The universality of the laws of Physics leaves an idelibility of its application to everything. What drops off the computer table will drop down anywhere in the universe. The absence of such ceteris paribus from any of its laws gives this study a definite approach to any quantified and defined problem. Now lets go a little out of the box into applying Physics in Economics. If you’ve been a regular reader of mine, then you probably have an idea about demand and supply of money. Just take a look at the picture below
Like any other object that has mass, water too follows the law of gravity. But water can be made to defy gravity under induced conditions. Take for example, inverting a tumbler full of water with a light cardboard covering its mouth. The air pressure outside the tumbler over the cardboard, prevents the water from obeying the laws of gravity as the fluid is held only by a light cardboard balanced by external air-pressure. The same effect can be created with a bucket of water and inverting a mug full of water over it (it’s mouth immersed in the bucket of water). The water in the mug does not pour in to the bucket. While in the bathroom (it is the only space where mind works free for most of us), I happened to observe something that I’ve seen lots of times before and this time I drew a corollary. This anti-gravity does work like money supply and money demand.
Imitate the water with money. Take $100 for 100 people. Each get a dollar. Now this is the situation somewhat like socialism. Everyone is economically equal. Now lets create some real world conditions here. A capitalist society or even a mixed economy, for that matter, so that money is “partial” in acquisition. Look into the picture below.
The air pressure that acts from outside the jar to hold the water not dripping off its mouth works exactly the same way how the demand for money works. Let me show you something for a clear understanding:
Here the demand for money is from all the 100 men, yet given the productive capacities of everyone there is an abound disequilibrium in acquisition of money. The bottom 80 men now will be demanding and working for all the 100$ while the returns may not be that much and as the propensity to demand is more with the lesser 20 of the population who have more money, their demand for money will keep their money with them without that spilling over into the general 80 men. The demand for money by the majority of the 80 men will be for subsistence while the 20 who have climbed up will demand all the 100$ from the economy. This seals them from having any adversity , as said above, their own demand for money will keep the spillovers at bay. The economy in this condition looks like this :-
The higher 20 side : demand for money (100) = supply of money (100)
The bottom 80 side : demand for money (50) = supply of money (100)
The Way Out Of The Deadlock
The ideal situation can be created by entrepreneurial setup by the bottom 80. Raising the demand for money is the way out and the demand can be created by introducing new competitors in a saturated market at disequilibrium to resurrect an economy based on elastic competition where demand for money = supply of money on both the sides of the population. So to break the chain the demand should be raised and healthy competition should be developed.
(Note: The ideas expressed in this post are personal opinions of the writer and must not be considered as all-inclusive data on the subject. For more info, please read the DISCLAIMER in the footer area.)