Note:
This article is a revised version of “8E – The Sources of Surplus.” In this revision, the logical structure of Section 2.4 has been refined to more clearly reflect the sequential reasoning behind the origin of monetary surplus. The core argument remains the same, but the flow of explanation has been improved for clarity and consistency.
Structure of This Article
This article proceeds as follows:
1. Introduction: Surplus Seeks Money
2. Analysis of Self-Contained Flow Cycles: Exploring the Sources of Surplus
2.1 Development Structures within Self-Contained Flow Cycles
(Primary and Secondary Development Types)
2.2 Classification of Development Types within Self-Contained Flow Cycles
(1) Self-Contained Stock Change (Without Labor Input)
(2) Recovery of Labor through Consumption Flows
(3) Recovery of PSA through Labor-Driven Operational Flows
(4) Recovery of Money through Labor-Driven Operational
Summary: Classification of Development Types by Surplus Elements
2.3 Analysis of Primary Development Types
(2.3.1) In-Depth Review of Primary Development Types
(2.3.2) Conclusion: The Fundamental Structure of Surplus Generation in Primary
Development
2.4 Analysis of Secondary Development Types
2.5 Summary: The Sources of Surplus
3. Conclusion — The Three Sources of Surplus
This article constitutes the second part of Structure Analysis (3): The Emergence of Surplus.
In the previous part (Structural Analysis (3) – Part 1: The Generation of Surplus), we examined the eight types of asset changes and concluded that surplus arises exclusively within self-contained flow cycles. Furthermore, we confirmed that it is the mutual circulation between consumption flows and operational flows that forms the structural foundation supporting the emergence of surplus.
In this part, we take one step deeper into that structure to explore the sources of surplus — that is, we aim to clarify the structural conditions, components, and processes underlying the phenomenon of surplus generation.
1. Introduction: Surplus Seeks Money
In the previous part, we confirmed that surplus arises exclusively within self-contained flow cycles. There, we introduced typical cases such as:
- recovery of labor by consuming PSA (e.g., food) in consumption flows; and
- recovery of PSA by deploying labor in operational flows.
However, one fundamental question remains:
How can we recognize that “the amount recovered exceeds the amount deployed”?
For instance, when one feels stronger in the afternoon than in the morning after eating breakfast, on what basis is this judged as “more”? Or, when a fisherman perceives that the catch of the day outweighs the labor deployed, what kind of comparison is being made?
At this point, a unified standard that enables comparison across qualitatively different entities becomes necessary — namely, Money.
Whenever we speak of “surplus,” the very notion presupposes the existence of some form of “excess” or “net gain.” However, such excess can only be explicitly recognized through quantitative comparison. And the most widely used basis for such comparison is monetary valuation.
For example:
- Consumption Flow: PSA (food) ＜ Labor (restored physical strength)
- Operational Flow: Labor deployed ＜ PSA (catch or manufactured goods)
In order to answer which side is “greater” in these cases, both labor and PSA need to be converted into a common denominator — money. In other words, to declare that “a surplus has been generated,” it is essential that both inputs and recoveries are monetarily measurable.
Thus, surplus is not simply a phenomenon that occurs; it is a structural surplus that becomes recognized only when measured in monetary terms and recorded on the balance sheet.
Put differently, surplus inherently seeks money in order to be recognized.
The Three Functions of Money
At this point, the three classic functions of money become crucial:
- Medium of Exchange
- Unit of Account
- Store of Value
Among these, the function essential for surplus recognition is the second: Unit of Account.
This function enables qualitatively different assets (such as labor and food, or labor and manufactured goods) to be converted into a common standard for comparison through money.
Furthermore, within the Three-Layer BS Framework, all assets are ultimately recorded through monetary valuation. Even non-monetary assets can only be evaluated in terms of “recovery exceeding input” when converted into monetary terms — it is only within this framework that the very concept of surplus can exist.
Thus, surplus seeks money — not as a metaphor, but as a structural necessity.
Of course, the monetary valuation of non-monetary assets is always subject to the instability of price fluctuations. Even for the same transaction, depending on the timing of valuation, what appears as a surplus today may appear as a loss tomorrow.
This issue will be examined in greater depth in the future, as we explore the fundamental nature of money in subsequent discussions.
For now, based on this premise, we will proceed to explore the question: Where does surplus come from? In doing so, we will analyze the internal structure of self-contained flow cycles.
2. Analysis of Self-Contained Flow Cycles: Exploring the Sources of Surplus
In the previous part, we positioned Self-Contained Flow Cycles (SCF) as the only type of asset change capable of generating surplus.
In this chapter, we will delve deeper into the internal structure of these self-contained flow cycles and clarify where surplus actually arises and what its concrete sources are.
Surplus arises when the recovered value exceeds the deployed value, measured either in money or in assets converted into monetary terms.
In other words, even when the assets involved in deployment and recovery are of different natures, surplus can be recognized as “excess recovery” once both are converted into monetary terms and compared on the same basis.
So, what exactly takes place inside a self-contained flow cycle?
In the next section, we will structurally classify these flows by dividing them into primary development (self-completed asset changes) and secondary development (asset changes involving inter-entity relationships with external entities).
2.1 Development Structures within Self-Contained Flow Cycles (Primary and Secondary Development Types)
Even within self-contained flow cycles, the internal structures are not uniform.
The combinations of asset elements involved in deployment and recovery—labor (LBR), pure stock assets (PSA), and money (MNY)—as well as the types of flows (consumption flows and operational flows), give rise to various variations.
When organizing these diverse types, the following classification becomes essential:
- Primary Development Type:
The type in which deployment and recovery are completed entirely within the self-contained flow cycle (SCF). - Secondary Development Type:
The type in which assets deployed in primary development are subsequently extended to external entities, and the outcomes are ultimately recovered within the primary flow cycle.
From this perspective, even activities that superficially appear self-contained may actually involve secondary transactional structures — namely, inter-entity flow cycles or inter-entity stock changes.
For example, in manufacturing operations that procure raw materials from external sources, such procurement clearly involves secondary exchanges.
Illustration of Primary Development Type:
Illustration of Secondary Development Type:
In the following sections, we will examine the representative types within self-contained flow cycles, classify each as either primary or secondary development, and analyze where surplus arises in each case.
2.2 Classification of Development Types within Self-Contained Flow Cycles
As confirmed in the previous section, self-contained flow cycles consist of both “primary development types,” where deployment and recovery are completed entirely within the self-contained flow cycle (SCF), and “secondary development types,” which involve relationships with external entities.
In this section, we classify each of the previously examined flow types into either the primary or secondary development category.
(1) Self-Contained Stock Change (Without Labor Input)
No Input; PSA Recovered from Nature
Example: Gathering natural products, such as collecting fallen nuts or fruits
Classification: Primary Development Type
Illustration:
This is the most primitive form of asset change. With zero deployment, PSA acquired directly from nature is simply added as assets. This represents the purest form of asset generation through Single-Entity Co-Generation, and is fully Self-Contained.
(2) Recovery of Labor through Consumption Flows
PSA Deployed to Recover Labor
Example: Recovery of physical and mental strength through food consumption
Classification: Primary Development Type
Illustration:
In this type, PSA (such as food) is deployed, and labor is recovered. Since labor and PSA are qualitatively different and non-monetary, monetary valuation is required to recognize surplus. However, the flow structure itself remains fully Self-Contained.
(3) Recovery of PSA through Labor-Driven Operational Flows
(3-a-1) Labor Deployed to Acquire PSA
Example: Hunting and fishing
Classification: Primary Development Type
Illustration:
Labor is deployed into nature to acquire PSA. While this differs from self-contained stock change in that labor input is involved, it remains fully Self-Contained without involvement of other entities.
(3-a-2) Labor Deployed to Create PSA
Example: Writing novels, designing architecture, inventing new tools
Classification: Primary Development Type
Illustration:
Labor is deployed internally to create intangible PSA such as knowledge, art, or design. This process is fully Self-Contained, as it relies solely on the internal capacity of the entity without any involvement of external resources.
(3-b-1) Labor Deployed to Acquire and Transform PSA
Example: Furniture making using self-cut timber
Classification: Primary Development Type
(3-b-2) Labor and PSA Deployed to Transform PSA
Example: Furniture making using pre-acquired timber
Classification: Primary Development Type
Illustration: (3-b-1)
In both cases, labor is deployed to transform PSA into an enhanced form.
Whether the PSA is acquired during the process or pre-acquired in advance, the flow remains entirely Self-Contained without involving any external entities.
(3-c-1) Labor and Money Deployed to Produce PSA via Lending Flow
Example: Manufacturing operations using rented machinery from external entities
Classification: Secondary Development Type (Lending Flow)
Illustration:
Here, money deployed in primary development is extended into external Lending Flows, and the resulting assets are processed within the self-contained flow cycle. Thus, this involves Secondary Development through Lending Flow with external entities.
(3-c-2) Labor and Money Deployed to Produce PSA via Exchange
Example: Manufacturing using externally purchased raw materials
Classification: Secondary Development Type (Exchange)
Illustration:
Money deployed in primary development is used to purchase materials from external suppliers through Exchange. These externally acquired materials are then processed within the self-contained flow cycle, making this a Secondary Development involving Inter-Entity Stock Changes.
(4) Recovery of Money through Labor-Driven Operational Flows
(4-a) Labor Deployed to Recover Money via Exchange
Example: Wage labor
Classification: Secondary Development Type (Exchange)
Illustration:
In this case, labor is deployed into wage labor flows, and wages are recovered. The labor deployed in primary development is extended into Exchange relationships with external employers.
This constitutes Secondary Development (Exchange).
(4-b-1) Labor and PSA Deployed to Recover Money via Exchange
Example: Product manufacturing and sales
Classification: Secondary Development Type (Exchange)
Illustration:
Labor and PSA are deployed to manufacture products, which are then sold to external customers. The products, transformed within the self-contained flow cycle, are extended into Exchange relationships with external purchasers. This constitutes Secondary Development (Exchange).
(4-b-2) Labor and PSA Deployed to Recover Money via Investment Flow
Example: Cash dividends from capital contributions in kind
Classification: Secondary Development Type (Investment Flow)
Illustration:
Labor and PSA are deployed to operate an investment business. The contributed assets are extended into Investment Flows with external investees, generating cash returns.
This constitutes Secondary Development (Investment Flow).
(4-c-1) Labor and Money Deployed to Recover Money via Lending Flow
Example: Money lending business
Classification: Secondary Development Type (Lending Flow)
Illustration:
Money and labor are deployed to operate lending businesses. The funds deployed in primary development are extended into lending flows with external borrowers.
This constitutes Secondary Development (Lending Flow).
(4-c-2) Labor and Money Deployed to Recover Money via Investment Flow
Example: Investment company operations
Classification: Secondary Development Type (Investment Flow)
Illustration:
Money and labor are deployed into investment businesses, where funds are extended into investment flows with external investees to generate investment returns.
This constitutes Secondary Development (Investment Flow).
Summary: Classification of Development Types by Surplus Elements
- Labor: Consumption Flow → Primary Development Type
- PSA:
- Self-Contained Stock Change → Primary Development Type
- Operational Flow → Primary / Secondary Development Type - Money: Operational Flow → Secondary Development Type
In the next section, we will examine how surplus is actually generated within each development type.
2.3 Analysis of Primary Development Types
In the preceding section, we classified the individual flow patterns within self-contained flow cycles into Primary and Secondary Development Types.
Here, we focus on Primary Development Types and explore how surplus is generated within these flows, identifying their structural patterns and sources.
(2.3.1) In-Depth Review of Primary Development Types
In this subsection, we will analyze the surplus generation mechanisms within each Primary Development Type and examine their structural characteristics.
(1) Self-Contained Stock Change
No Input; PSA Recovered from Nature
Example: Gathering naturally available nuts or collecting river water
Illustration:
This type generates surplus without any labor input, as PSA (natural resources) is acquired directly from nature. The surplus source here is nature itself. The increase in assets (recovery) is directly granted by the natural environment.
(2) Recovery of Labor through Consumption Flows
PSA Deployed to Recover Labor
Example: Recovery of physical or mental energy by consuming food
Illustration:
In this type, PSA (such as food) is deployed, and labor is recovered. Surplus arises when the labor recovered exceeds the value of PSA deployed. The surplus source here is PSA (food, content, etc.).
Since labor and PSA are qualitatively distinct assets, both need to be converted into monetary terms to confirm surplus generation.
Consumption flows serve as one side of the circulation cycle between labor and PSA, where the recovered labor is again deployed into operational flows to acquire new PSA.
(3) Recovery of PSA through Operational Flows
Operational flows that lead to the recovery or generation of PSA can be classified into the following five types.
Although the first type does not fall under Operational Flows in the Asset Movement Typologies (4 Quadrants, 8 Types), it shares the same structural feature—PSA is recovered without any asset input—and is therefore included here as part of the broader operational flow group.
- (1) No Input; PSA Recovered from Nature
Example: Gathering natural products, such as fallen nuts - (3-a-1) Labor Deployed to Acquire PSA
Example: Hunting and fishing - (3-a-2) Labor Deployed to Create PSA
Example: Writing novels, designing architecture - (3-b-1) Labor Deployed to Acquire and Transform PSA
Example: Furniture making using self-cut timber - (3-b-2) Labor and PSA Deployed to Transform PSA
Example: Furniture making using pre-acquired timber
These five types vary in process and inputs, but they share a common structural feature:
No PSA surplus can be generated through operational flows without labor.
・In type (1), no input is required—neither labor nor PSA. PSA is directly recovered from nature.
This type is categorized as a Self-Contained Stock Change, but it can also be structurally interpreted as a special case of operational flow — a No-Input Operational Flow — since it shares the same outcome: the recovery of PSA.
However, unlike the other types, surplus arises here without labor input, and the source of surplus is nature itself, not labor.
Illustration:
・In types (3-a-1) and (3-a-2), labor is the sole input that enables either the acquisition or creation of PSA. Without labor, nothing is recovered or produced.
Illustration:
・In types (3-b-1) and (3-b-2), labor is deployed to transform PSA into an enhanced form.
In (3-b-1), labor is also involved in acquiring the raw PSA (e.g., cutting timber before furniture making), while in (3-b-2), the PSA has already been acquired.
But in both cases, it is labor that drives the entire transformation process.
Without labor, no change occurs — no surplus is generated.
Illustration:
Across all five cases, labor is not merely a contributing factor—it is the structural prerequisite that enables PSA recovery or transformation.
In Operational Flows, Labor is the essential driver and thus the sole structural source of surplus.
(2.3.2) Conclusion: The Fundamental Structure of Surplus Generation in Primary Development
The surplus generated in Primary Development Types stems from a clear structural logic, rooted in the asymmetric deployment and recovery of distinct asset types.
- In consumption flows, surplus arises when PSA is consumed and labor is recovered. The structural source of surplus is PSA, which enables the regeneration of labor.
- In operational flows (including self-contained stock change), surplus arises when labor is deployed and PSA is recovered or created. Here, the structural source of surplus is labor, which enables the acquisition or transformation of PSA.
As confirmed in Structural Analysis (3) – Part 1: The Generation of Surplus, consumption flows and operational flows are not independent—they form a loop, continuously feeding into one another.
Labor recovered through consumption flows can be fed into operational flows, and PSA recovered through operational flows can be cycled back into consumption flows.
Together, these two types of flow form a Interdependent Flow Loop—a mutually sustaining circulation of deployment and recovery.
Illustration:
PSA–LBR Circulation as a Substructure of the Surplus Loop
(Extracted from Part 1, Section 3.2: “Core Components and Cycles of Surplus”)
This illustration is a partial representation of the full surplus loop introduced earlier, highlighting the reciprocal flow between PSA and labor within the Interdependent Flow Loop.
Although surplus is generated within each flow individually, their interdependence reinforces the continuity of this surplus generation over time.
In this sense, the loop formed by consumption and operational flows serves as the underlying structure that sustains surplus through primary development.
2.4 Analysis of Secondary Development Types
Secondary Development involves an expanded structure within a self-contained flow cycle. Here, assets initially deployed in the Primary Layer are temporarily extended into the Secondary Layer and engaged in inter-entity transactions—such as Exchange, Lending, or Investment Flows. The result is that the newly returned asset—whether unchanged or value-enhanced—reintegrates into the original cycle, completing the loop. If the recovered asset’s value exceeds the original input, surplus arises.
However, as established in Structural Analysis (3) – Part 1: The Generation of Surplus, these inter-entity transactions are purely asset transfers without any inherent structural mechanism for surplus generation.
Therefore, surplus does not originate within Secondary Development. Its structural source lies outside these inter-entity transactions.
What lies outside?
First, we revisit the Primary Self‑Contained Flow Cycle. As shown in Section 2.3, this internal structure—based on the interdependent circulation of Labor and PSA—can generate surplus. However, money does not appear in this flow at all.
Therefore, when seeking the source of monetary surplus, we are left with only one remaining domain: the Secondary Development — that is, inter-entity transactions such as Exchange, Lending, and Investment flows.
Yet, as confirmed in Structural Analysis (3) – Part 1: The Generation of Surplus, these inter-entity transactions are mere transfers of existing assets. They lack any structural mechanism for generating surplus.
Thus, we are forced to look even further outside to identify the source of the money that circulates within these inter-entity asset movements.
This leads us to a single structural conclusion:
All monetary inflows, when traced to their ultimate origin, converge upon Money Issuance.
2.5 Summary: The Sources of Surplus
Throughout this chapter, we analyzed how surplus is structurally generated within self-contained flow cycles, distinguishing between primary and secondary development.
Primary development includes:
・The recovery of labor through Consumption Flows enabled by PSA
・The recovery or creation of PSA through labor-driven Operational Flows
These types generate surplus internally, based on the asymmetry between deployed inputs and recovered outputs.
Secondary development, in contrast, involves inter-entity transactions such as Exchange, Lending Flows, and Investment Flows. These transactions do not generate surplus themselves.
With labor and PSA already identified as surplus-generating within Primary Development, the final element—money—remains.
Since money plays no role in primary development, and secondary development does not generate surplus either, we must trace the origin of money inflows to a source external to the cycle.
Ultimately, this leads to one structural conclusion:
All monetary inflows, when traced back, converge upon Money Issuance.
Thus, surplus ultimately stems from three distinct sources:
- Labor-based surplus, generated by recovering labor through Consumption Flows enabled by PSA
- PSA-based surplus, generated by acquiring or creating PSA through labor-driven Operational Flows
- Monetary surplus, derived externally from money issuance
3. Conclusion – The Three Sources of Surplus
In the previous post (Structural Analysis (3) – Part 1: The Generation of Surplus), we established that surplus can only be structurally generated within self-contained flow cycles.
This post took a deeper look into the internal structure of these cycles to identify how surplus is actually generated and what its sources are, where even non-monetary assets must be measured and recognized in monetary terms for surplus to be identified.
We first confirmed that self-contained flow cycles can be divided into two types: Primary Development, which completes within a single entity, and Secondary Development, which extends into Inter-Entity transactions.
Within Primary Development, we identified two types of surplus generation:
- The recovery of labor through Consumption Flows enabled by PSA
- The recovery or creation of PSA through labor-driven Operational Flows
Money, however, does not appear in primary development.
To investigate monetary surplus, we turned to secondary development, which includes Exchanges, Lending Flows, and Investment Flows.
But as already shown in Structural Analysis (3) – Part 1: The Generation of Surplus, these asset transfers do not generate surplus in themselves.
Therefore, to trace the origin of monetary surplus, we had to look beyond secondary development.
Ultimately, all monetary inflows—when followed back to their structural root—lead us to one conclusion: money issuance.
In summary, surplus originates from three distinct sources:
- Labor-based surplus: generated by PSA through Consumption Flows
- PSA-based surplus: generated through labor-driven Operational Flows
- Monetary surplus: derived externally from money issuance
The mechanism of money issuance—what exactly happens there, whether surplus is created in the process, and how—is not yet fully addressed in this post.
These questions will be explored in future posts.
