71 These phenomena are the problems of entropy.

Economic phenomena are like thermodynamic phenomena or opposition-force and dynamic phenomena.
In a short, these phenomena are the problems of entropy.

You should not forget the assumption that economy is an artificial product.
Economy is moved by artificial differences.
If fields are left unattended, they will soon return to their natural state.
This is the same with markets. If markets are left unattended, they will return to a disordered state.
This means that entropy increases.
If an irreversible process starts in a closed system, entropy will always increase.
An irreversible process in a closed system will continue in such a way as to enlarge entropy.

Unless a reversible process is introduced in an open system, entropy in markets will move in such a way to increase.

In a money economy, nominal values will be the basis.
Thus, in a money economy, debts will serve as the premises of the economy.
In a money economy, the premises are established by initial investment.
The amount of initial investment and depreciation expenses are nominally determined first.
Because of this, initial investment serves as the premise of the economy.
The amount of initial investment is decided on the premise that a certain amount is sold in a certain period of time.
This means that the amount of nominal expenditure is decided in advance.
Nominal expenditure is reflected on the financial plan. By contrast, the amount of real income is no more than a matter of conjecture.

When investment has run its course, earnings start to decrease. As far as economic phenomena are irreversible, entropy will continue to increase.

What moves the economy is the flows of cash.
The mechanism of a market economy is built in such a way as to move by cash flows.
Therefore, individual units composing the economic mechanism should have a certain amount of cash.
In other words, they should keep the balance of their cash in hand in a positive natural number.
On the other hand, the economy has a mechanism where individual units suffer a lack of funds if they are left unattended.
Thus it has a mechanism in which individual units have always to raise and supply funds.

Another premise is that a market economy has both the standard based on the periodic profit and loss principle and the standard based on the cash principle.

While the cash principle is a substantial problem, the periodic profit and loss principle is the problem of recognition.
Because of this, cash flows and cash balances are realities, whereas profit is an assumed result.

External transactions are symmetric transactions, and internal transactions are asymmetric transactions.
The symmetric property of external transactions and the asymmetric property of internal transactions generate profits.

The asymmetric property of internal transactions depends on the value of time.
The value of time forms value added.
Value added is the source of expenses.

We are really taken in by profits.
The principles that move the market are much simpler than those which have been taught to you.

In a money economy, all economic problems, including inflation and deflation, are caused by the behavior of currencies.
If you get down to economic problems, you will find that they are summarized into the issue of how you should overcome the excess and deficiency of cash.
How do the excess and deficiency of cash occur, then? The factors controlling the movements of cash are the need for funds, the operation of funds and the means to raise funds.

You will see the need for funds if you consider the amount of the funds you need. Necessary funds have four types: first, operating funds; second, funds for repayment; third, funds for new investment; and fourth, funds for replacement investment.
The means to raise funds have three types: first, the earnings-based means; second, the debts-based means; and third, the capital-based means.
The capital-based means include the capitalization of assets, such as the sale of assets.
The expenditure-based means have five types: first, consumption; second, repayment of debts; third, investment; fourth, taxes and other public expenditure; and fifth, cash and deposits.

Most economic units are in a state of chronic shortage of funds. Thus, once their income dries up, they will economically collapse at once.

From a short-term viewpoint, the excess and deficiency of funds should be solved by the earnings-based means, but from a long-term standpoint, these problems should be overcome by the capital-based means or a debts-based means.
Therefore, the plan to repay and raise long-term loans is the basis of the activities of long-term funds. But in the present mechanism, these activities do not become apparent and remain latent, making it difficult to control these funds directly.
If you depend only on ordinary income, you will suffer a lack of funds as a result of differences made between the repayment of long-term loans and periodic income.
To know the trend of the excess and deficiency of funds, you need to examine the structure of long-term funds.

You can understand the causes of the excess and deficiency of funds by comparing the repayment of the principal of the long-term loan and profits and losses on the premise that you keep your cash balance in a positive natural number.

A shortage of funds appears first in the form of a lack of funds for repayment and a lack of operating funds. A shortage of operating funds is a lack of short-term funds and a lack of funds for repaying the principal of long-term funds.
Thus you will understand a basic shortage of funds by considering the funds for repaying the principal as a basis. However, no repayment of long-term funds can be observed from the outside.

Funds for repaying long-term loans are raised by the earnings-based means, the capital-based means or the debts-based means.
In fund raising, the capital-based means and the debts-based means are only supplementary means, and it is supposed that funds are raised mainly by the earnings-based mean in the end.

Earnings are composed of expenses and profits.
Earnings can be divided into unit prices. Unit prices consist of variable and fixed expenses.
Fixed expenses are composed of general administrative expenses, manufacturing costs and personnel expenses.

In a mass-production system, fixed expense will come close to 0 endlessly.

In earnings, funds for repayment are provided by depreciation expenses and profits. If the sum total of depreciation expenses and profits is less than the amount of the repayment funds required, you will have to use the capital-based means or the debts-based means. If you take the debts-based means, your debts will increase.

If you depend on haphazard competition, the price will be cut in terms of personnel costs, manufacturing costs and general administrative expenses in this order and will converge on variable costs and additional expenses endlessly.

If the price converges on variable costs, there arises the situation where earnings generate no value added. In such a situation, while value added does not go up, only debts increase. The situation where value added does not increase and only debts go up means that the pivot of income shifts from earned income to capital income.

If you manipulate apparent expenses, you will be able to adjust profits. This is because neither expenses nor profits are based on income and expenditure. This is also because the repayment of long-term debts cannot be observed from the outside. This is why you cannot catch the flows of long-term funds.

You will fall into the state where your profits go up but you suffer a lack of funds and an increase in debts. In addition, because profits go up partly by cutting expenses, employment will decline and the weight of the total income will vary from earned income to capital income. Moreover, if the entire market gets into this situation, no funds will be supplied to the commodity market any longer.

Apparent profits and cash flows are not directly linked to each other. Even if you lack funds, you can earn profits. On the other hand, even if you have a deficit, you can have excess funds.

From the viewpoint of the activities of substantial funds, the activities of disposable income are the most important. If expenditure exceeds disposable income, households, private businesses or the government finances will have to borrow money.

The essence of cost effectiveness cannot be seen only by ratios; you should study changes in absolute amounts at the same time.
There are also the cases where income per person is not raised even if the profitability increases. You will be unable to know the density unless you see the quality in addition to the quantity.

You should abandon the idea of keeping proper prices and should concentrate your energies on price competition. This is not to say “The cheaper, the better.” The situation where the price is too high is a problem, too. What is really important is how to maintain proper prices.

In the entire market, the income and expenditure of economic units are balanced in a zero-sum. In the whole world, too, the current account and the capital account are balanced in a zero-sum. In each economic unit, the current account and the capital account also maintain equilibrium in a zero-sum. These are the prerequisites.

What you should remember is the fact that if you can no longer raise any funds exceeding long-term borrowings based on your earnings, you will be unable to raise any funds for investment based on your earnings. This state will hinder any economic growth.

If the entropy of earnings increases and the price converges on variable costs limitlessly, value added will be lost. The fact that value added is lost means that the value of time will be lost. The value of time includes profits, interest rates, depreciation expenses and personnel costs (personal income). The loss of the value of time works to check investment. If investment is checked, funds will no longer flow into the commodity market, and the shift of the weight of income from earned income to capital income will be promoted. As a result, economy will be diverged from the actual state, and the movements of capital will make business activities unstable. Moreover, employment and income will be declined, and the market will cool off.
There is no other means to restore business activities than to take steps to stabilize earnings and to balance earnings and cash flows.

If value added is lost, it becomes difficult for funds to flow into the commodity market.
If funds are supplied in excess when it is difficult for funds to flow into the commodity market, the funds will go to the capital market and cause the assets and liabilities accounts to swell. This will produce the phenomenon of economic bubbles.
As a result of the expansion of the assets and liabilities accounts, a lack of balance will result in income and capital revenue. This lack of balance leads to income gaps and make business activities unbalanced.

There is a problem about the capacity of the market, too. The commodity market is limited. The capacity of a limited market has its limits. If a market becomes saturated, the productivity will be restrained.
While the capacity of the market is limited, monetary values are unlimited and can be increased limitlessly. The capital market is limitless and can be expanded infinitely. If funds are provided to the market excessively, the limited commodity market and the unlimited capital market will be deviated from each other.

You are apt to consider that if cash flows move economic mechanisms and the principle of periodic profits and losses has its limits, you can rely on the cash basis. But the cash basis has its limitations, too, and this is why the principle of periodic profits and losses was established.

This holds true both for family budgets and finance: the problem of the cash basis is that on this basis, cash flows and the work of the parts composing the whole are not linked to each other.
Because of this, by the cash basis, you cannot measure the work of the whole and that of the parts by linking them together and secure any consistency of the work of the whole and the parts, thus making it impossible for you to control the whole integrally.

Red figures are not bad themselves, but the problem is what part of red figures is wrong. There is a question to be asked in advance: are red figures really a wrong thing? In a zero-sum, red figures have black figures at their opposite end; thus, if red figures are wrong, that means that black figures are wrong, too.
If red figures are wrong, so are black figures. Red figures and black figures are not wrong themselves; what is really wrong are red figures and black figures that cannot be balanced within a certain unit period of time.

The total of the economic value in the entire market is zero. This is known as a zero-sum balance.
Zero-sum balances include a parallel balance and a vertical balance.
The parallel balance means the balance between economic units, while the vertical balance is the balance between income and expenditure transactions and capital transactions.

Balances include time balances and space balances.
Time balances refer to keeping balances in a unit period of time, and space balances mean keeping balances between economic units.

A zero-sum balance is the state where if surplus units exist, deficit units are formed and where if deficit units are formed, surplus units are formed, too. It is impossible to turn all of the economic units into surplus ones or deficit ones.
The problem is which economic units should be caused to go into the black or the red at what point of time and to what extent. If you fix the number of economic units in the black and those in the red at a certain level permanently, credits and debts will be accumulated unilaterally.
Because of this, unless economic units in the black and in the red change at a certain amplitude, differentials will increase.

Even if the current account is in the black, the situation is not always good. You have to examine the work of black figures in relation to red figures, which is the opposite of black figures. Then the problem after this examination is where you should channel the funds you got from black figures.

You should not forget the fact that the basis of economic activities is rotary motions and vibrations.
Unless you premise that economic activities are vibrations, the result will be that a certain state continues forever.
You will have to premise that loss-making countries will continue to accumulate red figures further and that surplus nations will continue to increase surpluses further.
If you want to have a balanced economic state, you should make a plan in such a way that the economic state may vibrate slowly between red and black figures.

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