The present problem of our economy is not a problem of goods or people. It is a problem of money. Money is why the economy is important.
It is impossible to understand the economy unless we can gauge the flow of money. Our present core money comprises inconvertible notes.
Money consists of real money, convertible notes and inconvertible notes. Each has its own characteristics, but people tend to mix them up, and such confusion upsets the economy.
The money economy was established when the value of money, or the numerical value, was substantiated by a physical substance called money.
The quantity of real money and convertible notes is limited, and money itself forms the commodity price. Basically, inconvertible notes are not restricted by the physical quantity of money. Exchange rates exist but they are not influenced by the commodity price.
Notes are supplied to the market though lending and public investment, and in both cases, the resource is borrowed money. Notes do not exist in the beginning.
A huge quantity
of notes is supplied to the market through public investment. The supplied
notes are collected a long time after the initial investment. The means of
collection is not taxation but repayment. The resource for repayment is
basically covered by the profit of the transaction. Namely, notes are supplied
to the market through investment and collected within the range of profit.
Notes are supplied to the market upon such investment and collected upon
repayment. To put this another way, notes flow to the market s
In the economy, the role and characteristic of time depends on its length. In economic events, the role of time is characterized by its length. Therefore, accounting measurements use the length of time as a reference.
Investment forms the flow of long-term funds and consumption forms the flow of short-term funds. The ratio of investment to consumption determines the function of funds.
The function of long-term funds is to keep the funds circulating in the market in a constant quantity. Short-term funds make the market exert its distribution function. To make the distribution function effective, it is necessary to balance income and consumption. This balance is realized by the relationship between profit and expense. And this is the structure of a market economy.
Long-term funds are collected from profit. Profit should be established with the premise that long-term funds will be collected. But, in light of periodical profit and loss, the collection and repayment of long-term funds do not come out into the open. That is why the flow of long-term funds gets disrupted when profit worsens or market competition gets stiffer. In the end, financial institutions try to withdraw long-term funds, which leads to a depletion of funds in the market.
The function of taxation is to circulate currency and redistribute income. The role of income redistribution is to circulate currency efficiently.
There is a time lag between the time when notes are supplied to the market through public investment and when those notes are collected. The quantity of long-term funds, i.e., notes circulating in the market, is adjusted through use of this time lag.
Money is nothing but a tool for economic activity. There is no purpose in accumulating money itself.
Notes circulating in the market are always under the pressure of collection. And that pressure serves to circulate the notes in the market. If collection of notes is the only activity, the amount of money circulating in the market will keep declining. That is why there is a need for continuing a certain level of investment. However, the quantity of notes would overflow if public investment was carried out aimlessly. So, the quantity of notes to be supplied is restricted by the scales of the economy and the market.