In order to indicate the most important variables entering into the macro-dynamic system we may use a graphical illustration as the one exhibited in Fig. I. The system expressed in Fig. I is a completely closed system. All economic activity is here represented as a circulation in and out of certain sections of the system. Some of these sections may best be visualized as receptacles (those are the ones indicated in the figure by circles), others may be visualized as machines that receive inputs and deliver outputs (those are the ones indicated in the figure by squares). There are three receptacles, namely, the forces of nature, the stock of capital goods, and the stock of consumer goods. And there are three machines: the human machine, the machine producing capital goods, and the machine producing consumer goods. The notation is chosen such that capital letters indicate stocks and small letters flows. For instance, R means that part of land (or other 1 forces of nature) which is engaged in the production of consumer goods, r is the services rendered by R per unit time. Similarly V is the stock of capital goods engaged in the production of consumer goods and v the services rendered by this stock per unit time. Further, a is labour (manual or mental) entering into the production of consumer goods, so that the total input in the production of consumer goods is r + v + a.
The complete macro-dynamic problem, as I conceive of it, consists in describing as realistically as possible the kind of relations that exist between the various magnitudes in the Tableau Économique exhibited in Fig. I, and from the nature of these relations to explain the movements, cyclical or otherwise, of the system. This analysis, in order to be complete, must show exactly what sort of fluctuations are to be expected, how the length of the cycles will be determined from the nature of the dynamic connection between the variables in the Tableau Économique, how the damping exponents, if any, may be derived, etc. In the present paper I shall not make any attempt to solve this problem completely. I shall confine myself to systems that are still more simplified than the one exhibited in Fig. I. I shall commence by a system that represents, so to speak, the extreme limit of simplification, but which is, however, completely determinate in the sense that it contains the same number of variables as conditions. I shall then introduce little by little more complications into the picture, remembering, however, all the time to keep the system determinate. This procedure has one interesting feature: it enables us to draw some conclusions about those properties of the system that may account for the cyclical character of the variations. Indeed, the most simplified cases are characterized by monotonic evolution without oscillations, and it is only by adding certain complications to the picture that we get systems where the theoretical movement will contain oscillations. It is interesting to note at what stage in this hierarchic order of theoretical set-ups the oscillatory movements come in.