The economy needs to be a mechanism rather than a structure.
The economy needs to be a mechanism rather than a structure. This is because
a structure means something that is basically fixed in place, whereas a
mechanism means something that is machine-like and moving. In other words,
if the elements that make up the whole do not fluctuate, money will not
circulate. Examples of this are the current account balance and the fiscal
If the current account balance and the fiscal balance were rigid and fixed in place, money would not circulate. The problem lies in the fact that the changes occur in one direction.
If in some way the income and expenditures always have a surplus or a deficit, the cash flow would accumulate without a balance over the long term.
The continuation of chronic deficits followed by a whole group of specific entities incurring deficits, for instance in the wake of some sort of event occurring, should be addressed as a structural problem in the mechanism of the economy rather than as problems with the individual entities. In other words, such deficits are caused by the distortion of the mechanism that circulates money.
The fundamental movement of a money economy is a circulating movement. This circulating movement has both a rotating motion and a cyclical motion.
The circulating movement of money is made up of the up-and-down movements of the cash flow. In other words, the in-flow and out-flow of cash is the force that drives the circulating movement of funds.
The rotation of funds is controlled by the relationship of action and reaction between receivables and debt.
Through the gradual up-and-down movement of the cash flow, harmony is maintained in the functioning of funds over the long term. With the convergence of funds, the problem is not one of surplus or deficit when there is an excess or shortage of funds. Whether surpluses and deficits are right or wrong depends on the circumstances of the situation.
In the national accounts, debts and financial assets are treated in the same dimension. Even when debts are repaid, if those repaid funds are not supplied to the market, financial assets will pile up, thus functioning in the same way as interest-bearing debt.
To the point, the problem lies in how the amount of currency supplied is controlled. This does not mean that simply returning the borrowed money makes the situation all right. The key issue here is how the recovered money will be used, that is, where should the money be flowing to.
Although it is selling and buying as well as lending and borrowing that drive today’s economy, in the past robberies and tributes were also involved. Robberies and tributes are unilateral acts.
A long time ago there was an era in which the authority in power was not at all different from a sort of bandit or burglar. Even now, some countries can only be regarded as though they were private-interest institutions. Authoritarian nations used to seize a part of the harvest from the people under their dominion. In such countries, farmers were serfs. Remnants of that era live on in part in the ideas on taxation in the money economy which is comprised of functioning that occurs bilaterally. Therefore, the unilateral acts of robberies and tributes do not exhibit any functionality. Taxation still partially has this unilateral functioning. This is also an element that inhibits the functions of finance. There is a need to replace the unilateral functioning of taxation with bilateral functioning.
Many people are prone to being trapped by the results that appear superficially as a settlement, but economic phenomena show but one facet of the statistical situation. Economic phenomena are fluid and continue to change constantly.
The state at each and every given point in time will not be absolute. The numerical values represented as a settlement may also vary greatly depending on which aspect is being captured and at which point in time. It is not a simple matter of deficits being bad and surpluses being good.
What is important is not what is involved with only one aspect. Instead, it is elucidating the economic structure in the background that caused the phenomenon.
If you change your point of view, a completely different situation may appear. The fiscal deficit is thought to need a bold change in thinking.
While the in-flow and out-flow of money is what makes finance function, finance is also the central institution that controls the supply and collection of funds and the flow of currency.
The problem lies in the transfer and harmonization of funds. Money can also be viewed as loans to the public. In addition, increasing business revenues may also be considered. And functioning as a financial institution may also be possible. This capability is not only premised on a single fiscal year’s balance. The key lies in how long-term funding and short-term funding are combined.
The integrity of the flow of long-term funds and the flow of short-term funds is maintained by converting from a cash flow that has a zero sum basis to non-zero-sum periodic profit and loss. It is double-entry bookkeeping that makes this possible.
Under cash basis accounting, not everything can be made a surplus. However, leaving deficit entities as they are is not permitted. By converting to non-zero-sum periodic profit and loss, it is possible to measure short-term movements as losses separately from the cash flow. This is the wisdom of our predecessors.
Cash flow is premised on a long-term balance, and periodic profits and losses are set to be recorded as profit in a single fiscal year.
Structural distortion will appear as the cause of the fiscal deficit. And the same is true for fiscal problems. Distortion of the distribution structure has created a chronic deficit.
Solving the fiscal problems involves finding the distortion in the distribution structure by overseeing the mechanisms of the entire economy, not only the fiscal issues, and finding the imbalance in the flow of funds.
The means for eliminating the fiscal deficit include financial means such as income, investment, and default, market means such as operating revenue, taxation means, as well as violent means such as war and revolution. Violent means are a final resort. Basically, these are means that should not be exercised. But if the economic distortion can not be resolved by means other than violent means, it is necessary to be careful not to fall into a situation that forces violent means to be exercised.
Public finance is said to be a matter of national revenue and national expenditure. If the means for national revenue becomes specific to taxation, then the available field of choices will immediately become narrower. As means for generating revenue, in addition to taxation, business profits and land rent (capital gains), house rent, interest, dividends and the like can be considered. In short, this involves added value.
In a sense, as a means of revenue taxation has an aspect of robbery. Therefore it can not but be something that is mandatory. However, in order to mandate taxation, it is necessary to add rights for taxpayers. For the government as well as for the people, taxation is something that has obligations along with rights at the same time. Obligations and rights have an integral relationship.
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