The contemporary economy presumes change.
The problem is that businesses are drying up and skilled craftsmen can’t make a living. It means a denial of culture and of life itself.
Do you want to see a ghost town where you cannot feel breath of living residents? People are not things.
Though it might be an extreme example, do you think it would be ideal for food to taste the same in all restaurants all over the world the world, or for all foods to be produced in factories?
During Japan’s bubble economy, one of my acquaintances had purchased a home in a regional medium-sized city. Every autumn, a festival is held there and he still visits every year. He says that he was surprised when he visited this year.
What surprised him was the fact that the city has changed completely in a year.
When his car ran out of gas and he tried to get it filled at a gas station, he found that many of the gas stations that had been open through last year had since closed. He had lived there for a long time and should have been familiar with the area, but now he found himself at a loss as to where he could get some gasoline.
At night he went out to buy food at a nearby supermarket and found that the supermarket, which had been in business up to last year, had closed down. So he had to walk some 25 minutes to reach another supermarket in the neighborhood. He became suspicious upon reaching it because that supermarket was dark inside.
On the premises of that supermarket, a 100-yen shop occupied a large space, but even that 100-yen shop would soon be shutting its doors. So no one knows when the supermarket itself would be forced to close.
Before then, greengrocers and fish stores had dried up and shopping malls had been long-shuttered.
Not only shopping malls but also small factory districts have declined due to a series of yen appreciations. The other day, the news of a long-shuttered parts shopping street in Hamamatsu was reported on TV and attracted much attention.
My acquaintance whined that he had heard the term “living in a food desert” but he had actually realized the situation for the first time when he experienced it. For the elderly who don’t drive, cities have become inconvenient places to live.
Nevertheless, it is not easy to sell expensive real estate assets purchased during the bubble era. Housing prices are only one-tenth of those during the bubble economy, so even after a home is sold, payments of the outstanding loan would remain.
Is such a market where retailers and single-proprietor shops dry up really effective?
Retail store owners and single-proprietor business owners do not want to live in luxury but want to live a low-profile comfortable life. Should productivity and efficiency be pursued even by stripping such people of the little happiness they can enjoy? Or, should we make them become wage workers? First of all, it is necessary to re-affirm what human happiness is.
Fundamentally, retail businesses should be able to operate independently from exchange rate fluctuations. If discount shops become widespread and put the squeeze on profits every time the exchange rate fluctuates, retail businesses would dry up.
Should monopolies be permitted, or should agreements be made? It is a problem of which option to choose: a dictatorship or a coalition. If you value freedom, you cannot disregard rules. If disorder were to prevail, it would clear the way for a dictatorship.
The distribution industry should improve the efficiency of distribution. The efficiency of distribution includes not only efficient physical distribution but also efficient income distribution and promotion of jobs.
In this sense, arbitrary competition inhibits the efficiency of distribution.
Markets have different forms. The types, forms, rules and means of transactions that comprise markets are also different. It is wrong to try to understand markets uniformly. Markets clearly reflect their localities and history. The market mechanism is based on the ideas, social manners, culture, religion and sense of values of the residents. The economy is a kind of cultural activity. Changing the economic system means changing culture.
When fund raising, i.e. income, is considered, the key factors are debt, capital and profit. Debt and capital regulate the capital flow in a long wave cycle. On the other hand, income regulates the short-term capital flow. Debt and capital are linked to assets, and they are returned to expenses. Income is linked to debt and capital, and it is returned to expenses. From the aspect of profit distribution, labor sharing, capital intensity of labor, and rate of profit should be the focus.
Production efficiency should be sought by the manufacturing sector. Distribution efficiency should be sought by the distribution industry. Consumption efficiency should be attempted by household budgets and industries in the services sector. The criteria for efficiency should not be established uniformly.
The contemporary economy presumes change. Change means action. The contemporary economy came to be by adjustments of individual positions through action. Without change, society would become rigid and unable to respond to a changing environment and circumstances. The contemporary market economy presumes expansion, growth, development and upswing of the market. This is because expenses represent downward rigidity.
In Japan, the zero interest rate era has continued for a long time even to today. If it continues for very long, the time value of money will not work. Even if the interest rate remains zero, the cost of living increases. Personnel expenses also increase. Such increases put pressure on household budgets and corporate profits and restrict economic conditions. The largest problem of the budget deficit is that the accumulated government debt makes the interest rate rigid.
The economy repeats a cycle of expanding equilibrium and diminishing equilibrium. If one supposed that only an expanding equilibrium would occur, financial collapse would be a necessary consequence.
An expanding equilibrium and a diminishing equilibrium each has certain wave motions. The wave motions have short-term, mid-term and long-term cycles.
Economic fluctuations, that is to say, inflation and deflation, are caused by changing time values. The factors comprising time values are interest rates, income, commodity prices, land prices etc. Time values differ depending on the function and term (long or short). Also, some of these time values act uniformly on the whole society while others act individually on factors comprising society.
For example, interest rates act on society as a whole. In contracts, income influence employment as well as individual income. In the case of commodity prices, the fluctuation of time values differs depending on the property.
It is necessary to work out economic policies that account for the kind of influence that time values would have on society overall or on individual factors.
When considering finance, it is necessary to assume that borrowing and lending are balancing activities. We tend to be pessimistic when we think of borrowing, debt or expenses. On the contrary, we tend to act deliriously happy when we think of profits and assets only.
In fact, however, borrowing and lending are balancing activities. The problem is in their ratios. Important are the ratios of debt and capital, assets and debt, assets and capital, earnings and expenses, expenses and debt, profits and debt, assets and expenses as well as earnings and assets. It is also important how long-term and short-term funds are related to these ratios.
Thus, the problem of finance and economic policy is how much, and to what sectors, money should be circulated after properly recognizing the meaning of these ratios in the economy.
Assets are classified into liquid assets and fixed assets. Liquid assets are classified into money assets and non-money assets. Money assets are classified into cash and financial assets. Fixed assets consist of pledged assets and deferred assets.
Expenses are classified into fixed expenses and variable expenses. The greater part of fixed expenses consists of personnel expenses and amortization expenses. Personnel expenses become income and a source for consumption. Amortization expenses become resources for the repayment of long-term loans.
Debt is classified into long-term debt and short-term debt according to periodical profit and loss criteria. Debt consists of principal and interest.
Earnings are classified into expenses and profits and can be expressed with a formula such as unit price x quantity, or as profit ratio x turnover ratio.
Capital consists of investments and profits, or may be classified into reserves and stockholder equity.
Cash flow is classified into operating funds and investment funds. While operating funds form the short-term fund flow, investment funds form the long-term fund flow. The short- and long-term fund flows are the base for economic fluctuation cycles.
Investments include human investments, facility investments and inventory investments.
Contemporary businesses are based on periodical profit and loss. In periodical profit and loss, borrowing and lending are balancing activities. The balance of borrowing and lending occurs by means of classifying the long- and short-term functions of funds. While the long-term function forms the stock portion, the short-term function forms the flow portion. The balance of stock and flow is important. Also, stock and flow control the flow amount and turnover of funds. This is a key point.
The adequateness of the scale of debt is measured by profit-earning capability.
The contemporary market economy incorporates growth as a premise, because it is premised on the function of time value.
What determines the time value is ratios and turnover. Leverage is a concept with an important meaning in contemporary economy. The fundamentals of leverage lie in ratios and turnover.
When cash flow, i.e. turnover, worsens, the positive stock, i.e., the current value of assets, declines and the negative stock, i.e., the level of the debt balance, rises. With this, the balance of stock collapses and fund collection force is enhanced.
Balance is important. If you want to hold down the stock level after the turnover rate has declined, it is necessary to take measures to increase the profit ratio.
In order to read the influence of periodical profit and loss on the economy, it is necessary to convert it into cash flow. This is because economic fluctuations are said to be caused by the time lag between income and expenditure.
It takes a certain time for initial investments to be converted into earnings. Periodical profit and loss has been formulated to calculate the cost-effectiveness of such a period. With periodical profit and loss, initial investments can be collected from earnings for a certain period.
Initial investments form fixed assets, long-term debt and a part of capital. Deferred assets are separated from fixed assets and the principal of long-term debt is repaid for a certain period. Pledged assets act to back up fund raising for blank periods in earnings and income.
Expenses are paid from earnings. Personnel expenses are converted into income and become a source for personal consumption.
The function of long-term funds accumulates. Through accumulation, the level of the total amount of currency circulating in the market can be sustained.
It is said that the factors comprising income are debt, capital and earnings. Debt means the flow of long-term funds, capital means the flow of permanent funds, and earnings means the flow of short-term funds.
Income has a certain form. The form depends on time. Namely, there are two forms of income: income in an irregular cycle and income in a regular cycle. Regular income is paid on a daily, weekly, monthly semi-annual, annual or multi-year basis. As a specific example, consider that one day has a cycle: the morning and the afternoon. There is a lifetime income, too.
For example, the income of salaried workers consists of monthly income and semi-annual income. This form of income eventually restricts the form of expenditure.
Income is paid monthly, i.e., twelve times per year. Furthermore, there is an annual income and a lifetime income. Life plans are designed based on these incomes.
Income is divided into cost of living, repayment of loans, rent and deposits. Expenditures like this determine the economic trend.
Long-term expenditures include marriage funds, housing funds, funds for bearing and raising children, education funds and life savings.
The form of earnings depends on the form of income and expenditure. Borrowing techniques have been developed. Consumption has been formed. Expenses are made up and assets have been built. Income and expenditure take effect according to the cash flow.
As long as there is a difference in the long- and short-term functions of funds, systematic economic operations must take into account the functions of long- and short-term funds.
There are two types of plans: a disciplined plan and a structural plan. Whereas a disciplined plan puts emphasis on results, a structural plan puts emphasis on adapting to the environment and efficiency. The disciplined plan is decided in advance, and is fixed and rigid. On the other hand, the structural plan aims to combine people, things, money and time in an efficient manner. The disciplined plan sets results in advance. The structural plan incorporates elements and factors based on forecasts.
Generally, a planned economy and national budgets are disciplined plans. A plan like a project is a structural plan.
From now, a structural plan based on periodical profit and loss and cash forecasts should be positioned at the foundation of economic policies.
For financial issues, it is necessary to take a look at the capitalization of national bonds.
The decisive difference between private corporations and governments is the existence of power.
Finance is not based on periodical profit and loss, which is the standard in the private sector, but is based on cash. Therefore, there is no consistency between accounting and finance. Accounting rules are not observed in terms of finance. This is because finance does not follow an accounting system. An act regarded as dishonest in the private sector is not regarded as dishonest in finance. When a private company goes bankrupt, the responsibility is questioned. However, no responsibility is questioned even if finance or public services collapse. The reason for this is that public services are not for profit. But, this is a falsehood. Even in case of public services, workers gain rewards from the services.
I can’t expect anyone to accept my theory. I have to be prepared for a situation where no one accepts it, and it is passed over in silence.
I may wander about in darkness where I can see nothing and no one thinks about me.
But, if I were asked, “So, if that’s the case, why are you doing this?”, my answer would be that it’s nothing but faith. It may be something like praying.
For the glory of God….
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