I would like to reset and (temporarily) get almost everything off the table.

Consider an economy as a giant factory. Everyone works in it and everyone gets paid by the factory. Everything the workers need and consume comes from this factory. The workers buy the goods and services from the factory with the money they earn at the factory. The factory then reinvests this money to once again pay the workers to provide new goods and services, etc.

There are three options:

A. The workers spend the money dollar for dollar as they earn it. V=1
B. The workers spend only a portion of each “check”. V<1
C. The workers spend in aggregate faster than they earn. V>1

Consider B. If V<1, each production-spending cycle sends less money back to the factory. The paychecks become smaller. As long as the factory output remains unchanged, the goods will become less expensive and the workers will not perceive a decline in purchasing power. But we know that this eventually leads to a stagnant minimalist feudal system.

Let’s go again through every step of the spiral which will bring production down. I will start with just one aspect of it and would like to ask for your view of the events. We have to be able to explain this in perfectly clear language with crystal clear understanding of how production declines in case B. If we do that, it will become a well composed word problem and I hope we can then put a simple equation down. If we get somewhere with this, we move on to case C.

B1. The system will favor “old money”. A certain portion of society will no longer need to work as much if their savings gain increased purchasing power with time. This in turn reduces work hours and output suffers. This flaw of V<1 does however have a self-correcting feature: reduced output increases prices and pushes workers back into the work force. This is therefore not a main cause of the spiral.

B2. The problem for the factory is that it must invest money up-front hoping that its goods will fetch a sufficiently high price to recover the costs of production. If the factory pays its workers but fails to recover all that money, it will have to recover the loss by reducing wages for the next turn. If the workers still insist on spending less than what they receive, the cycle repeats again. The factory is now losing money with every product it sells and its owners are better off getting out of the business. This actually has spiral potential so we should set this aside as a candidate for the equation.

If you feel like it, please add similar scenarios.