Financial issues are issues of an imbalance of revenue and expenditure. Financial issues are not caused by an imbalance of profit and expense.

Income and expenditure refer to cash income and cash expenditure, and this means the release and collection of currency. The essence of finance is nothing but the release and collection of currency. Why must currency be collected after it is released? This is necessary because the functions of currency are activated by its circulation. If currency is not collected, the amount of currency in circulation cannot be controlled.

The value of money is a dimensionless quantity, i.e., a set of natural numbers. As such, the value of money would be inflated unlimitedly if upper limits were not fixed.
The amount of currency issued restricts the total quantity of the value of money.
The basic financial problem is how to control the supply of money. The money supply control system consists of the currency issuing system, the monetary system and the financial system. The monetary system is the system that circulates currency and the financial system is the system that releases and collects currency.

Whether the amount of currency issued tends to be inflated or deflated depends on the financial structure, and this is basically a mathematical problem.
It is national bonds that control the money supply.

Under a money economy system, the money supply and its direction determine the functions of the economy. Debts and credits act on the direction of the flow of funds.

A nonbiased supply of money appropriate for the scale of the market and economy is one of the conditions for a stable economy. One of the causes of an unstable economy is discrepancy in the money supply, such as an excessive supply relative to the scale of the market or the economy, a discontinuation of the money supply or a biased supply.

The money supply must be adjusted in connection with the expansion or contraction of the market.

To analyze the soundness of finance, the issues of income and expenditure should be considered separately.


Financial income is restricted by measures. The measures used to obtain financial income depend on the system for collecting funds. This means that the issue of financial income is an issue of the system for collecting funds.
The collection system includes the tax system, operating income, seigniorage and profit from issuing stocks. The profit from issuing stocks comes about when a state enterprise is privatized. Seigniorage builds up public debts and public credits. Seigniorage and profit from issuing stocks are tentative income. Seigniorage does not always come up in finance because it is attributed to the institution that issues currency.

Nonetheless, utilization of seigniorage and profit from issuing stock are a key to financial reconstruction.

To maintain sound finance, the tax system should be able to grasp the scale of the economy and incorporate measures into the system to adjust the direction of the economy.

Debt is a kind of means of increasing funds. Long-term and short-term debt differ in terms of their functions and operation. As such, with regard to national bonds, it is necessary to differentiate between long-term national bonds and short-term national bonds depending on the objective.

The foundation of representational currency is open-ended debt, and the foundation of paper currency is a due bill.
When paper currency is issued, public debts and public credits in the same amount come into existence. That is to say, currency, public debts and public credits comes to be as a result of the issuance of currency.

While public credits represent the positive function of paper currency, public debts represent its negative function.

It is a perceived notion that borrowed money must be repaid at any cost. Public debts such as national bonds are not always based on the premise that they should be repaid. This is because public credits are antithetic to public debts, and public debts serve to set the upper limits of the money supply. The problem occurs when public debts are inflated without limit.

The same can be said about company management. Debts are not an obstacle to company management. But, the problem occurs when debts increase endlessly while long-term funds are collected in a tight cash-flow situation brought about by a decline in profits. However, the collection of long-term funds is a financial problem rather than a managerial problem.

What is important is whether the amount of public credits, public debts and currency in circulation comply with the scale of the market. When an imbalance occurs, commodity prices may rise or financial strain may be caused. The amount of national bonds would become uncontrollable. A rough barometer of this situation lies in the primary balance.

In company management, this is the rate of profit and interest versus credits and debts.

The means for clearing away national bonds is to collect currency though taxation, operating profits and profit from issuing stock.
When the relationships between national bonds, financial income and expenditure, and the supply and collection of currency fail to maintain a balance, national bonds inflate without limit.

Financial expenditure is demanded by the financial functions. These financial functions comprise administration, the redistribution of income, and investment in social capital.
Thus, financial expenditure consists of the resources required for income redistribution, public investment and administration costs. There are three problems related to financial expenditure: (1) how to associate income and income redistribution directly, (2) how to determine social capital that will result in reproduction and reinvestment and (3) how to streamline administration expenditure (including defense costs and education expenses).

When income loses touch with resources for redistribution, income redistribution becomes a problem. If changes in income cannot be reflected in redistribution, income and redistribution would fail to be linked directly. In such a case, despite an economic recession and reduced income, a phenomenon of inflated resources for redistribution would occur.

Public investment problems are mainly caused by the fact that public investment is involved in extended reproduction or reinvestment. Other causes are in connection with established interest and inflexible public investment.

Public investment should be considered based on the national blueprint, with a long-term outlook and in connection with the economic conditions of each fiscal year. Public investment should not be used as an ad hoc economy-boosting measure.

Another cause of worsened finance is excessive administration expenditure.
In particular, it is difficult to set the upper limit on defense costs. This is because cost-benefit analysis of defense spending is difficult. After all, a counterpart is assumed when defense spending is taken into consideration.
Remember that national defense is based on a concept that is guided by a nation-building philosophy. Also, we should keep in mind that military action is the most influential cause of financial collapse.

Unlike private companies, the nation’s financial deficit is based on cash flow, which makes financial deficit difficult to understand. In cash basis accounting, the long-term function of funds and the short-term function of funds cannot be separated. Therefore, cost-effectiveness is not clear.
Accounting problems in finance occur partly because long-term funds and short-term funds are not separated.

To measure the cost-effectiveness of administration, one means is to adopt the idea of periodic profit and loss into part of the administrative expenditure.
The difference of cash basis accounting, which is the base for finance, and the idea of periodic profit and loss is as follows: while cash basis accounting adopts a single-year balance concept, the idea of periodic profit and loss focuses on a long-term balance. The difference of cash basis accounting and the idea of periodic profit and loss can be clearly observed in the handling of long-term funds.

The objective of shifting to the idea of periodical profit and loss involves separating long-term funds from short-term funds and clarifying cost-effectiveness. Certainly, the ultimate objective is to connect labor with distribution. As such, the aim is to introduce the idea of profit into public works. One of the means to this end is privatization. It is too rough to advocate privatization without such an objective. In summary, the effects of privatization depend on the operations and objectives of a given project.