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Households & Businesses Interlock

This entry comes as a continuation of my last posting.

Here are a few of the many ways the household sector and the business sector interlock:


  • The Business Sector employs workers from the Household Sector. Without the labor and intellect supplied by the Household Sector, the Business Sector would crumble.
  • The Business Sector pays the Household Sector in wages, earnings, and salaries. Without income, many a Household would crumble.
  • The Household Sector spends its earned income from the Business Sector to purchase goods and services supplied by the Business Sector.
  • The Household Sector invests its earned income from the Business Sector in stocks, bonds, and mutual funds which become revenues for both sectors.
  • Ultimately it is the Household Sector (people) that creates new Businesses.
(Repeat Cycle)


The business sector has no taxing power. For business, the only way to sustain on a large scale is for money to be voluntarily relinquished by the household sector. Economic growth takes place through the coordination and cooperation of these sectors.

As ordinary participants in the economy, we don't think of coordinating our activity with that of others, much less a sector. Nor does a businessperson think of cooperating with households. But nonetheless, it is by this coordination and cooperation that our economy grows.

Thanks for reading,

Matthew


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