the value of time
Economic value includes many other values that cannot be converted to money. Also, some economic activities would be restricted if money were taken into account. The economy does not consist of money alone.
If some work is converted into work for pay, the concept of that work tends to be limited. And the limited concept restricts the scope and time of that work. When the scope of the work is limited, cracks could generate in the work more easily. This is a negative effect of a money economy.
Work not accompanied by monetary gain tends to be unofficial work. Therefore, the concept of work is extremely limited. In addition, the motivation for working is limited to monetary gain.
The motivation for child rearing is nothing but love for children. And those working hours cannot be limited.
If child rearing were converted into paid work, a mother’s work becomes meaningless. It is difficult to give a motivation for child rearing to mothers. Mothers would abandon child rearing and housekeeping, and they would seek work for pay outside the home. If general housekeeping were to be outsourced, the expenses would be excessive. In some cases, they would exceed the obtained income. In the end, the family budget could become bankrupt. Finally, child neglect would begin.
Domestic work is not limited to child rearing. It includes care of the elderly and general household duties. It was formerly thought that many of these tasks could not be assigned a monetary value. But, present measures tend to involve outsourcing all of these domestic tasks. And this could result in the destruction of communities including families and local societies.
Even in a money economy, money does not govern the overall economy. If we don’t grasp the role of the economy in a limited way, the economy would be jeopardized after all.
The introduction of the periodic profit and loss principle has given the value of time an important function. Accordingly, to control economic phenomena, it is important to keep the long-term and the short-term in balance.
With the addition of the time axis to economic value, the nature of the economy has drastically changed. This marked the beginning of our modern economy.
To understand the functions of long-term and short-term funds, it is necessary to clarify the relationships between assets, expenses, debt, capital, profits and funds.
The relationship between the functions of long-term funds and short-term funds appears in the ratio of assets to expenses.
Assets form the fund flow in a long-term cycle. Expenses form the fund flow in a short-term cycle.
While the funds in a long-term cycle form stock, the funds in a short-term cycle form the flow. The ratio of these two types of funds determines the level and volume of the currency flow. Funds are released to the market as investments in assets and are recovered as profits. Rotation of currency restricts the total volume of substantial money value in the market. If the rotation were to slow down or stop, the circulation volume of money would decline.
Long-term funds are an index showing the level of money flowing in the market. The fluidity of long-term funds can be measured by the speed of conversion into cash.
Therefore, it is important to clarify the ratios of liquid assets and fixed assets, of monetary assets and non-monetary assets, of financial assets and non-financial assets, and of amortizable assets and non-amortizable assets.
Monetary assets are assets that can be directly used for settlement not through market transactions. Namely, these are assets retained by the management entity in preparation for payment. In contracts, non-monetary assets mean assets that cannot be used for settlement without passing through market transactions.
Financial assets are reserved funds to be invested into the real market. Their ratio to real assets is important.
Amortizable assets are an index showing the recovery status of long-term funds, but they are not backed by money. The recovery status of long-term funds is expressed only as the balance in the debt account.
The calculation for knowing the efficiency of the long-term fund flow is:
Long-term Borrowing ÷ (Depreciation Expense + After-tax Profit).
With the use of accounting functions, the direction of cash flow needs to be scrutinized and controlled.
It should be noted that a sale is not always accompanied by cash income at the same time. If one does not correctly understand the relationship between periodic profit and loss and between income and expenditure, one cannot clarify the differences in the nature of the short-term function of money and the long-term function of money.
While long-term funds determine the level of currency flow volume, short-term funds determine the level of consumption, i.e., the level of income and commodity price.
Periodic profit and loss has definitely divided the functions of long-term and short-term funds by a unit period of time.
The value of time appears as an added value, or works with an added value.
The monetary value that constitutes the market has a moving portion and a resting portion. Money also has a moving portion and a resting portion, and it has different functions in each portion.
Long-term funds are a fixed portion and their position and level are important. In contrast, short-term funds form the fluctuating and floating portion.
In case of a household budget, repayment of a home loan means long-term funds. In contrast, disposable income means the portion of the short-term funds excluding the long-term funds, i.e., the floating funds.
Strictly speaking, it is more appropriate to say that money is filled rather than to say that money is floating. It is better to say that money maintains a certain function when it is kept at a certain level. When asset value declines rapidly, the level of money cannot be maintained.
Further, strictly speaking, it is only a small portion of money that is actually floating. It is more appropriate that most of the money is filled rather than floating. It is settled among banks.
In this light, whether or not labor, wealth and the volume, level and direction of currency flow in the market are well-balanced determines the condition of the economy.
The function of interest rates is important for the well-balanced value of time. Financial imbalance or collapse has made this function of interest rates unworkable. And this is a serious problem.
A serious financial problem is that the accumulation of national bonds restrains interest rates, and interest rates cannot be used in relation to fiscal policies. This situation remarkably reduces the value of time. When the value of time becomes inoperative, the market may risk becoming nonfunctional. This means that the values of long-term funds and short-term funds get out of balance.
In Japan, interest rates have been in a “zero” state for a long time. This means that the value of time is no longer functioning. The financial system has collapsed. At present, the economy is being controlled without regard for interest rates. However, interest rates are not decided based on domestic circumstances alone. A necessary consequence of this is that the economy goes out of control.
In a capitalistic economy, nations cannot help but follow the principles of capitalism. The problem is that finance has deviated from the principles of capitalism and there is no distinction between the long-term and the short-term.
It is important to incorporate business administration into economics.
When the economy collapsed, worsened corporate earnings, stagnant consumption, reduced income, declining asset values, sharp falling of stock prices, deflation and credit crunch seem to have occurred concurrently. In fact, however, there is an order to these phenomena. To identify the cause, it is important to know the order in which these phenomena occur.
The floating exchange rate system is a good example of a system that maintains earnings under economic conditions in which markets with different levels of development coexist. The present problem is that there is some tendency that makes the floating of exchange rates uncontrollable.
To maintain appropriate earnings, a pillar is necessary to shore up the earnings. When viewed from the opposite side, earnings are the cost structure. Profit is the value of time, and its reference is the interest rates. Unless interest rates are maintained, the value of time would become meaningless. Nonetheless, setting interest rates improperly would invite a prompt increase in prices.
It is the accounting system and market restrictions that maintain earnings. It is wrong to simply identify restrictions with protectionism. On the contrary, restriction with a strong protectionist tone would collapse the market functions. The main purpose of protection is not to protect the industries of one’s own country but to protect market functions.
Long-term functions and short-term functions coexist in the cost structure.
In the long-term view, the decisive factors in the cost structure are labor expenses and facility investment. In the short-term view, they are the fluctuation of raw material costs, exchange rates and interest rates.
If the number of housing starts is taken as an example, the change of the fundamental number depends on whether the demand for new construction is considered to be the fundamental number, or whether the demand for renovation is considered to be the fundamental number.
The problem is the coexistence of matured markets and growing markets. This causes a distorted earnings structure. Furthermore, distortions between nations cannot be adjusted properly, which makes the problem more serious. In terms of expenses, exchange rates and competitive power, nations with matured markets are always in a disadvantageous position against those having growing markets. Thus, for defensive purposes, they cannot help but become protectionists. When industrialization has advanced, differences in technical strength will no longer be a decisive factor.
The seniority system and lifetime employment system are acceptable only in a viable economy. Growth could correct the distortion of the seniority system. This means the balance between the long-term and short-term monetary values would be disrupted under a low-growth economy.
The core cost given to long-term economic fluctuation is labor expenses. This is because labor expenses result in increased purchasing power and commodity prices. Increases in purchasing power and commodity prices invite increases in currency. In addition, the level of labor expenses connects with the off-shore transfer of production sites.
Downward pressure is applied to the earnings of nations or regions with matured markets. Upward pressure is applied to the earnings of nations or regions with growing markets. Measures vary depending on how the earning structure, i.e., the cost structure, is recognized. Nations with matured markets exhibit hubris based on their past growth.
The problem of matured markets is that the reduced difference between the long-term and the short-term would reduce the earnings produced by the value of time. Because of this, proper earnings cannot be maintained, or interest rates would be utterly eliminated.
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