Economy as an Electric Circuit

Imagine the economy (not so important now, local or global) represented as an electric circuit.

 

 

 

 

 

 

 

 

 

 

The electric circuit includes various electric elements (for example, the regulator R, target elements EL, measuring instruments (A, W and V), circuit breakers SA) through which the electric current flows. The circuit also includes an electric energy source E whose capabilities are limited by the internal resistance r0.

 

A breaker plays a "permissive" role. It allows or prohibits electric current to one or another portion of the circuit.

 

The circuit is connected and organized by conductors that allow electric current from source E (in fact, there could be many sources) to move to the electrical elements of the circuit. Conductors organize electrical elements and energy sources into a united system, into a single circuit. They serve as "backbone" elements.

 

Where is the analogy with the economy?

 

Imagine that electric current (flow of electrons through a circuit) models the flow of both tangible and intangible resources. Each electrical element represents a specific processing or modification of these resources. A source is a model of a source of natural resources: substances, energy, information, knowledge and ideas. The structure of the electric circuit depicts the life cycle of these resources: from their extraction (receipt) at the “+” pole to disposal of used resources at the “-” pole. The breaker serves as a decision-maker deciding to start a particular section of the electrical circuit.

 

And what role are the conductors playing in this economic model? They direct the flow of resources to the necessary stages of processing and use. This role in the economy is played by financial system. Its main purpose is to organize the flow of resources. So far, everything is clear. In normal operating mode, the current from the source (resource stream) is sent through wires to the electrical elements (resource converters) connected in a certain way, then this current is converted, performs useful work (used) and, in the end of the road, flows “to the ground”, returns to where it came from.

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Len Kaplan

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