<P> The first to visualize the modern circular flow of income model was Frank Knight in 1933 publication of The Economic Organization . Knight (1933) explained: </P> <Dl> <Dd> (we may view the) economic organization as a system of prize relations . Seen in the large, free enterprise is an organization of production and distribution in which individuals or family units get their real income, their "living," by selling productive power for money to "business units" or "enterprises", and buying with the money income thus obtained the direct goods and services which they consume . This view, it will be remembered, ignores for the sake of simplicity the fact that an appreciable fraction of the productive power in use at any time is not really employed in satisfying current wants but to make provision for increased want - satisfaction in the future; it treats society as it would be, or would tend to become, with progress absent, or in a "static" state . </Dd> </Dl> <Dd> (we may view the) economic organization as a system of prize relations . Seen in the large, free enterprise is an organization of production and distribution in which individuals or family units get their real income, their "living," by selling productive power for money to "business units" or "enterprises", and buying with the money income thus obtained the direct goods and services which they consume . This view, it will be remembered, ignores for the sake of simplicity the fact that an appreciable fraction of the productive power in use at any time is not really employed in satisfying current wants but to make provision for increased want - satisfaction in the future; it treats society as it would be, or would tend to become, with progress absent, or in a "static" state . </Dd> <P> Knight pictured a circulation of money and circulation of economic value between people (individuals, families) and business enterprises as a group, explaining: "The general character of an enterprise system, reduced to its very simplest terms, can be illustrated by a diagram showing the exchange of productive power for consumption goods between individuals and business units, mediated by the circulation of money, and suggesting the familiar figure of the wheel of wealth ." </P>

Circular flow of income and expenditure in two three and four sector model