The economy is about mathematics.
The economy is about mathematics.
Because it involves mathematics, the economy is inherently simple and logical. Also, numbers do not lie. The lies come from the humans who use the numbers. But, there are limits to deception no matter how much one lies.
However, mathematical economics is based on vague hypotheses. Economics is more of a literary discipline than a mathematical one. There are as many hypotheses that are complex and bizarre as there are economists, and there are no means to validate them.
Numbers originally existed before letter forms even came into being and numbers developed along with the economy.
The economy had its start in counting first of all and then it turned to measurements. The economy began with counting things, and natural science began with measuring things.
While the mathematics that is involved with science is rooted in natural phenomena, mathematical economics involves hypotheses. The economy that is involved and rooted in our daily lives is something artificial. Although mathematical economics is concentrated in accounting, economics is not rooted in accounting.
The keys to mathematical economics are the initial settings and the assumptions that are made.
It is possible to simulate economic phenomena by modeling the mechanisms of the economy, defining the requirements based on the initial settings and assumptions, and clarifying the algorithms.
Very accurate forecasts become possible when we are able to simulate economic phenomena.
When accurate forecasts become possible, we can also identify the direction in which we should go.
It is important to clearly distinguish between assumption-based accounts and cash-based accounts.
The economy of today may be considered to be in a state where we have to assume the worst of all happening.
But, the fact that we have to assume the worst does not necessarily mean that the worst will come to be. Rather, the point is that this is a time when we have to assume the worst.
Forewarned is forearmed. So then, what is to be done first of all about the worst of circumstances occurring?
This is not a time to discuss whether or not an earthquake will occur. What I am saying is only that it is necessary to take measures to be prepared in the event that an earthquake occurs.
Even if we assume the worst situation, we might not be able to avoid it, but is important to be able to control the risk by forecasting the worst of circumstances and supplementing in advance in case the worst happens. We will not be able to take any measures if we think that it is useless to assume the worst.
The economy involves activities that people engage in to live their lives, and distribution is essential to our economic mechanisms.
Distribution takes place in two stages, in the distribution of money and in the purchase of goods.
The distribution of money occurs in an organized manner and purchases of goods are done through the markets.
Economic transactions are made up of two economic entities. Fundamentally, economic transactions involve counterpart entities.
Even transactions involving two or more entities are broken down into one-to-one relationships in accounting.
Unit transactions in accounting are reduced to a one-to-one relationship.
The meaning of a transaction is the exchange of goods and "money" or the exchange of rights and "money."
The exchange of rights and “money” results in the same amount of debit and credit. When a transaction occurs an equivalence is assumed. For this reason, the total amount resulting from a transaction is set to be a zero sum.
The exchange of goods and “money” forms profit and loss and flow. And the exchange of rights and “money” forms lending and capital transactions and stock. Profit and loss transactions are achieved through buying and selling, and lending transactions are made up of lending and borrowing. Capital transactions are an extension of lending transactions, and they fundamentally have the same quality.
When viewed from the way that "money" functions, transactions appear as deposits to and withdrawals from the economic entities involved.
In other words, the deposit to one economic entity always assumes a withdrawal from the other economic entity in the same amount.
One side's income is the other side's expenditure, and one side's revenue is the other side's cost. If the interaction between production and distribution is not considered from this relationship, there will be a lack of consistency between the parts and the whole.
The smallest unit of an economic entity is an individual person. Individuals collectively form the sectional parts of the economy: non-financial corporations, households, public finance, non-performing and not-for-profit organizations, and financial corporations.
Economic entities are involved in external transactions and internal transactions. The sum of the external transactions is a zero sum, and profit is derived from internal transactions.
The aspects of economic phenomena include production, distribution, consumption, and savings. Each of the aspects functions by means of its own mechanisms.
Production logic and distribution logic exist in different dimensions. But even as such, they share an organization of economic entities.
The way in which the mechanisms of distribution and the mechanisms of production maintain consistency is tied to the structure of consumption, and this offers a clue to a solution.
The functioning of the economic entities is not singular but multiple. And the functioning occurs differently in each of the aspects of production, distribution, consumption, and savings.
The functioning of the economy is balanced in horizontal and vertical directions, and between the sectional parts, and along a time axis.
By considering the mechanisms of the economy along this balance, we can see a way to control it.
Added value is the outcome of economic activity. The outcome of economic activity can be expressed as added value.
Added value creates time value.
The functioning of added value is condensed in distribution.
As the objective of the mechanisms of the economy is distribution, added value represents the substance of the economic mechanisms.
Added value is distributed among the sectional parts of the economy. The roles of the sectional parts will be determined by the added value distributed among them.
In addition, added value is also distributed according to functions. Consumption and investment have value-added functions. For consumption and investment, if we focus on the functioning of funds, the functioning of funds in the unit period and the functioning of funds outside the unit period can be switched.
The issue is the power relationship between the elements and the relationship with the underlying power elements, and this is the relationship of lending and borrowing between the sectional parts of the economy. And how to adjust each element according to where the limit points are for maintaining the overall relationships will come into view.
Here, the main points are to identify what elements can be directly influenced or moved, and then to narrow them down to what elements do you actually manipulate among those elements that can be moved or controlled directly.
The most clumsy thing would be that you cannot adapt to changes in the situation, or conversely, you cannot control yourself from being dragged along by changes in the situation.
The mechanisms of the economy are controlled by maintaining a state of added value. For this reason, it is necessary to understand the relationships between the functioning of the elements that make up added value and the elements that underlie those elements.
The mechanisms of the economy involve mathematics. Highly accurate forecasts are possible only if requirement definitions and algorithms can be set.
Unfortunately, the economy is heading for the worst of circumstances.
In spite of that, if we can make assumptions about prospects for the economy, then it is possible to find measures to cope with even the worst situation, and to manage not only the worst of circumstances but the risks as well.
Most of the requirements have been defined, but while giving an opinion, I was able to translate up to here. But, if we have outstanding system engineers, then I think that systems for the future can be planned.
The important point is to implement the necessary measures before the current mechanisms of the economy reach their limits.
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