Layer structure of the flows system
Four layers and three categories of transactions
The short historical survey of the arise of the different flows has already made clear that there is logic in the developments that have occurred: the newer kinds of flows came into being on the basis of earlier existing ones.They do not replace them but are added to them.
Growth of the numbers and types of flows was furthered by two complementary tendencies within the strive for progress: on the one hand never ceasing individual attempts and on the other hand common efforts to create a framework without which individual dedication could not be successful.
Summing up does not work
Summing up all those flows at a fairly detailed level easily provides a long list that nevertheless cannot guarantee completeness. A good representation of the totality of the flows cannot be given by merely summing them up, for the relations among them would be missing. But the problem is solved by looking at the categories of transactions that occur between the different layers of means or structures. Those layers are connected with their historical development: in a region with a highly developed society, four layers can be distinguished: nature, (economic) structures, money, stock exchange. Their arrangement from bottom to top (see further the scheme ‘layers and transactions‘) indicates the order in which they were able to develop.
Every higher layer is only meaningful and can only be kept in existence if the underlying layers and flows of transactions between them remain intact.
The layers from bottom to top
The lowest layer is the ecological system. Nature, physical earth, with its physical constitution of land and water surfaces, essential flows of air, light and water, combustibles and minerals in the earth’s crust, and flora and fauna, which developed on the earth’s surface, constitute the indispensable socle of the whole system.
By his roaming existence as a hunter / collector, man was part of that biotope and was only able to subject it to his will gradually. Thanks to acquired knowledge and developed capabilities he became more efficient in hunting and collecting than the competing animal species.
The layer just above the one at the bottom can be described as ‘mankind with its physical and organizing structures’. Development of this layer started with the arise of the agricultural societies. Settling on a specific location meant a fixed and better housing and, for small groups of people (tribes, families), that they considered some parts of the soil as ‘their own’.
From that time on man acted no longer as a part of the biotope but as a user of it; we call ‘ecological transactions’ the means he takes from the ecosystem, what he gives back as waste, and the structural changes.
All organizing structures that have arisen by specialization later on (trade, industry, services, government, social /non-profit enterprises), depend equally strongly of what the ecosystem can offer, but they burden it as well with waste and structural changes.
During the starting phase only entities of the size of families used and influenced it. There were no concentrated quantities of waste, which exceeded the regeneration capacity of nature. The growth of the population and the extension of the physical and organizing structures created by men, however, increased the pressure on the system to the extent that we now have to face the question whether the bearing capacity of the earth has already been exceeded, and how it can be restored to balance.
The third / top layer is the one of money and of the accompanying specialized financial entities. The object of this layer, money, originally was a physical and tangible matter (salt, shells, precious metal,etc.), but efforts to make those means more readily ‘manageable’, led to a situation where money currently exists as bits on an information carrier in an almost immaterial shape. This layer arose in a ‘weak shape’ very soon after the second layer had somewhat developed. Hardly developed agricultural societies succeeded fairly well in exchanging goods (products of nature) directly without using the ‘intermediate product’ money, but as soon as specific entities specialized in articles of use and other goods, separate intermediate goods (in time as wel as in space) were very handsome and wellcome.
In its ‘weak shape’ the money layer furthers exchange transactions between individual entities. In highly developed societies the money layer shows up in its ‘strong shape’ and takes care of capital transfers, bridging ever more time and space. Capital transfers are transactions between groups of entities on the one hand and one entity or some entities on the other hand.
The important size of certain (production) entities brought the need of disposing of credit in the middle run and of capital in the long run. To transfer in a structured way the savings of among others many small family entities – with limited possibilities of investing in the own entity –, (savings) banks were created, as well as holdings for specific very capital intensive enterprises. To avoid that small entities would be forced to keep large buffers to cover their own risks, insurance companies were created complementarily.
Countless exchange transactions, in which money serves as an ‘intermediate good’, occur between layer two and three. For most family entities this means exchanging labour for money and afterwards exchanging that money for all kinds of products and services. By means of financial entities a number of money transfers are made between these layers (replacement incomes, allowances, pensions, etc.); they are not merely money flows (see further) because in essence they can be replaced theoretically by providing people with goods and services.
Creation of capital also happens between the layers two and three. The ‘strong shape’ of the money layer is a basic prerequisite to enable a larger scale. The weak shape of money is located within the economy, where it removes friction that would hinder exchange of goods and service flows; the strong shape of money sticks like an orange peel around it (see the peel with the red, orange and yellow balls in the ERS-logo) and heightens the growing limits strongly. Growth then is only limited by the fact that the peel should not release the fruit inside: capital finally has to be used – directly or indirectly – in the physical economy, for it would endanger it otherwise.
The fourth / top layer in the system is stock exchange. This layer is just still physically visible by the existence of exchange buildings, where people meet for ‘trading’, but the objects of the trade – shares, bonds and the like – are just like money only tangible in the shape of a document and in many cases replaced by an entry on an account or on a magnetic information medium. It must be possible to lift the long term engagement of a provision of capital in a number of cases, for transfer or exchange, as for instance when the situation of the family entity that provided the money, has changed, or in the course or prospect of business of the entity that has taken up capital.
As long as investing entities do transactions with their own means, there is a link with the underlying physical transactions / physical economy in principle. Any other investment with created or borrowed money (like leverage funds) must be considered as speculative, because it has no link with activities taking place in the layers two and three.
Creation of surplus value on the stock exchange or destruction of the stock value are based upon expectations and projections. There is no relation at all between labour income, interests and profits or dividends realized at that moment by the underlying activities of an enterprise.
Transactions between the layers three and four have a merely financial character. Any further dealing of previously issued capital investments, regardless of the amounts or volumes involved, represent no increase of the underlying physical transactions.
Flows more important than structures
As already mentioned in passing with the money layer, the (starting) development of a higher layer requires a sufficiently developed layer below it. The layers as such and their accompanying structures are not important for the (quality of) life of people in their society, but yes the transactions they make possible. Vice versa it is evident that hitches and lacks in the functioning of higher layers can disturb physical transactions in underlying layers.
The bottom layer – the ecological system –, that eventually supports everything, permits only slight lasting adaptations within the narrow margins of the dynamic equilibrium that keeps the earth livable.
The societal system is not an undisentangible clew, if one does not let oneself be dumbfounded by a host of details and variegated appearances, but if one lets oneself be led by different categories of flows occuring in the sytem, and distinguishes the layers that men succeed in maintaining on top of the ecological system. On locations in this world where the economic and political structures desintegrate, the societies return to a status with only family entities and nature as layer for survival. It is quite clear that in strongly urbanized environments – in which half of the world population lives presently – there is no prospect of this kind of backsliding.