The foundations of a free economy are balance and symmetry.

The foundations of a free economy are balance and symmetry.

In this sense, the fact that the structure of double-entry bookkeeping is based on positioning debt on one side and credit on the other, that is, lending and borrowing, has a deep meaning.

Double-entry bookkeeping, which is the grammar of the market economy, is based on a zero sum relationship. In other words, in double-entry bookkeeping, the sum is always zero. This is the source of the pressure of zero. With zero, whether it is a zero point, zero line or zero surface, the power to maintain a balance is at work. Zero has the function of producing symmetry, too.

Once a zero point or zero line is set, it moves to shrink to zero or moves to amplify with zero as a center area can often be seen. These effects are the pressure of zero.

In a zero-sum state, the power to converge on zero, i.e., the power to balance, is at work. This is the pressure of zero. In addition, the meaning of zero is important because of these foregoing facts.

In a market where double-entry bookkeeping is the grammar, profit will converge on zero if no action is taken. This is because double-entry bookkeeping, the foundation of accounting, is based on a zero sum relationship.

The lending and borrowing that occurs between economic entities become zeroes.

The sums of the current balance and the capital and financial balance become zero, too. The sums of the current balance, capital and financial balance and balance on goods of the entire market are also zero. Therefore, the problem is not whether the figures are in the red or in the black.

The principle of a free economy where the above-mentioned relationships exist is that if you have surpluses, you have the same amount of deficits. Thus, it would be wrong to say definitively that surpluses are normal and deficits are abnormal. What is important is the mechanism producing surpluses and deficits and the function of that mechanism. This means that surpluses and deficits are not flexible and that the portion of surpluses and the portion of deficits are both continuously in the black and in the red. In addition, this is a structural problem.

What are deficits and what are surpluses? Are deficits and surpluses balanced in terms of time? It would also become a problem if the width of the amplitude of deficits and surpluses was appropriately arranged.

For example, the fact that when the current balance is in the red, the capital and financial balance must be in the black, and that the sums of the current balance, financial balance, family budget balance and private sector balance are zero means that economic entities exist both in the red and in the black.

It is impossible for all economic entities to enjoy surpluses. That is not to say that surpluses are right and deficits are wrong. Rather, the problem lies in the role and trend of economic entities enjoying surpluses and economic entities suffering deficits.   

The problem is what characteristics and functions deficits and surpluses have.

What nature do changes in deficits and surpluses have in terms of time?

Are deficits and surpluses chronic?

What makes up for deficits and surpluses?

What are the interactions between deficits and surpluses?

The important point is the roles that economic entities in the red and economic entities in the black have.

The problem is what impact an economic entity suffering deficits and one enjoying surpluses has on other economic entities suffering deficits or enjoying surpluses.

In other words, the key is the mechanism that produces surpluses or deficits.

You should keep in mind that, as for the phenomenon of balance and symmetry, power in the opposite direction works behind any phenomenon that has taken place. Because deficits work on surpluses, you cannot understand the true role of surpluses unless you observe the function of deficits, i.e., the movements in the opposite direction, instead of only looking at the workings of surpluses.

Profits accrue depending on the existence of both economic entities suffering deficits and those enjoying surpluses. Thus, the pressure for balance creates the function of trying to reduce profits to zero as much as possible. Therefore, to keep the market sound, it is important how balance and symmetry should be destroyed.

Price competition makes the quality of commodities become homogeneous.

Mass production and mass consumption have the functions of unifying and standardizing commodities, which occur because mass production and mass consumption make production and consumption become average.

Your perspective on the economy and on the principle of the mechanism of the economy will differ depending on how you regard your personal desires, and whether you desire a unified and uniform economy or a diverse one. In the process of maturing, a free market must naturally be premised upon diversified personal desires. Arguing that personal desires should be unified and made uniform is tantamount to totalitarianism and managerialism.

The affluence of a free economy lies in its diversity. This is because unification and standardization of value reduce alternatives and make them weaker.

Unification and standardization of value will eliminate differences and gaps in economic value. As a result, economic value tends toward balance and approaches zero endlessly. This is the phenomenon that deprives the economy of its vitality.

The outcome is that disorderly price competition will reduce profits to zero.

If you are to continue earning profits, you need to employ a mechanism for taking steps other than price competition. Competition is not for prices only.

But, you should adopt the same premises and conditions of competition, otherwise you will be unable to achieve fair competition.

What generates profits is the mechanism and structure of the market. The structure of the market is established by regulations. Regulations determine how the market should work. Therefore, deregulation should not be considered the be-all and end-all. Proper regulations are necessary.

The economy moves through the relationships among proceeds, expenditure and income.

Income is an entrance and also an exit.

Income is the total of value added.

Value added means the economic value produced by economic activities in a given period of time, which is expressed by monetary value. In other words, income is the value produced.

Income is the expenditure in the previous term.

Proceeds are composed of income, debts and repayments of loans.

Expenditure is composed of consumption, savings and repayments of debts.

Consumption produces economic flows, while savings and debts form stock.

Income turns into the expenditure and savings in the present term.

Expenditure exceeding the income of the present term is made possible by using loans and withdrawing past savings.

Expenditure is turned into income.

If expenditure is greater than income, the market will grow and debts will increase. If expenditure is smaller than income, the market will shrink and debts will decrease.

Proceeds are the product of the amount of currencies and the number of turnovers. The number of turnovers means the amount of trade.

As stated above, consumption, savings and loans are created by the relationships among proceeds, income and expenditure. Savings and loans are the potential power of investment.

If expenditure is greater than income, the shortage is made up for by taking out loans or withdrawing savings. Loans are saved as stock, and if savings are withdrawn, stock turns into flow.

When expenditure exceeds income, this situation shows that the market is expanding. If expenditure is smaller than income, the surplus will be used for savings or for the repayment of loans. This situation means that the market is shrinking.

The real economy is supported by the production and consumption of goods and the amount of currencies circulated. Commodity prices are real economic values. Production and consumption are achieved on the basis of income. This is because production is supported by labor from which income is derived. In addition, consumption occurs within the scope of proceeds. This is because income is the only productive factor among the factors that compose proceeds, i.e., income, loans and the withdrawal of savings. If consumption exceeds production, you will have no alternative but to import goods from other countries. By contrast, if production becomes excessive, you will have to store or export the surpluses. Exports and imports are the sources of the current balance.

What connects the economy of goods with the economy of money is the relationships among proceeds, expenditure and income. Goods exist at the exit and represent consumption and expenditure. Money exists at the entrance and represents production and proceeds. What connects goods to money is people. While the current balance depends on substantial production industries, the income balance is dependent on consumption industries (service industries including finance). This suggests the relationships between goods and money, substantial and nominal factors, and productive and consumption aspects. Economic phenomena occur through the economy of goods, the economy of money and the economy of people. If people, goods and money are in harmony with one another, the economy will be stabilized, but if they lose their balance, the economy will become unstable.

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