13. Money Driven Growth (MONEYGRO)

A simple mini-model that represents the standard view of growth from economics is MONEYGRO in Figure IV-13. Money is circulating (dashed lines) as a counter current to the flow of products and to the feedback of goods and services into production. As the diagram shows, the resource pressure is held constant, which means that resources are never limiting, regardless of the demand on them. During growth one may add new money supply (M) to the money circulation without causing inflation so long as one adds new real assets (A) at the same time.

In the model, new money is added in proportion to economic assets A, making the growth inflation free. Economic production (KO*E*M) is in proportion to the money circulating. The result is exponential growth without limit. (See EXPO, Part II-1) The rate of growth is sensitive J to the depreciation rate (K2) of the assets. This is a version of the "Domar-Harrod" model of economic growth introduced 50 years ago. To see what happens when the sources are limited, see BUYPOWER and MACROEC models that follow.

Examples of Exponential Growth Driven by Money Circulation

The model in Figure IV-13 applies to the growth of an industry that is utilizing a large new resource, or it applies to the growth of a country, where the concentration of resource is constant. Because many people believe it is always possible to substitute one resource for another, they believe that the resource E is unlimited and that exponential growth as shown here is a general model for the whole economy and its component businesses. Resource scientists know that resources are not unlimited and that such exponential growth is only temporary. Already, the world and most of its sectors are slowing their growth.

"What If" Experimental Problems

  1. If availability of resources is half, how will the growth of money and assets differ? Change E to 0.9.

  2. What happens if the depreciation rate of the assets is decreased due to developing more shared information and more permanent housing? Change K2 to 0.02.

  3. What if the economy changes the rate of adding money? Increase K2 to 0.02; then decrease it to 0.012.

  4. If the company starts with more assets, how does it grow? Change A to 10.


Howard T. Odum* and Elisabeth C. Odum+
* Dept. of Environmental Engineering Sciences, UF
+ Santa Fe Community College, Gainesville

Center for Environmental Policy, 424 Black Hall
University of Florida, Gainesville, FL, 32611
Copyright 1994

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