Econo-Motive-Force is the key indicator

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Ian Shepherdson, Chief U.S. Economist

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At a time when everyone is looking to re-write Economics textbooks, it is clear that econo-motive-force, not liquidity, is the key indicator of economic well-being. By econo-motive-force, we are referring to the velocity of money, which, in a direct analogy to James Clarke Maxwell's Theory of Electro-Magnetism, relates to the amount of currency that exchanges hands over a length of time. To extend this concept further, the differential of the emf (speed of exchange of money) wrt time, would give you the rate of change of velocity. Because of the increase in the savings rate and the drop in income, the rate of change of velocity / emf is positive right now and the economy will become stable once again when the rate of change of emf becomes zero. In other words, when the plot of emf versus time reaches the inflexion point, thereby indicating that the income, less the savings rate = the spending rate has become constant and that would be a better indicator of ecomonic health than GDP or the size of the stimulus package or the federal interest rate or the DowJones Industrial Average. Thus econo-motive force would become the key indicator of economic activity and the de-facto standard for assessing the health of the economy. Ian Shepherdson, Chief U.S. Economist lends credence to this theory on his daily notes on the global economy on his website - High Frequency Economics . Ian Sheperdson uses the term "velocity of money" instead of "econo-motive-force".