While the function of property is linear, the function of money is circulative. The difference between the functions of property and money appears as the difference of property flow and money flow in a transaction. The property flow is concluded in each transaction, but the money flow affects the next transaction in the chain. This is due to the fact that money is a medium of exchange.

Thus, while the property flow is unidirectional, the money flow is bidirectional.

Like selling and buying, lending and borrowing, income and outlay, a flow in a certain direction is always accompanied by a flow in the same amount in the opposite direction. Consequently, the sum of the two flows becomes zero. The flow appears in the form of an “in and out” or a “self and other” with respect to the economic entity.

 

The difference between the function of property and the function of money also affects the cost flow.

 

The property flow is a linear movement from production to supply which is based on the demand for the property. In contrast, the money flow is a circulative flow based on the exchange transaction.

 

In order to conclude a transaction, there must be three elements, i.e., (1) human element of a buyer and a seller, (2) physical element of property and (3) money.

 

These three elements form three time-series flows: the human flow, physical flow and money flow.

The human flow is from labor to consumption. The balance of payments between labor and money forms the flow of receiving income in exchange for working and obtaining property on the market within the range of the income and consuming.

The physical flow is from production to supply. In contrast to the physical flow of producing property and supplying the market, the balance of payments of goods and money flows in the way that money is paid in the course of property production and income is obtained by supplying property. In the physical flow, payment comes before income. Therefore, it is premised on the first wage being supplied by an outside sponsor.

 

A transaction is based on a bidirectional action that works on both the entity of the transaction and the other party. This action produces a balance in the function of money as a property receiver and as a money payer in light of the function of cost. The cost is converted into profit or income, i.e., the cost has another function as profit or income.

 

The function of property is a linear movement from production to supply. The function of people is a linear movement from income to expenditure. It is the money economy that drives and controls these linear movements of goods and people with the circulative movement of money. The movement of the money economy is like a piston movement.

The economic entity has four aspects: production, supply, work and consumption. Supply occurs within the scope of production and consumption occurs in exchange for work within the scope of income. The surplus products and income are stocked as inventories and savings.

In the money economy, the radix economy consists of production as the denominator and consumption as the numerator, or earnings (income) as the denominator and consumption/outlay as the numerator. On this basis, the money economy has the mechanism to make the monetary value zero-sum.

 

Production involves work. Work is converted into compensation and reduced to income or earnings.

Put another way, production (the physical element) and income (the monetary element) are connected by the human element called work. Consumption (the physical element) and expenditure (the monetary element) are connected by the human element called cost, family budget and living. The utility is measured by cost-earning performance. One of the guidelines is profit.

 

Production and employment are related, and employment and income are connected. Debt is supported by income. Income and debt are converted into earnings. Debt forms assets and receivables. Earnings are converted into outlay and savings. Outlay and savings are converted into consumption, investment and cost.

When productivity decreases, employment also decreases. When employment decreases, income also decreases. Reduced income invites a decline in debt repayment performance. Decline in debt repayment performance decreases investment and spending capabilities. Asset values decline, too. In turn, productivity also declines.

Business and economic issues are issues of balance among property production volume or supply volume, employment (income) and currency flow.

 

Most people today are under the illusion that the objective of management is the pursuit of profit. Profit is only a guideline. The objective of management is to form appropriate cost in the money circulation process. That is to say, the objective is to generate income in the process of forming cost.

 

The health of a business cannot recover unless the appropriate cost is maintained.

 

The process from production to consumption, or from earnings to outlay, is created by the crossed actions of exchange in the market of transactions, such as selling and buying, or lending and borrowing. The medium for transactions is money. Such transactions constitute the substance of cost.

 

Money connects the flow from production to consumption and the flow from earnings to outlay. The role of financial institutions is to supply money to keep these flows smooth.

Industry and family budgets form the place for production, consumption, earnings and outlay.

 

The time constraint between production and consumption is adjusted by financial institutions within the scope of income after they classify the functions of money into long-term and short-term functions.

A good example is housing loans. In a sense, today’s economy can be called a debt economy or a borrowing economy. One of the features of a money economy is to make borrowing available.

 

In a money economy, debt is indispensable. A money economy is a system that cannot function without debt because debt is the premise of confidence in money. If you continue to see debt negatively, you cannot understand a money economy. The problem is the level of debt rather than the existence of debt.

 

The level of outstanding debt has a relationship with the corporate tax system. This is because the repayment resource for the principal of debt is the funds to be released from after-tax profits. If the tax rate is high, the repayment funds cannot be secured and the outstanding debt is kept at a high level. In some cases, it continues to rise chronically.

 

The relationship between long-term fixed funds, the debt for which a certain outlay is fixed for a long time, and earnings fluctuating unexpectedly for a short time is an element that makes the economy unstable. The fixed funds constitute fixed costs. A large portion of the fixed costs is depreciation cost and personnel cost. The depreciation cost is a virtual cost concerning depreciable assets or facility investment. The personnel cost is the basic cost for paying income in exchange for work.

 

According to the practical fund flow, the outlay for facility investment is not the depreciation cost but must be the repayment for the principal.

The problem is not the amount to repay the long-term debt loan but the depreciation cost. This is because the periodical profit and loss aims to calculate the basic figure for profit disposal based on cost-benefit measurement.

Therefore, the balance of payments or fund flow is not considered a problem.

The depreciation cost is not calculated based on the actual balance of payments or fund flow. The depreciation cost is absolutely an estimate. The depreciation cost is not supported by the actual fund flow.

 

If you have debt, you might be obsessed with that debt. If you have property, you might be “counting your chickens before they hatch.” Such ideas are rooted in single-entry bookkeeping. If you adopt an idea based on double-entry bookkeeping, you would always think about property or assets while questioning borrowing or debt, in other words, you would always think about assets while paying attention to the balance with debt.

If you do not clarify your cash flow with an idea based on double-entry bookkeeping, you would not be able to understand the economic condition or management condition.

 

It is a big illusion that you are safe because you have assets or property as security for debt. If your liquidity or solvency were lost, you would be in a default status even if you had property.

Solvency means the ability to raise funds.

Assets or property would be useless as a stopgap measure if they could not be linked to fund-raising ability. In the end, liquidity is what is important. The structure of liquidity and solvency comes into existence through the exchange of long-term and short-term funds depending on their functions. Solvency depends on the long-term function of funds, and liquidity depends on the short-term function of funds.

 

Competition can occur when the same prerequisites exist. Competition will not work among those who have different prerequisites. Conflict among those who have different prerequisites is called fighting. Sports are possible because the prerequisites are unified.

Competition does not work out between someone armed with a modern weapon and someone without any arms. That would simply be a slaughter.

Though accounting is able to record phenomena under unified conditions, it does not have the power to unify prerequisites.

It is the legal system that unifies prerequisites.

The sluggish state of business and the financial crisis seem to be caused by the difference in the prerequisites for competition.

The functions of cost and debt are important. Depending on the prerequisites, this difference was caused in the burden of cost and debt in the markets of respective nations, which has distorted the structures of profit, industry and market. If the present market system continues, the burden of cost and debt will become larger for mature nations than for new emerging nations. The original utility of cost and debt cannot be displayed.

 

It is risky to stipulate that the objective of the economy is the pursuit of profit. We should not forget to maintain appropriate cost and debt, and for that purpose we should not forget to secure appropriate profit.

Competitive power is based on profit-earning capacity. Profit-earning capacity is significant for maintaining appropriate cost and debt.

 

At present, the main subjects of the economy relate to production. However, income is just as important to the economy as production. The key to the income issue is the source of income. This is also an issue of work. Income consists of earned income and unearned income. Some income is paid in money and other income is paid in kind. Wage consists of payment by performance and fixed payment.

Fixed earnings can be obtained through regular work. Thus, occupations and earnings are indivisible. The form of earnings depends on the form of occupation.

The problem is how one thinks about an occupation or job.

At the root of the thinking about a job, there is a serious question: Who are you working for, and what are you working for?

 

There are different qualities in work. Jobs have various qualities depending on the quality of the work. We cannot discuss the economy while neglecting the quality of work.

 

Roughly speaking, industry consists of two sectors: manufacturing and commerce. Manufacturing can be said to be a productive industry, and commerce can be said to be a consumptive industry. These productive and consumptive industries are tied by the distribution industry. In the overall economic structure, there are industries composing the infrastructure for all industries and industries constructing the infrastructure.

Most of the productive and infrastructure industries are capital-intensive industries. Most of the field of commerce has been occupied by labor-incentive industries. The distribution industry and construction industry are positioned in between.

While capital-intensive industries, especially infrastructure industries, form the flow of long-term funds, labor-intensive industries build the flow of short-term funds.

 

Is work productive or consumptive? Are keystones being distributed through productive work or consumptive work?

The most important question is what should be regarded as the keystone for a nation’s industry. Is it a job on the production side or a job on the consumer side? How a nation is doing depends on this drastically. This is because a nation is built on how its industry performs, and industry is built on how work is performed.

 

Originally, we called it economical to use high-quality goods for a long time. But, before anyone knew it, we began calling it economical to use disposable and low-price goods. Therefore, the words saving and thriftiness have been lost in the interest of the economy and replaced by overspending or wasteful spending. Mass production has become synonymous with efficiency, and cheap goods have become synonymous with economy. There is no room for consumers’ likes and desires.