Okay, once again I’m going to sacrifice my body here, risk looking stupid by asking what seems to me to be a vexatious question. Here’s the setup:
When you exchange some of your money (bank deposits) for some shares of Apple stock, those shares aren’t removed from the supply of Apple shares. (Likewise your “money”; it still exists.) The stock-supply, at least, is unchanged.
When you buy some apples for consumption, they are removed from the supply — both stock and flow.
Can we model or think about these two markets in the same way? One is a circular flow in which supply is never consumed (that is the sine qua non of financial assets: they embody exchange value that can’t be consumed to derive human utility). The other is a conveyor belt, where the supply falls off the end and disappears (or magically transforms into “utility” via consumption), with real production/resource constraints at the beginning.
I’ve wrestled with this before, as have my thoughtful commenters therein.
But nobody has ever come back to me with thoughtful discussion of stock supply and flow supply, or satisfactorily answered the question at the end of that post (accompanied by a Holy Grail clip that is a propos). The question posed above leaves me even more perplexed.
Am I foolish to suggest that the central concepts of economics, supply and demand, are embarassingly un(der)theorized?
Theres’ a great example in this Felix Salmon post, discussing difference between the global “supply” and “demand” for bonds — which here seems to mean “bonds issued” and “bonds purchased” (designated in dollars). Mustn’t these values as implicitly defined here be identical — at least when viewed ex-post — making a discussion of their difference conceptually problematic?
Cross-posted at Asymptosis.