The more production engineering advances, the more the economy declines. This happens because the present system focuses too much on production.
If productivity alone were the main objective of business, leaving excessive competition as it is, employment would decrease and, in the end, companies would become sluggish inviting price reductions and failure to achieve proper profits.
The economy does not consist of production alone. In its original sense, the economy meant activities performed to live.
Consumption, labor and distribution are important elements. The problem of the present market economy is the intensive focus on production and the lower emphasis on distribution.
People often refer to the “market,” but this is just viewing the market from the producer side.
If an ideal market viewed from the consumer side, i.e., from the perspective of a consumption economy, were not established, the economy would soon go nowhere.
In Japan, there are a lot of “poor asset holders.” The circumstances causing poor asset holders exist not only in today’s Japan but in other developed nations.
Poor asset holders are people who have assets but whose income is small or irregular.
Their expenditures that cannot be covered by their income have to be compensated with debt. Without income, debt increases rapidly.
While income is not secured, fixed expenditures increase inviting reductions in disposable earnings. Fixed expenditures consist of loan payments, taxes, public charges, medical expenses and social insurance premiums.
Even though their nominal income may increase, the money that can actually be used (their disposable earnings) is limited. This is because it is bogged down by the accumulating sediment of fixed debt.
Under the current economic system, the existence of assets is inherently premised on the existence of debt.
Even with assets that apparently involve no outstanding borrowed money, latent debt in the form of inheritance taxes will surface when such assets are passed on.
The same applies to companies. If assets are replaced by periodical profit and loss, we can see a situation in which earnings, expenses, assets, debt and capital are thrown out of balance, and only ballooning debt remains. While profits are not secured, fixed expenses and accumulative borrowings increase. Money that can be freely used or invested is reduced. Due to excessive facility investments, human resources and borrowed funds, expenses fail to match earnings. Companies try to compensate the portion that is disproportionate to earnings by borrowing funds, and assets that can be used as collateral run short. Thus, profits cannot be secured.

Along with the flow of money, claims and obligations are derived together as a set. Since an obligation involves a lender and a borrower, both the external obligation of the lender and the internal obligation of the borrower, which are viewed from the borrower’s perspective, come into existence at the same time. When only defaulted credit is disposed of, the obligation is left behind and becomes a potential bad debt. Furthermore, that bad debt is left behind not only as an internal obligation on the borrower side but as a defaulted credit on the lender side.

Economic entities are linked by credits and obligations. Assets support the transformation of unrealized gains into funds. On the contrary, if unrealized losses turn up, they would become an obstructive factor in cash management. This produces a bubble economy, but is also a direct cause for the collapse of a bubble economy.
Borrowing can be said to be a negative deposit. When viewed from the perspective of society overall, borrowing not only has a negative function but also a positive function called an investment. One might say that half of the current market economy exists thanks to the borrowing of money.
Individuals, companies and nations are required to demonstrate their capability to control and co-exist with the borrowing of money.
The contemporary market economy consists of individual income, corporate income and national income. Corporate income consists of profits. Profits are based on the logic of accounting. The foundation for the logic of accounting is earnings. The reason why profits cannot be secured is that there are problems in the market system.
To the point: the biggest problem is that individual incomes and corporate earnings cannot be maintained in a market economy.
This is the cause of unsustained income as well as the breakdown and nature of expenditures.
The source of the national income is individual incomes and corporate earnings. The source of individual incomes is corporate earnings. If companies cannot obtain earnings, the national income and individual incomes cannot be sustained. Corporate earnings are based on market transactions. That is to say, the problem lies in a market system that prevents companies from securing proper earnings.
There are requirements and prior conditions for the establishment of a market. The first is the existence of multiple buyers. The second is the existence of multiple sellers. The third is currencies circulating in the market. The fourth is an established settlement system. The fifth is the existence of market-regulating laws and contracts. The sixth is supplied goods. The seventh is secured income.
In order to sustain earnings, market discipline must be maintained. If market discipline is not maintained, earnings cannot be sustained.
What causes market discipline to be lost? The factors to maintain market discipline involve earnings, expenses, assets, debt and capital.
The factors involved in maintaining market discipline are also the factors involved in losing market discipline.
Regarding the functions of earnings, expenses, assets, debt and capital, one critical element is whether their functions are long-tem or short-term. Another element is whether their functions are fixed or fluctuating.
The criteria for determining whether a function is long-term or short-term involve classifying borrowing and lending, or loss and profit, or in other words, measuring periodical loss and profit.
With regard to periodical loss and profit, cost-effectiveness is the yardstick for measurement.
The state of earnings, assets, debt and industries depends on the nature and structure of expenses.
The state of expenses is the foundation for the state of a nation’s industries. The state of expenses determines the state of industries.

Earnings-related factors are basically price-related factors.
The factors related to price consist of factors related to the expense structure and the market.
The physical factors among those related to quantity are production means and assets.
The price-related factors consist of factors related to unit price and quantity. The quantity-related factors consist of physical factors and labor factors. The unit price is determined by the expense structure. The nature of expenses is determined by the nature of raw materials and the added-value structure.
The nature of expenses is determined first of all by whether the expenses are fixed or fluctuating, and, second, by whether they are long-term or short-term expenses.
The added values consist of land rent, housing rent, interest, personnel expenses and depreciation expense. Basically, these constitute fixed expenses.
The land rent, housing rent and depreciation expense are based on fixed assets. Capital-intensive industries have a higher rate of these expenses. The gross expenses of capital-intensive industries are fixed at the initial investment stage. In contrast, the expenses of labor-intensive industries depend on the economic environment. In addition to these capital-intensive industries and labor-intensive industries, knowledge-intensive (information-intensive) industries are growing.
The expense structure regulates the state of industries and the market linked to these expenses.
In a market with an expended balance, the burden caused by debt is reduced. On the other hand, the burden caused by debt increases in a market with a contracted balance.
In a market with higher income levels, the share of labor tends to increase in the end. The nature of the world market is to balance a certain purchasing power, i.e., to balance income levels.
In any case, advanced technology and capabilities are very much required to maintain high levels of income.

Money flows at first from a seller to a buyer. Second, money flows from a lender to a borrower when money is to be borrowed. Third, when an obligation is dissolved, money flows from the borrower to the lender. Fourth, money flows from an investor to an investee. Fifth, money flows from a low-interest sector to a high-interest sector. Sixth, money flows in the direction opposite to commodity distribution. Commodities flow from a low-price sector to a high-price sector. Therefore, money flows from a high commodity price sector to a low commodity price sector.
The volume of the money flow relates to the quantity of the money supply in the first place, and it is proportional to the market transaction volume in the second place. Third, the transaction volume is based on supply and demand.

The value of money is first of all determined by the direction of the money flow. For example, the value decreases for a seller and the value increases for a buyer. Second, the value of money is determined by the volume of the money flow.
When a transaction is completed, credit and obligation equivalent in value to the flowed money is generated at the same time as the money flow.
The credit and obligation are dissolved when the money flows in the opposite direction and the debt is settled.
In the current account balance, an importer buys goods by selling the currency of his nation and buying the currency of an exporting nation. Therefore, the currency of the importing nation is pooled in the exporting nation. In the exporting nation, goods and currency are exchanged though sales transactions and the currency of the exporting nation circulates within its own nation. As a result, the currency of the importing nation is accumulated in the exporting nation as foreign currency reserves. At the same time, the value of the currency of the importing nation declines.

In the capital account balance, an investor borrows or buys the currency of a partner nation and an investee lends or sells its currency. In this way, an investment is transacted.
Fundamentally, it should be financial organizations that encourage private investment rather than direct investment by the public sector. In a sense, public investment is a catalyst.

As for the Euro crisis, it is necessary to consider it not as a problem of individual nations but as a problem of the entire Euro zone. We should consider what would bring a zero-sum to the entire Euro zone and what such an accomplishment would mean. While some problems of individual nations can be solved by them independently, some cannot. Furthermore, it is impossible to keep the current-account balance of every Euro nation out of the red. These two points are the premises.
As one of the solutions for the Greek crisis, I suggest that the European Central Bank directly issues Eurobonds and uses Euros for public investments. The Euro itself will be a profitable investment. As another suggestion, holding events such as the Olympic Games or an exposition with private investment would be possible. In any case, investments should be made with view toward profits.

This argument about accounting is based on the premise that accounting existed in the beginning. Therefore, accounting is not being put forward as a matter of formal study, but merely as a technical debate. However, accounting is a legitimate way of thinking about the economy. Also, it is an idea for framing a theory of the present market economy. For these reasons, it is necessary to start a discussion about it from basic thinking and philosophy.