thus ending in a balance of zero in every case.
If you want to make effective use of the negative aspects of an economy, you should consider not only its negatives but its positive aspects as well. This is because from an accounting viewpoint, all economic phenomena have an equal number of pluses and minuses, thus ending in a balance of zero in every case.
Invest the funds you raise by borrowing money and capital in an asset, collect the invested funds from the earnings generated from the asset, and distribute the earnings in the form of expenses.
What is important in this process is harmony among the five elements, i.e., assets, liabilities, capital, profits and expenses. If for example, assets were to deteriorate, their harmony with liabilities would be upset, which would then result in an adverse impact on earnings. You might be confused and might sell the assets in haste or might find it difficult to secure long-term loans. But then your economic situation would collapse at once.
When operating a business, you usually try to make the most of your assets to increase your earnings. If you do not do so, you cannot expect your business to grow. If you only attempt to minimize your expenses and borrowings, your investment for the future will shrink and you will be unable to perform your social responsibilities, either.
This is the same with government finance, too. A government should work to increase earnings for its country by making the best use of its assets. If the government does nothing but cuts its spending and debt, its assets will remain idle, the market will dwindle and economic growth will grow stagnant, leading to a heavier burden of more borrowing.
We need to reconsider government finance from the standpoint of national interest. A nation should make profits, too, whenever it can.
The problem is that trade and the economy are not linked together.
In the world, there exists a deep-rooted idea that earning money is a bad thing.
In all countries throughout the world, trade has long been looked down upon. Trade has been seen as a criminal act. In Japan, too, traders were regarded as being in the lowest class, as even the traditional description lumps together "warriors, farmers, artisans and tradesmen."
If it is generally accepted thinking that making a profit is an act of wrongdoing, we will be unable to fashion any economic morals.
Those in power do not always consider money-making to be wrong. They just hate to bow down to earn money. Therefore, they try to rob you of your money by threats or by force.
If such a strategy were taken, no one would be able to improve government finance.
In the world of accounting, one-dimensional spaces and logical formulas are important.
The relationships between an economic entity and money are basically structured by the money received, the money paid and the balance. What is important is to manage funds so that this balance is not lost.
Such actions are necessarily one-dimensional.
Because inputs and outputs play key roles, entrances and exits become the important factors.
Once you know the entrances and exits of your funds, the next important thing is to understand the routes and patterns that the funds flow in. This is because you can grasp the gist of the fund flow if you can see where the funds come from and where they go.
This makes the ratio and change of earnings, total capital and profits, as well as the ratio of expenses and total assets important.
In short, the problem is where you raise funds from, and where you allocate the funds to.
Then the part of the funds raised and used in business activities in a unit period is reflected on the profits and losses in that period. Profits and losses in the period are those obtained by allocating the funds to provide for future income and expenditure to debits and credits.
Therefore, profits and losses express the liquid part of funds, while debits and credits show the supply of funds. In other words, the flow of funds is formed by profits and losses, while the flow of stocks is formed by debits and credits.
One-dimensional concepts are effective for analyzing the flow of funds, and logical formulas show their power when funds are allocated.
This one-dimensional world is just like a road with only one lane. In other words, it is an academic world of traffic congestion.
The liquidity of funds is determined by the density and volume of their flows. The density of fund flows can be calculated from the rate of turnover. What is important in the density of fund flows is the critical density.
The problem is the flow of funds. How the fund flows are grasped and controlled is a key to the management of the economy.
Seen from a different perspective, in Japan exporting means selling goods in yen and buying them in dollars. Thus this means buying yen and selling dollars, too. On the other hand, importing means buying goods in yen and selling them in dollars. And again, this also means selling yen and buying dollars.
If Japan continues to have a current-account surplus in its trade with the U.S., its dollar reserve will continue increasing.
The exchange rates of the dollar and yen change according to the supply and demand for these currencies. The supply and demand for the dollar and yen originally depend on the current-account balances.
But the exchange rate of the yen will not always rise simply as a result of continued current surpluses in Japan. Current balances are an important element in determining exchange rates, but exchange rates are not determined by current-account balances alone.
The problem is what impact exchange rates and current balances have on commodity prices and government finance in Japan. To gauge this impact, the volume and route of fund flows should be precisely grasped. And what is important in knowing the movement of funds is the volume, rate and density of the fund flows.
The basis of an economy is the mechanism of labor and distribution. Labor and distribution are supported by production and consumption, and this generates the relationship between supply and demand. The supply-demand relationship does not exist in the beginning.
The decisive factors in an economy are the amount of production, the volume of currencies in circulation, and the demand. The amount of production is restricted by the ability to supply, and the demand is determined by the amount of consumption.
Phenomena like inflation and deflation, the bubble economy, panics and depression are all caused by currencies. Without currencies, neither inflation nor deflation would occur. Thus the problem is currencies.
In addition, we should not forget that currencies are a negative existence.
The point to note is that the present economy is neither an economy of goods nor an economy of people. It is an economy of currencies.
Because of this, currencies are important in a monetary economy. The point not to be misunderstood is that even a monetary economy is not composed of currencies alone. The important factor in a monetary economy is the activities of currencies. Ironically enough, the activities of currencies, which pose a problem in a monetary economy, are stimulated by the illusion that currencies are everything.
Many people try to find an absolute value in the value of money, but the value of money is in fact a relative value.
All troubles occur just because we regard the value of money as an absolute.
The value of money cannot have any validity solely by and of itself. The value can be valid only when objects exist that represent the value of money.
Currency is just a means for exchange and only something that symbolizes an exchange value.
Cash flows mean the traces of currencies that have flowed.
In general, we have the impression that "money" is currency in a tangible form, i.e., bills and coins. But these days, almost no one keeps cash, actual money, in a safe at home.
Where has the large amount of cash gone, then? It is flowing throughout a system known as finance.
Wages are paid to your bank account and then you withdraw some money from the account when you need it to pay for something. The money you pay becomes the earnings of the business to which you paid it. The earnings of that business are then paid elsewhere in the form of expenses. The expenses paid become the earnings of the payee receiving them. And a circulation of funds like this takes place.
On the other hand, debts paid back are not recorded as any expense but cause loans from financial institutions (assets) to reduce and cause cash (other assets) to increase. In this transaction, neither the debts nor the earnings of the financial institution are changed directly. In addition, funds are made to flow backward to the market, which hinders the circulation of funds.
Cash is now losing its nature as a tangible object and is turning into the energy that moves the economy in the form of information.
Therefore, if you want to understand today’s economy, understanding the flows of currencies, that is, cash flows, is an important factor.
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