Economics: the decision by business owners about saving and consumption

 

The decision by business owners about saving and consumption is important because it affects a chain of economic principles.

In a free market economy, the process begins with Sales Revenues, which represent the income businesses earn from selling goods and services.

 This revenue is then divided into Savings and Net Consumption. Savings are the portion of income that individuals or businesses choose not to spend immediately, while net consumption reflects the spending on goods and services for current use.

 According to classical free market thought, higher savings can lead to more capital available for Investments, as individuals and firms channel these funds into opportunities for growth.

 Investments, in turn, translate into Productive Expenditure, which involves spending on capital goods, machinery, and infrastructure to enhance economic output. 

This expenditure boosts Total Productive Ability, representing the economy's capacity to produce goods and services. Increased productive ability directly results in greater Production, and finally, this leads to an expanded Supply of goods and services available in the market. 

The order of this chain aligns well with laissez-faire principles, emphasizing individual choice and market-driven resource allocation without government interference [1][2].

 Here is a streamlined flow chart of this sequence.  I’ll outline it step by step to visualize or sketch:

1. Sales Revenues: Start at the top of the chart. This is the initial inflow of money to businesses from sales.
   • Arrow splits into two paths below: Savings and Net Consumption.
2. Savings (left path): Represents income set aside, not spent on immediate consumption.
   • Arrow leads downward to Investments, as savings provide the capital for future growth.
3. Net Consumption (right path): Represents immediate spending on goods and services.
   • This path does not directly connect to the next stages in the main chain focused on production growth, so it can be shown as a separate endpoint or loop back to Sales Revenues indirectly (though not detailed here as per the focus on the main chain).
4. Investments: From Savings, this stage reflects the allocation of capital into business ventures or projects.
   • Arrow leads downward to Productive Expenditure, where funds are spent on enhancing production capabilities.
5. Productive Expenditure: Involves spending on tools, technology, and other resources to increase output.
   • Arrow moves to Total Productive Ability, indicating an enhanced capacity for production.
6. Total Productive Ability: Represents the economy’s improved potential to create goods and services.
   • Arrow leads to Production, where actual goods and services are manufactured or provided.
7. Production: The creation of tangible output.
   • Final arrow leads to Supply, the availability of goods and services in the market.

This flow chart represents the complete main chain as a linear progression from Sales Revenues to Supply, focusing solely on the primary sequence without additional influences or feedback loops. It reflects the free market belief that voluntary economic decisions by individuals—such as how much to save or invest—drive the growth of production and supply through this natural sequence of events [3][4].

In summary, this main chain is complete in its order, and the flow chart described above captures this sequence in a straightforward, hierarchical structure. Each step builds on the previous one, embodying the laissez-faire principle that economic progress results from individual actions and market freedom without external intervention [5][6].

Sources

1 Marxism/socialism, a sociopathic philosophy, conceived in gross error and ignorance, culminating in economic chaos, enslavement, terror, and mass murder by George Reisman

2 Classical Economics by Murray Rothbard

3 Man, Economy, and State with Power and Market, Scholar's Edition, by Murray Rothbard

4 Economic Thought Before Adam Smith by Murray Rothbard

5 Capitalism by George Reisman

6 A Theory of Socialism and Capitalism by Hans-Hermann Hoppe

Textual Flow Chart Layout (Simplified Representation)

Sales Revenues
      |
      |-----------------
      |                |
  Savings        Net Consumption
      |                (Endpoint/Indirect Loop)
 Investments
      |
Productive Expenditure
      |
Total Productive Ability
      |
   Production
      |
    Supply

Here is an expanded flow chart that includes profits:

The flowchart is a dynamic model showing how consumer spending drives profits, while saving drives growth.

            Aggregate Sales Revenues
                         |
+-----------------------------------------------------------+
|                                                         |
aggregate Savings         aggregate Net Consumption
|                                                         |
aggregate Investments 
|                                              aggregate Profits

aggregate Productive Expenditure

|
aggregate Total Productive Ability
|
aggregate Production
|
aggregate Supply

Notes:

• Sales Revenues are split into Savings and Net Consumption; Savings feed Investments and onward through the productive chain to Supply.
• A dedicated line below Consumption directs to Profit.