The economy is an activity for living -- for life itself.
If you think that the economy is the science of counting money, you have
misread the real nature of the economy. The economy is an activity for
living -- for life itself.
The foundation of the economy lies not in the relationships of money, but in human relationships and in the relationships people have with things. This is the same with the real nature of numbers.
The value of money is a set of natural numbers. But what makes up the value of money, i.e., this set of natural numbers, is the daily activities of people. If these daily activities are separated from the economy, the economy will lose its real nature, too.
The value of money is not the substance of the economy -- the economy means the lifestyle and everyday activities of people.
Therefore, thinking about the economy is equivalent to thinking about life and living. Thus, the economy involves philosophy and thought.
Money-making is a means, not an end. To make money is to survive. If you fail in life because of money, you have mistaken the means for the end. But in these days, it even seems that people have made money-making their end. You must not forget that the essence of the economy lies in human dignity. Try to live humanly. But, if you fail to do so, the foundation of your economy will collapse. But, today's economy deals with problems related to money only. This is why no problem of the economy can be solved. People's lives must go on without a break even in times of hyperinflation, in great panics, during wars and after serious disasters. From this viewpoint, an economic failure means a situation in which you cannot continue to live and no survival is possible, like a drought, a famine or a war.
You must not forget that it is profits that create employment. And the basis of consumption is income. Income can be secured when there are employment opportunities. And income is distributed from profits.
In discussions about anticyclical measures and disaster-prevention measures in Japan, the amount of funds supplied is regarded as the main problem. But whether the discussions are concerned with anticyclical measures or disaster-prevention measures, how to make funds circulate and revolve is more important than the amount of funds provided.
The amount of currency is determined by the product of the amount supplied and the amount in circulation. When discussing anticyclical and disaster-prevention measures, you should consider how to increase the circulation of funds, rather than the amount of funds supplied. Do otherwise, and financial burdens will become excessive.
Policies of only supplying money, like merely sprinkling water on a desert, will create no circulation of funds. These types of policies will have no great effect as anticyclical and disaster-prevention measures.
On the other hand, if some mechanism for circulating funds efficiently is established in advance, it will be possible to take effective measures with a relatively small amount of funds. What is important is whether it is possible to create a system or a mechanism capable of offering not temporary income but stable income continuously for a certain period of time.
Funds exhibit their effectiveness through their circulation. Conversely, when the circulation of funds becomes stagnant or delayed, that may cause serious damage to the market in some cases.
The problem of funds is not the amount of funds supplied but rather the fact that the necessary amount of funds has not been supplied to where the funds were needed.
The circulation of currencies -- a key factor in the economy -- does not increase simply because emphasis is given to monetary policies only. In other words, currencies no longer flow to the market smoothly. The path through which currencies flow is profits. The path of currencies can be secured only by securing stable profits. When profits are under pressure, the path of profits becomes narrower, and income and employment become unstable at the same time.
In accounting, the market economy shows itself as the increasing and decreasing movement of assets, liabilities, capital, profits and expenses. The keys to the economy are the balance and mutual control of assets, liabilities, capital, profits and expenses. If the balance of assets, liabilities, capital, profits and expenses is destroyed and their mutual control no longer exists, market discipline will not be maintained and it will become impossible to control the economy.
The problem of public finance is that it has the concept of income and expenditure only, and it has no concept of profits, expenses, assets and liabilities. In other words, public finance cannot grasp the movement of the economy in terms of the increasing and decreasing movement of assets, liabilities, capital, profit and expenses. Naturally, public finance has no concept of profits. This is why no government project can make money. Public projects lack the concept of periodical profits and losses, too. The government does not hesitate to carry out public projects even when they do not pay. And the government has no guilt about this. In the private sector, you would be blamed for fraud if you performed a non-profitable project knowingly. And this is without question a crime.
It is impossible to determine whether public sector funds are for investment, temporary expenditure or regular expenditure. In other words, the public sector has no awareness of the movement of funds in terms of time.
To understand the cause of financial phenomena, you need to know not only about the paying and receiving of cash but also about what lies behind the paying and receiving of cash.
The problem of public finance is the fact that it lacks any concept of the theories and principles of accounting. Thus public finance is either stuck unwillingly back in the days before the advent of the principle of periodical profits and losses, or it is content to remain there by choice.
Public finance lacks any viewpoint that might serve as a basis for such a mechanism as accounting principles. It is true that public finance seems to work to attain its own ends and to be able to be verified. But this viewpoint has a cash basis-like meaning only; it is not based on the concept of how public expenditure is linked to income.
In the first place, the value of money is expressed not in absolute numbers but in relative numbers. Without certain relative criteria, such as cost effectiveness and periodical profits and losses, there would be no alternative but to rely on some absolute criteria. This is a defect of single-entry bookkeeping and a limitation of cash basis accounting, which depends on single-entry bookkeeping.
The value of money and the economic value are relative in nature. Because these values are relative, mutual control works for them. If these values were based on absolute criteria, no such mutual control would work.
It is difficult to form such concepts as return benefits, consideration and compensation in public finance. This makes it difficult to evaluate the work and performance of each person together.
From the standpoint of accounting, there are two types of industries: those with soft structures and those with hard structures. The hardness of an industry seen from an accounting viewpoint has important influences on economic policies.
Profits and capital are differential accounts. Differential accounts are, so to speak, buffers or suspensions in accounting movements.
There are three types of transactions in bookkeeping: exchange transactions, profit and loss transactions, and mixed transactions.
An exchange transaction, also considered to be a neutral transaction, is a transaction that neither produces any profit nor causes any loss.
A profit and loss transaction is a transaction that produces profits and causes losses.
A mixed transaction is a mixture of an exchange transaction and a profit and loss transaction.
The profit and loss transaction mentioned here is a concept different from the idea of a profit and loss transaction as used in accounting, where a profit and loss transaction is distinguished from a capital transaction.
The terms capital transaction and profit and loss transaction are used in accounting to clearly distinguish capital surplus produced from capital and earned surplus produced from profits.
By contrast, an exchange transaction, profit and loss transaction, and mixed transaction in bookkeeping involve the problem of whether or not the transaction is linked with profits directly.
The concept of an exchange transaction, profit and loss transaction, and mixed transaction is concerned with the basis of periodical profits and losses, and the ratio of the exchange transaction, profit and loss transaction, and mixed transaction to the overall transaction is directly reflected in business conditions, too.
In any case, public finance has no concept of an exchange transaction, profit and loss transaction, and mixed transaction. In public finance, there is no clear distinction between a capital transaction and a profit and loss transaction, either. This is because public finance does not follow the principle of periodical profits and losses but adopts the cash basis. This is an obstacle affecting today's public finance problems and economic policies.
In the tax system, it is necessary to calculate how and to what extent the action of taxes impacts and hinders assets, expenses, liabilities, capital and profits, and where these obstacles occur. But this is difficult to do in the present tax system, because public finance is not based on the principle of periodical profits and losses.
Corporation tax, for example, is imposed on before-tax profits. But before-tax profits are also the funds companies spend for paying back long-term debts. Unless corporation tax takes into account the function of before-tax profits, an excessive burden will be placed on the function of long-term funds and hinder financing activities. In addition, the basis is profits, and no burden can be removed in accounting no matter how large an amount of subsidies is provided.
Taxes have no concept of return benefits, consideration and compensation, either. This also means that no criteria for measuring cost-effectiveness have been established for taxes.
In short, the present mechanism of public finance is one in which it is difficult to control public finance overall.
In addition, from the beginning, public finance has no concept of periodical profits and losses. Without the concept of periodical profits and losses, the concept of cost-effectiveness and the pursuit of profits is not effective. It is impossible to establish criteria for clearly distinguishing the workings of long-term funds from short-term ones, too. To begin with, public finance does not even have a concept of business management. This makes the criteria for measuring the health of public finance vague.
Warren Buffett symbolizes modern America. Buffett started as a businessman but failed to succeed in his business. He overcame his difficulties by switching to asset management and achieved greatness in this field. Buffett's business did not succeed not because he had no talent for business but because the business he started became unfeasible in the U.S.
But all Americans will not be able to lead a lifestyle like Warren Buffett. The majority of Americans have neither the funds nor the flair for such business, even if they wanted to try asset management. But can you say these people have no right to live a happy life because they have no funds or talent?
It is wrong to say that you cannot become happy because both fortune and talent have turned their back on you. The real problem of society lies in the mechanism in which those who work diligently and make steady efforts are not rewarded.
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