A Turn to The Urn

Working under social distancing rules, Al’s selling coffee from a drive-up cart in front of his shop — urns, paper cups, everything at arms length. No cash register, credit or debit transactions only. “Give me my usual, Al. I miss the mugs; your brews just don’t taste the same in paper.”

“I know, Sy, but what can you do? Say, I’ve been reading your stuff with the sort‑of overlaps between Physics and Economics. Beyond your usual orbital? <heh, heh>”

“Very funny, Al. Yeah, a little, but it’s giving me some new perspectives on old ground.”

“Oh, yeah? What’s next?”

“Fluid mechanics, for instance. Ever notice how many money terms relate to water? ‘Cash flow,’ of course, but there’s also ‘liquidity,’ ‘frozen assets,’ ‘drowning in debt,’ a long list, so I decided to chase that metaphor, see how well it holds up. There’s a lot of Physics on your coffee cart, for instance.”

“Well, it’s heavy, I’ll tell you that.”

“Sure, but how about that glass tube that tells you how full the urn is? The Egyptians were using the principle thousands of years ago but Pascal put it on a firm theoretical basis before Newton got a chance to.”

“There’s thery in that thing?”

“Sure. There’s a pipe from the urn to the little tube, right, so all the liquid is connected. Pascal proved that the pressure on every little packet of fluid anywhere in a connected system has to be the same, otherwise fluid would flow to wherever the pressure is least and even things out. Pressure at the bottom of any skinny vertical column comes from atmospheric pressure plus the pull of gravity on the liquid in that column. It takes 33 feet of water to balance normal atmospheric pressure. For columns the size of your urn gravity’s contribution is less than 3% of atmospheric so the atmosphere rules. Pressure on the tube is the same as pressure on the urn so the two have to be at the same height. When the urn’s low, the tube’s low because Physics.”

“Cool, though when you look at it that way it seems obvious.”

“The good explanations often are. It takes a Pascal or a Newton to make it obvious.”

“So what’s this got to do with Economics?”

“Pascal’s principle supplied a fundamental assumption about how market‑based systems are supposed to work. Not with water, but with money — and instead of pressure there’s profit potential. The idea is that just like water will flow everywhere in a connected system until the pressure is equalized, money will flow everywhere in an economy until no‑one thinks they can make more profit in one place than in another. It’s more complicated than your coffee urn, though.”

“I expect so — lots more opportunities.”

“Well, yes, but the force‑equivalent is more complicated, too. Gravity and atmospheric pressure both exert force in the same direction. When you’re considering an investment, what do you think about?”

“The net profit, of course — how much I could make against what it’ll cost me to get in.”

“How about risk?”

“Three guesses why I’m doing this no-cash. I know what you mean though — like what if this electric cord overheats and burns the place down. Not likely, I checked the wire gauge and the circuit box.”

“Good strategy — look at all the things that can go wrong and address what you can control. But there’s uncontrolables, right? From an Economics perspective, you need to put each risk in money terms. Take the likelihood that something bad will happen, multiply by the monetary loss if it does happen and you get monetary risk you’ve got to figure against that expected net profit. My point is that the Economics version of Pascal’s principle has to take account of forces that pull money towards an investment option AND forces that push money away.”

“Two-way stretch, huh?”

“Absolutely. Take a look at a stock or bond prospectus some day. You’ll see risk categories you’ve never even heard of. Bond analysts have a field day with that kind of stuff. Their job is to calculate likely growth and cash yield against likely risk and come up with a price.”

“Risky business.”

“Always the joker, Al.”

~~ Rich Olcott

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