the Equivalent of Three Aspects
I have found another versatile means called statistics. But yet again, we will lose sight of the essence.
Improving information processing capabilities exerts overwhelming power for statistics. But at the same time, behind this lies the possibility of causing a serious problem. Statisticians get the wrong idea that the results they obtain are everything.
The key to information processing is a premise -- a system or an objective to be assumed.
Accounting is a field that enjoys the most affluent statistical information, and state-of-the-art information processing technology exerts the most power. This is because accounting is a mass of recorded numerical information. But on the other hand, accounting information is in fact used the least for economic issues.
Economic policies of the past are something like an accumulation of statistical experiments. And there is abundant data.
The concept of equivalency, as in the principle of the Equivalent of Three Aspects, is that the sum of an employer’s reward, surplus in operation and tax revenue and the sum of consumption, investment and savings, and the sum of labor cost, rent, profit, interest and depreciation are all equal.
When these are connected with periodic profit and loss, the labor cost corresponds to the employer’s reward, the interest to the financial expense and debt, the rent to the fixed assets, the depreciation to the non-monetary fund, and the profit to revenue.
Why does the principle of the Equivalent of Three Aspects work? It works because the amount of money flowing in the market for a certain period is calculated in three aspects: production, distribution and expenditure. In addition, the principle of the Equivalent of Three Aspects shows the routes of the money flow.
Therefore, when analyzing the principle of the Equivalent of Three Aspects, it is necessary to read the influence upon the money flow. One of the objectives of economic policy is to adjust appropriately the direction of money flowing in the market depending on the influence and functions that money has in the market.
Basically, the functions of periodical profit and loss consist of assets, expenses, debt and revenue.
Capital and profit are values that absolutely show results. They are important as the indexes that enable us to know the comprehensive results. To know the functions of capital and profit in the economy, it is important to grasp the changes of assets, expenses, debt and revenue.
The bases that define the direction of fund flow are debt and expenses. While debt represents long-term funds, expenses represent the flow of short-term funds, i.e., consumption. Assets back up debt, which is long-term fund. Revenue is a resource of expenses, which is the flow of short-term funds.
Regarding the fund flow direction, the flow of long-term funds depends on debt, while the flow of short-term funds depends on expenses. Long-term funds mean long-term distribution and short-term funds mean short-term distribution.
It is debt and expenses that play an important role in the economy.
Basically, it is all right if a trial balance can be reproduced. It is recommended that the share and fluctuation of assets, expenses, debt or profit are clarified using a trial balance.
The important point is whether the expense needed to sustain the economy is secured or not. As long as we view debt and expenses in a negative light, we cannot obtain an answer to this question.
It is necessary to view expenses from the perspective of the society as a whole. We should remember that the standard underlying expenses is necessity.
The problem is that the expenses required for producing necessities are not enough to cover the income of all the labor required. Therefore, extra work must be done. Naturally, this involves extra expenditure. Such expenditure is necessary. But, the problem lies in the rate of such expenditure.
Employment is created in the domain where money flows.
Economic packages deal with the issues of how much, where and how money should be flowed.
Ultimately, the scope and quantity of currency flow is important. This is the sum of profit/loss and borrowing/lending. If we understand this point fully, it is possible to estimate what occurred in industry.
Another important point is cash flow.
After that, statistics comes in.
There is abundant data for analyzing the effects of public works, interest measures, deregulation, retaliatory steps, the trend of exchange rates, the price trends of crude oil and agricultural products, the fluctuation of stock markets and the fluctuation of land prices in connection with assets, expenses, revenue and debt. Furthermore, it is possible to analyze these effects by industry or by region.
Nevertheless, some people stick to a classical statistic method from back when both the information amount and information processing capacity were low and accounting information was not used effectively. This is foolish. Accounting information should be directly reflected on economic policy.
Money flows from production through distribution to consumption. Basically, commodities flow in the same way. But, considering the timeliness, commodities flow one stage behind.
First of all, money is supplied. A capitalistic economy cannot start without money, i.e., funds. The funds are called the principal. The principal forms the capital.
But, where is the principal procured? It is procured as borrowed money, i.e., debt. When we trace debt to its source, we reach public debt. Public debt is the source of money.
Public debt did not exist from the beginning. Originally, actual objects of substance were used. These things developed into real money. Next, money evolved into convertible notes, which, in turn evolved into inconvertible notes. In this way, the foundation of the present monetary system was built.
As for income, living necessities and arable land were supplied in the beginning. Later, they were changed to actual objects and actual money.
At any rate, as a premise for the establishment of a capitalist system, a certain amount of real money needs to be supplied to society. Under an inconvertible currency system, the negative portion controls the amount of money. This means that the amount of paper currency distributed in the market is controlled by restricting the amount of public debt to a certain level.
Increasing the public debt makes it difficult to control the amount of distributed money flowing. That is a financial issue.
In the flowing processes of money, i.e., funds flowing from production through distribution to consumption, funds are separated into long-term investments and short-term consumption in their respective phases. Commodities flow in the opposite direction of the money flow.
Corporate taxes should be as low as possible. The reason for this is because a corporation is essentially a public institution rather than a private entity. A corporation has a structure that makes it difficult to save cash. In the long run, excessive taxes are accumulated as long-term funds.
The problem is the vague distinction between public and private affairs. Considering that a corporation is by its nature a public institution, the portion regarded as its private income should be subject to taxation.
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