negative; a deficit by r_0K positive. If no foreign trade is present, or if the value of imports exactly offsets the value of exports, then r_0K is identically zero.

While no generic, industrial sector can enter stasis except while earning a standard return on its asset turnover, the cost curve for a household sector is such as to allow wages to persist above consumption by some amount that requires ongoing debt service.