There are many important laws that determine the behavior of various systems within the Universe but as far as economics is concerned, none is more important than the concept of a closed system.
”In non-relativistic classical mechanics, a closed system is a physical system which doesn’t exchange any matter with its surroundings, and isn’t subject to any force whose source is external to the system. A closed system in the classical mechanics sense would be considered an isolated system in thermodynamics.”
What does this mean in the context of a monetary economy? What could properties of a physical system have in common with a system based largely on the relationships between stocks and the flows between them? It turns out that some math systems behave according to the same rules that constrain elemental physical particles, i.e. the concept of the conservation of matter holds mathematically for the “conservation” of currency units within the system.
If we define the closed system as the universe of state-backed US dollar assets and liabilities, including state-issued bonds held by the public, it means that the net dollar assets existing in the economic system cannot change over some period of time t without an add or subtract from a source external to the system.New Economic Perspectives
Sectoral Balances within the Domestic Non-Government