The Algorithm of Economy　Basic Algorithm

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Basic Algorithm

Fundamentals of Economics

The purpose of economics is to sustain human life and achieve self-realization.

Economics is an activity for living. Therefore, economics is a system to sustain human life. If misused, this system can transform into one that harms people. The purpose of this system is to produce or procure the goods necessary for the people to live and distribute them widely among the populace. The goal of the economic system is to provide the necessary resources to those who need them, in the required amounts.

The purpose of economics is not to make money, accumulate wealth, or control people. It is to ensure that people can live.

Economics is based on relationships between people. It cannot function alone. Relationships between people form groups. Therefore, economics presupposes some form of group. For people to live in groups, there must be rules, that is, some form of law. Law is based on agreement and contract. In other words, economics cannot function alone.

Production, distribution, and consumption each form their own unique spheres. The principles and purposes that operate in each sphere are independent and do not directly affect the other spheres. What connects production, distribution, and consumption are people, goods, and money, and markets are formed at the boundaries of each sphere.

People work and earn money to make a living and support their families. Companies borrow money to invest in production facilities, recover the invested funds from sales, and repay the loans, circulating money to suppliers and business partners, and distributing income to the people who work. This is the basic flow of the economy. The biggest problem today is that this flow is not functioning well. The market economy is an economy based on revenue and personal income. However, due to price wars, revenue cannot be maintained as expected, and the pursuit of profit has led to neglecting income. No matter how cheap things are, if there is no income, they cannot be bought. Distribution is key to the economy. Forgetting the function of distribution is what disrupts the economic system. Some critics say that a time will come when people do not need to work, but how will people live without working? Labor is not a hardship. Technology has advanced to free labor from hardship, not to eliminate labor. Labor is a means of self-realization. Denying work would make the economy unsustainable.

Separating production and consumption means that the market will cease to function. The market will become merely a place for distribution, not a place that connects supply and demand, and ultimately production and consumption. This will sever the connection between production and consumption. If the connection between production and consumption is severed, the market’s original function will be lost. In other words, it means the end of the market economy.

If the market ceases to function, it will inevitably shift to a controlled economy or planned economy. This will lead to a transition to socialist, communist, or totalitarian regimes.

If the market ceases to function, it will inevitably shift to a controlled economy or planned economy. This will lead to a transition to socialist, communist, or totalitarian regimes. Conversely, a non-market economy is one where production and consumption are not linked, and it is precisely because production and consumption are not linked that socialist and communist regimes have failed.

The economy is sustained because production and consumption are linked through labor and compensation. And the means that connect production and consumption is money.

The market economy is composed of three spaces: human space, material space, and monetary space, along with a time axis. Economic phenomena and economic algorithms are obtained by mapping economic events onto human space, material space, and monetary space. The economy has position, movement, and relationships, and economic events can be replaced by functions of time.

Economics is mathematics.

The components of the economy are people, goods, and money. Viewed mathematically, people are natural numbers and discrete quantities. Goods are real numbers and continuous quantities. Money is natural numbers and discrete quantities.

Furthermore, while people and goods are finite sets, money is an infinite set. People, goods, and money correspond one-to-one.

People, goods, and money each have important roles in unit groups, target groups, and exchange groups. The unit group of the entire economy is based on the set of people.

Fundamentals of the Economic System

The purpose of the economy is to sustain people’s lives.

The purpose of the economic system is to produce the goods necessary for people to live and distribute them widely among the populace. In other words, it is to support life. For this reason, the economic system is composed of production, distribution, and consumption.

Consumption is based on values. Consumption forms culture. Consumption is life. Ultimately, consumption is the goal. We produce in order to consume, not consume in order to produce. The fundamental of the economy is necessity; we produce because it is necessary. Forgetting this leads to waste and inefficiency.

The economy is based on relationships between people. It cannot function alone. Relationships between people form groups. Therefore, the economy presupposes some form of group. For people to live in groups, there must be rules, that is, some form of law. Law is based on agreement and contract. In other words, the economy cannot function alone.

The purpose of the monetary economic system is to achieve production, distribution, consumption, and savings through the circulation of money. The economic system is sustained by people circulating money. Therefore, how to circulate money and how to ensure it reaches every corner are the key points.

The liberal economic system assumes that individual economic entities pursuing their own optimal outcomes will achieve overall optimal outcomes without a central controlling authority. The economic system is not natural but an artificial construct. Therefore, it is necessary to set up organizations and markets so that individual entities pursuing their own optimal outcomes can achieve overall optimal outcomes. This kind of system is realized by unifying all values into monetary value, which is the essence of the monetary economy.

Therefore, the liberal economic system needs to be designed so that partial optimization achieves overall optimization. Moreover, overall optimization is not absolute; it is relative and changes with conditions, environment, and circumstances.

However, the current economy assumes that if left to its own devices, it will naturally settle into a stable state. This is a dangerous idea because the economy is an artificial phenomenon.

The economy has a sequential structure of input, production, distribution, consumption, and reinvestment, repeating from reinvestment back to input. In other words, it has a repetitive structure.

The economy also has phases of production, distribution, and consumption. These phases develop the flow of the economy through chain reactions. The economy is a matter of density. Density is determined by the composition, ratio, and distribution of income and expenditure. This density forms the basis of a country’s industrial structure. Simply increasing production efficiency without linking it to distribution and consumption distorts the overall flow and function. The economy is structural.

The industrial structure is an extension of the composition of individual households, determining the distribution of production. A hundred years ago, communication costs were not even a factor in consumption, but today they have developed into an important element of household composition, increasing the proportion of communication costs while compressing other elements. Simply looking at changes in absolute amounts does not reveal qualitative changes in the economy.

It is important to identify which elements are linked in the individual phases of production, distribution, and consumption. Furthermore, it is necessary to clarify whether these links are structural or statistical. Structural changes are caused by the system and form deterministic trends, while statistical changes are seen from the results and indicate probabilistic trends.

Production, distribution, and consumption each form their own unique spheres. The principles and purposes that operate in each sphere are independent and do not directly affect the other spheres. What connects production, distribution, and consumption are people, goods, and money, and markets are formed at the boundaries of each sphere.

The smallest unit of the economy is the individual. Individuals form organizations and markets. Organizations form economic entities, and markets form places. The basic function of the economy is reduced to the work of individuals. Individuals contribute to production through work, earn income according to their work, and use money from their income to purchase necessary goods from the market and consume them. This series of flows constitutes the economy. This is the basic algorithm of the economy. The essence of the economy lies in the process.

The biggest problem is that the units of production, distribution, and consumption are each independent. In short, the production population, distribution population, and consumption population are each independent and not unified. Production volume and consumption volume are unbalanced. Production volume is based on supply capacity, while consumption volume is based on demand. Demand depends on the population.

Moreover, nominal economic quantities and real economic quantities are not unified. Nominal economic quantities are based on money, while real economic quantities are based on the relationship between goods and services. Even if the number of income sources increases, if production volume does not change, the real income per unit decreases. However, nominal income changes according to circumstances.

The market economy is a system where production entities borrow money, invest the borrowed money to generate revenue, and repay interest and loans from the income.

The market and organizations constitute the market economy system. Distribution in the market economy is carried out in two stages. The means of distribution is money, and the place of distribution is the market. In the first stage, money (income) is distributed to consumers, who then purchase production goods from the market with the money they have obtained. The essence of distribution lies in the phase of distributing income. Income is paid as compensation for some economic activity. The principle is the exercise of labor or rights. Basically, income is distributed systematically. Organizations evaluate work according to some criteria and distribute income as compensation.

The economic system is driven by the flow of money. The flow of money arises from the surplus and shortage of money. Since money is depleted when used, consumption entities are always in a state of money shortage. This state circulates money in the market. It should be noted that while goods are consumed, money is not. Because money is not consumed, it can circulate in the market. The essence of money is numerical information, a quantification of exchange value. In other words, money is a natural number, a discrete number, and a numerical value. This characteristic is purified in virtual currency, where the attribute of goods is stripped away.

Balancing production, distribution, and consumption is the ultimate goal. For this, it is necessary to clarify the target living standard. In other words, it is about how to structure consumption.

The relationship between income, revenue, and expenditure determines the state of the economy. The market is controlled by the effort to balance income, revenue, and price levels. Balancing the levels of production, distribution, and consumption is key.

The results of production are allocated to revenue, and the results of distribution are allocated to income. The function of the economy is also a matter of density. The density of the economy is determined by the composition, ratio, and distribution of income and expenditure.

The state of the economy is summarized in the ratios of revenue, income, expenditure, savings, and debt. In other words, the goal of economic policy is to maintain the balance of revenue, income, expenditure, savings, and debt.

The relationship between per capita consumption, per capita income, and per capita price forms the basis of economic conditions. This point should not be misunderstood. People lose sight of the essence of the economy due to the illusion of money. However, the essence of the economy lies in how to acquire the resources necessary for living, not in money. Therefore, if economic growth and economic conditions are viewed only in terms of monetary amounts, the true picture is lost. Unit prices are set for the convenience of market transactions. However, once market prices are determined, monetary amounts begin to take on a life of their own.

The essence of the economy is reduced to the relationship between per capita production and consumption.

Some people believe that economic growth is everything, but the fundamental of the economy is people and goods, and monetary amounts are merely nominal. If there is no change in the substantial relationship between people and goods, it is merely a nominal and superficial change in money. Therefore, if the supply of money is increased without considering the substantial relationship between people and goods, prices will rise without limit.

The basics of algorithms are order (sequential structure), branching (selection structure), and repetition (iterative structure). In other words, finding the order, branching, and repetition within the economy is the way to construct the algorithm of the economy.

Basic Structure

In a liberal economy, there is no central authority to control the entire system. Therefore, the movement of the economy must be controlled by the economic system itself. The economic system is composed of preconditions.

Preconditions can be qualitative or quantitative. Qualitative preconditions include, first, institutions excluding laws. Second, policy requirements. Third, legal matters. Fourth, documentary evidence and references. Fifth, events and phenomena that affect the economy, such as surges in crude oil prices or changes in government. Sixth, geographical requirements. Seventh, market conditions and structures such as the end of high growth or balanced expansion. Eighth, assumptions.

Qualitative preconditions include institutions. Institutional preconditions include accounting systems, tax systems, and exchange systems, such as the accounting Big Bang. There are also political systems and fiscal structures. Legal preconditions include commercial law, tax law, and securities transaction law. Policies such as monetary policy, fiscal policy, policy changes, international treaties, and tariff policies also serve as preconditions. Regulatory changes, such as the Nixon Shock, the first and second oil crises, the Plaza Accord, the bursting of the bubble, financial crises, the Lehman Shock, and unprecedented monetary easing, are events that cannot be quantified but serve as turning points in economic trends. Algorithms and process flows are also preconditions, similar to business flows in private companies. The logic underlying these processes serves as preconditions for the results. Next, equations and identities serve as preconditions.

Quantitative preconditions include constants. Constants refer to values that are predetermined or somewhat predictable, such as population trends, consumption levels, interest rates, national debt balances, and last year’s prices. These are numerical values that serve as the basis for predictions, as well as initial values and initial conditions. However, what is considered a constant is often arbitrary. Therefore, it is necessary to confirm definitions such as what is considered a constant in advance. What is considered a precondition is relative and arbitrary.

Economic entities consist of production entities, distribution entities, consumption entities, and financial entities.

Production entities also share the responsibility of income distribution, meaning they share organizations. This directly links production and distribution.

Corporate profits and rewards are directly linked. However, the efficiency of productivity does not necessarily translate to the efficiency of distribution. The biggest challenge is how to align productivity with distribution.

No matter how much labor productivity improves, it is meaningless unless it translates into results. The reason is that production entities and distribution entities have fundamentally different systems, yet they share organizations. Therefore, the efficiency of production directly affects distribution.

The medium that links production, distribution, consumption, and savings is the individual. By considering the individual as the smallest unit of the economy and using the individual as a medium to link production, distribution, and consumption, total production, total income, and total expenditure become unified. This constitutes the three-sided equivalence. At the same time, the three-sided equivalence is influenced by the passage of time.

The means that link production, distribution, consumption, and savings is money.

The individual’s work appears as costs in the production phase, income in the distribution phase, and expenditure in the consumption phase. Costs are measured in relation to revenue as cost-effectiveness. Income is measured by the composition ratio of added value, and expenditure is measured by comparing it to living expenses and living standards. All of these are relative values and statistical subjects.

Costs represent how necessary resources for production are utilized in production. Therefore, costs are indicated by their composition in relation to production, i.e., output or revenue, and are expressed as prices. In other words, prices represent cost-effectiveness.

The consumption entity completes distribution by purchasing goods from the market. The individual links the market and the consumption entity.

The economic system has a structure where production and consumption overlap with the market in between. The market is a place for distribution, so the previous period’s production, the current period’s distribution, and the next period’s consumption work in parallel to maintain the balance of production, distribution, and consumption. Finance adjusts the surplus and shortage of funds in the phases of production, distribution, and consumption.

In other words, the economic system is a mechanism that controls the economy by adjusting the current state based on past results and anticipating future changes.

The characteristics of this system are that the waves of production and consumption directly affect the market, making the market’s function unstable. The second point is how to supplement the initial stage’s lack of funds. The third point is that when the market direction changes from balanced expansion to balanced contraction, the flow of money and the nature of the market’s function change. Finance and fiscal policy play a role in controlling these market changes. Therefore, it is necessary to identify the turning point from balanced expansion to balanced contraction and change the preconditions for monetary policy and policy planning.

Finance corrects the surplus and shortage of funds caused by the waves of production and consumption by smoothing and averaging cash flow. Fiscal policy corrects income distribution imbalances through income redistribution.

If finance and fiscal policy cease to function, the imbalance of fund surplus and shortage will expand to the extreme, leading to an uncontrollable state.

In a market economy, the market is the core. Therefore, whether the economic system functions smoothly depends on the market structure. The market must be able to respond flexibly to changes in the market environment and preconditions. The barbaric idea that deregulation will solve everything because regulation itself is bad can damage the core of the market system. An example of this is Japan after the bubble burst.

The economic system is controlled by the functions between sectors and the stages of production, distribution, and consumption. Changes in consumption are transmitted to production through the market, and the state of production is transmitted to consumption through the market. Prices convey the state of production and consumption to the market as information. Therefore, prices are established where the information on production and consumption is balanced. Prices form the basis of inflation.

Separation of Production, Distribution, and Consumption

In the past, the place of living was singular. Production, distribution, and consumption all took place in one place. As the economy expanded, vertical division of labor and organizational division of labor began, and as this deepened, the workplace, i.e., the place of production, and the home, i.e., the place of consumption, became separated and independent. Along with this, the market and money were established.

The market economy and monetary system emerged in the process of separating the place of production and the place of consumption. In other words, the place of distribution was formed in the process of separating the place of production and the place of consumption. If organizational division of labor is considered vertical division of labor, then production, distribution, and consumption are horizontal division of labor. Through horizontal division of labor, the places of production, consumption, and distribution were established.

In the past, economic entities were living communities, and the places of production and consumption were unified. Harvests and game were divided on the spot. The community, which unified the places of production and consumption, included the place of distribution. The basic unit was the family, which was a living community. In other words, the living community was the place of production, distribution, and consumption. Distribution within the community was organized. The community had internal and external economic transactions. Internally, the community was an ethical, non-monetary, organized, authoritarian, and powerful space. Externally, it was a non-ethical, monetary, and free space, which is the market. The market is also a legal space. Freedom is guaranteed by law.

The home is an ethical space with various constraints, making it a restrictive place. However, the family is protected within the home, making it a place of comfort. Similarly, working in a company comes with many constraints, but employees are watched over 24 hours a day. Some may feel they are being monitored, but if they miss work without notice, the company will immediately contact them out of concern, and if something happens, they will arrange insurance. The company also takes care of housing and transportation costs and provides living expenses. Once you leave the workplace, you realize how much the company took care of you. The same goes for the nation. The nation-state takes all possible measures to protect its citizens.

However, outside the community is different. Outside the community is a legal world. Without constraints, you must protect yourself. No one else will protect you. That is the free world. Whether this is good or bad depends on the individual.

The economy consists of internal transactions within the community and external transactions, with market transactions being external transactions. Accounting mainly represents internal transactions.

Economic entities are driven by income and expenditure. Income is revenue, and expenditure is spending. The economic system is a mechanism driven by the flow caused by the surplus and shortage of money. Money is depleted when used. Money does not exert its utility unless used. Such money is always in short supply and will quickly run out unless continuously replenished. Therefore, people must work. Without work, money runs out. That is how the world is structured.

The community consists of consumption entities and production entities through economic activities. The market fills the gap between consumption entities and production entities. In the past, communities were self-sufficient. Everything the community needed was provided within the community. Taking care of the socially weak was the family’s responsibility. Especially caring for the elderly was a moral issue, not a monetary one. Now, it is an issue of care systems, care facilities, pensions, and insurance, i.e., money, not morality. It has transformed into an external issue.

The entrance to the place of distribution is money, i.e., the distribution of income. The exit is where households purchase goods. In other words, the entrance to distribution is where consumers receive income, and the exit is where consumers spend money to purchase goods. In the past, if a family needed money, someone in the family would go out to work. Domestic labor and external labor were clearly distinguished. Domestic labor was consumption labor and was not considered wage labor. In other words, it had no monetary value.

The place of production is up to the point of constructing production means and producing goods.

The economy consists of cycles of revenue, income, and expenditure, and cycles of production, distribution, and consumption, as well as cycles of procurement, investment, and recovery. These three cycles are interconnected by the flow of money, which controls production, distribution, and consumption. If the flow of money stops, the connection between production and consumption is lost.

If the connection between revenue, income, and taxes is severed, the economy cannot be controlled. Revenue drives private companies, income drives households, and taxes drive fiscal functions.

Functions and Purposes of Each Sector

People work to live. There is an economic theory that defines people as selfish beings, but this is overly conceptual and a leap in logic. It may be said that people live by desire, but the essence of that desire is not necessarily selfish. If people live by desire, the essence of that desire should be clarified to determine whether it is selfish. The essence of desire is, first, the desire for survival. Second, the desire for self-realization. Third, the desire for self-expression. The essence of desire is the desire necessary for living. That is the origin of economic activity. Economic activity is activity for living. If economic activity is for living, it is natural to start with the desire for survival. However, this is different from selfish desire. It is a natural right as a living being. Misunderstanding this point leads to misunderstanding the essence of capitalism and supremacism. Defining it as selfish desire leads to making money the goal. Making money is a means necessary for living, not the goal.

The individual is a subject that objectifies itself. Originally, the self is a subjective existence. The self is the fundamental cause, the only existence, the subject of recognition, and the main entity. It is also an indirect object of recognition. The fact that the self is an indirect object of recognition relativizes consciousness. The self is the only entity that cannot directly see its own face. To see one’s face, one must use a medium such as a mirror or camera. Consciousness is established through the interaction between the subject and the object. Therefore, it is relative. Existence is absolute, but recognition is relative. The individual is an existence that abstracts the work of the self by universalizing and generalizing the unique existence of the self.

Objectifying the self means that living is replaced by being kept alive, and working is replaced by creating an environment and situation where the individual can work. In other words, the individual is an existence kept alive by society and the nation.

The basic work of the individual is to work, earn rewards according to the work, and support the family with the earned rewards. Of course, earning rewards is not only through work, and not all individuals work. However, the central work of the individual is to work, earn rewards, and support the family.

The individual is structured in a way that it cannot live alone. In reality, there are people who seem to live alone, such as shut-ins or NEETs, and those who mistakenly believe they live by their own power. However, such people are often more dependent on others. They just do not realize it and think they are living alone. The mass media also makes them think that way. In today’s highly organized society, individuals cannot live alone. There is a persistent idea in economics that assumes a deserted island, but it is meaningless because the premise is different.

In a structure where individuals cannot live alone, they gather to form groups. Groups are organized and only then do they exert their utility.

Groups form production units, distribution units, and consumption units based on their roles and functions in society. Units gather to form sectors.

Individuals gather to form units in each phase. In the production phase, they form production units. In the distribution phase, they form distribution units. In the consumption phase, they form consumption units.

Each unit forms sectors according to their work.

Sectors include households, non-financial corporations, finance, fiscal, non-profit institutions serving households, and overseas sectors. Generally, non-profit institutions serving households are small in scale and overlap with general administrative work, so they are considered part of the fiscal sector.

The work of each sector is as follows: households are the place of consumption and realize activities for living. Non-financial corporations are entities that produce goods necessary for living. Fiscal sectors prepare social capital necessary for the nation to live and build the foundation of the community. Finance facilitates funds and maintains the monetary system.

Originally, production should reflect the consumption structure. Industries are formed based on consumption propensity. Expenditure arises from consumption.

Production entities share the mechanism and organization of income distribution. By sharing the role of income distribution, i.e., distribution entities, production entities directly link distribution and production. Furthermore, individuals’ work directly links consumption and the market. Distribution is completed by earning rewards according to work and purchasing goods from the market with the rewards. The surplus and shortage of funds arising from production and consumption activities are supplemented by finance. This is the principle of a free economy. The economic system supports people’s activities for living based on the work of organizations, markets, and sectors.

Flow of the Economy Based on National Economic Accounts

The national economic accounts aim to capture all economic movements.

In the national economic accounts, the flow of the economy is recorded in the current account, accumulation account, and balance sheet. In the current account, the flow of the economy is represented in the order of production of goods and services, generation of income from production, distribution and redistribution of secondary income, and allocation of income to consumption and savings.

The cost items in the national economic accounts consist of intermediate consumption, compensation of employees, and consumption of fixed capital. Although these differ from the cost items defined by period profit and loss, they share the common point of being based on expenditure. Intermediate consumption is almost equal to total income, total production, and total expenditure. This is because transactions are equal in terms of income and expenditure. The reasons for the discrepancy are that not all transactions are captured, there are time distortions, some parts are not included in transfers, and there are virtual accounts and valuation accounts.

In the national economic accounts, economic activities are aggregated into value-added. Value-added has three aspects: total production, total income, and total expenditure, and is based on the principle of three-sided equivalence.

Total production captures value-added from the production side. It positions the function of value-added from the vertical relationship of total output, intermediate consumption, and total production. In contrast, total income measures the distribution process from the generation of income to final consumption expenditure and savings, and the allocation between sectors. Total expenditure measures the borrowing and lending between sectors from the relationship between consumption expenditure and savings, and views the stock through the balance.

The economic system is driven by the flow of money. How does the national economic accounts capture the flow of money? The economic system is driven by the inflow and outflow of money. In other words, the economic system is driven by income and expenditure. From the perspective of economic entities, it is revenue and spending. Revenue includes revenue based on production and revenue based on transfers, while spending includes spending based on consumption and spending based on transfers. Without clearly distinguishing these categories, the essence of the function of money cannot be understood.

Trying to explain economic movements without considering the function of the flow of money is like trying to explain the utility of electrical appliances without considering the function of electricity.

The flow of money based on sales transactions forms the flow, and the flow of money based on borrowing and lending and capital transactions forms the stock. The stock is created by transfers and recorded as balances. What appears on the surface is the flow. In terms of profit and loss, it is the cash flow.

The factors that move money are time differences, i.e., time value such as interest and profit.

In households, it is disposable income, final consumption expenditure, savings, debt, and debt repayment.

For the general government, it appears as fiscal balance.

Revenue from inheritance tax and other sources is recognized as transfers. Incidentally, the trend in the ratio of income from the perspective of income tax shows that the ratio of short-term and long-term separated transfer income has a significant impact on income fluctuations. Separated transfer income is a transfer and does not affect total income. However, looking at the economic fluctuations after the bubble, it is clear that separated transfer income has a decisive function in the actual economy.

The accumulated stock balance is assumed as the fixed part of the flow. Therefore, when diagnosing the state of the flow, the stock balance cannot be ignored.

Key Points in Designing the Basics: Requirements Definition

The system for controlling the economy is not for ornamental purposes but for decision-making and practical use.

First, it starts with what kind of economic state the user desires. To achieve that, what needs to be done now? What needs to be known now to formulate measures hints at the economic system. That is also the purpose of what is to be done. Defining what the user needs is the requirements definition. The user interface is the scene where the desired information is provided in the form the user wants. Requirements definition ultimately boils down to how to process materials and information. Therefore, defining information and classifying it by purpose and nature is key.

For example, information can be preliminary or final. Whether to use preliminary or final information depends on what the information is used for.

What are the key points in designing the basics of the model? First, clarify the purpose of designing the model and the UI (user interface). In other words, how to structure the final output format. How to structure and express the items of the final format.

The structure of the model includes preconditions, factors causing structural changes, time-series changes, and correlations. Preconditions refer to deterministic and fixed things, such as population. However, preconditions are not absolute. They must always be confirmed before analysis. Factors causing structural changes include the relationship between sectors and stock-flow.

Before getting into the main topic, it is necessary to decide what the preconditions are and how to set them. That is the starting point of the algorithm.

The economy is an information system. Information is expressed as numbers. Therefore, the basis of the economy is mathematics. The units that constitute information are units of people and units of goods, but ultimately they are reduced to units of money. This is the major premise of the modern economy.

Next, identify the elements that constitute the economy. The purpose of identifying the elements that constitute the economy is to clarify the economic system and construct an economic model.

When identifying the elements that constitute the economy, use the framework of the national economic accounts as a basis. This is because the data aggregated and processed by the national economic accounts is the main basic information for analysis.

First, clarify the framework of the national economic accounts. The national economic accounts set the stages of production, distribution, and consumption. They set six sectors: households, non-financial corporations, fiscal, non-profit institutions serving households, financial institutions, and overseas sectors, and measure value-added through the management of funds between these sectors. Furthermore, they distinguish between final expenditure and savings and record the surplus and shortage of funds within a unit period and the balance of borrowing and lending between sectors.

The conditions to be assumed are set according to the framework of the national economic accounts, but for that, it is necessary to clarify the structure of the actual economic system and the components that constitute the economic system.

When creating an economic model, the point is that the mechanisms of production, distribution, consumption, and finance are spatially and temporally intertwined. In other words, temporally, the mechanism of distribution operates based on the mechanism and results of the previous stage of production, and the mechanism of consumption operates based on the income distributed according to the mechanism of the previous stage of distribution. The mechanism of production operates based on the results of the stage before the previous one. The basic structure of the economy is that finance adjusts the surplus and shortage of funds in each stage of production, distribution, and consumption by leveling the periods.

Plans are made based on forecasts, and actions are decided by comparing actual results with plans. This is the basic mechanism. Forecast and actual management is the basis of economic control. Forecast and actual management is based on forecasts and plans, promptly inputting information available at each point in time, and making it useful for the user’s decision-making. It must be designed in such a way to be meaningful.

When creating an economic model, it is necessary to pay attention to the structure of the current economy. The overall structure of the current economy is that the mechanisms of production, distribution, consumption, and finance are spatially and temporally intertwined. Focusing on distribution, the mechanism of distribution operates based on the mechanism and results of the previous stage of production. The mechanism of consumption operates based on the income distributed according to the mechanism of the previous stage of distribution. The mechanism of production operates based on the results of the stage before the previous one. The basic structure of the economy is that finance adjusts the surplus and shortage of funds in each stage of production, distribution, and consumption by leveling the periods. The mechanisms of production, distribution, consumption, and finance are linked by people, goods, and money.

The mechanism of production is that production entities gather funds, invest in production means, utilize equipment, labor, and raw materials to produce and sell goods. The mechanism of distribution is that income and money are obtained as compensation for providing some production means, and goods are obtained from the market using the obtained or held money. Consumption is the mechanism of consuming goods using money and saving surplus funds. Finance is the mechanism of facilitating the surplus and shortage of funds and circulating market funds. The overall mechanism operates to balance these four mechanisms.

The actual components of the market economy are economic entities and the market. Economic entities are fundamentally organizations based on communities. In other words, it is reasonable to think that the components that constitute the economic system are organizations and the market. If the components that constitute the economic system are structured by combining organizations and the market, it is necessary to define organizations and the market and clarify their nature and functions. Then, how to set and position organizations and the market.

Organizations and the market are arbitrary and not given entities. However, both organizations and the market are historical structures built on past history. Therefore, it is impossible to clarify the functions of organizations and the market without considering history. Even though organizations and the market are historical structures, they are still artificial. Since they are artificial structures, it is necessary to clarify who created them, for what purpose, and with what ideology. This is a major premise. The market and organizations are not natural products but products of thought, and the underlying thought, further contracts and agreements, play a decisive role. Avoiding or glossing over this point will make the economic model untenable from the start.

After clarifying the underlying thought of such markets and organizations, further classify the parts of the economic system that do not change, the fixed parts, the certain parts, and the parts that change, the fluid parts, and the uncertain parts. This is what is called invariance, variability, and simplicity in the I Ching.

Once the framework of the premise is set, clarify what the dependent variables and explanatory variables are according to the purpose. That becomes the procedure, the algorithm.

To set the preconditions, it is necessary to clarify the components and create a broad framework. The key to the economy lies in the means of distribution.

Key Points of Organization. Definition of Organization

The core of the economy is the economic entity. Economic entities generally form communities. The main functions of the economy are production, distribution, and consumption. Among these, it is common for production entities to also serve as distribution entities. In this case, distribution is carried out systematically.

Distribution occurs in two stages: first, money is distributed as personal income according to work, and second, the distributed money is used to purchase necessary goods from the market.

Systematic distribution and market-based distribution are different. They should not be confused or considered homogeneous. It is a significant mistake to think that market equality equates to economic equality because distribution based on inherent evaluation is carried out through systematic distribution. No matter how much market equality is achieved, it does not lead to the realization of equality. Market equality means that the same amount of money can buy the same quality and quantity of goods. However, if there is a difference in what can be purchased due to income disparity, it is more meaningful to consider what causes the income disparity when thinking about fair distribution. This is where the essence of economic thought lies.

More important than whether the market is equal is the basis on which systematic distribution is carried out. The ideology and evaluation criteria of the organization are crucial when considering the nature of distribution. Economic thought is the thought of distribution.

Organizations are formed within economic entities, thus forming internal transactions. Internal transactions are asymmetric, and profits arise from internal transactions. In other words, economic gains are brought about by internal transactions. Organizations are normative, moral, and ethical spaces. What governs organizations is morality.

Systematic distribution appears as a salary system. It is a matter of the criteria on which salary calculations are based. The salary system is a mechanism for monetizing work. Today’s market system assumes the monetization of income, as evidenced by the tax system. In reality, societal standards lie in evaluation systems and salary structures. This is the same in communism and absolutism; no matter how ideologically equal they claim to be, if there is a disparity in distribution criteria, it is a society of disparity. Moreover, systematic distribution includes many aspects that cannot be measured by money. Even if a dictator receives little money, they can freely access a lot of wealth without relying on money. In other words, they can obtain it without going through the market and without using money. Claiming that this achieves an equal society is mere sophistry.

The criteria for evaluation include the quality of labor, the quality of the product, performance, the amount of output, and time. Labor and goods have not only quantity but also quality, and the crucial aspect is density. Economic growth is promoted by both quantity and quality. Misunderstanding this point leads to incorrect economic policies. When the market matures and reaches saturation, it should shift from quantity to quality. This does not simply mean promoting deregulation and free competition. Discipline may be necessary.

The issue is why deregulation is needed. Competition without discipline is not competition but merely conflict and struggle. The factors that promote economic growth are quantity, population, and price. Since there are limits to quantity and population, the actual scale of the market is limited. Therefore, when facing substantial limits, it should shift from quantity to quality rather than converting limits into prices.

The shift from quantity to quality requires the significant role of time. A transition from low-grade to high-grade products, taking more time for production and payment, is necessary.

The root of systematic distribution lies in ideology. Systematic distribution is not based on market transactions but is an act carried out according to the internal standards and norms of the organization. The basis for the internal standards and norms of the organization is ideology. Systematic distribution is ideological.

Key Points of the Market. Market Requirements Definition

The market is formed outside the economic entity and community. It is a non-ethical space. What governs the market are contracts and laws. The market is composed of countless small markets that collectively form the whole. Each individual market that constitutes the entire market is like a cell.

The market is a place for transactions. The accounting system creates the framework of the market. Transactions are fundamentally the exchange of goods and money, goods and goods, money and money, and money and rights. In principle, transactions mean the exchange of goods and money, while other transactions are considered irregular or complementary. The elements that constitute transactions are the market, the traded goods, sellers, buyers, money, and the credit system. The market is based on laws, contracts, arbitrators (arbitration institutions), and procedures.

In a market economy, market trends have a decisive impact on the economy.

The basic economic activity is completed by purchasing goods from the market. In other words, the market is the place where a series of economic activities are completed.

Therefore, market trends have a decisive impact on the entire economy. In a sense, in a market economy, the market is everything.

Whether the market is based on expanding equilibrium or shrinking equilibrium determines the validity of economic policies.

When the market begins to shrink, both production and consumption start to shrink. However, only distribution continues to expand, making market control ineffective. The market becomes uncontrollable and runs amok because of misjudging market conditions and adopting incorrect policies.

Therefore, it is crucial to clarify what leads to expanding equilibrium in the market and what causes the shift to shrinking equilibrium. Whether the forces acting on the market are towards expanding equilibrium or shrinking equilibrium depends on whether the market is in a developmental stage or mature. It also depends on whether the market is saturated or in short supply.

The main actor in production is goods, and the main actor in consumption is people. There are limits to the production of goods and to human desires. The only thing without limits is money. Therefore, what often becomes uncontrollable is money. Inflation, deflation, depression, and recession in a market economy can be considered monetary phenomena.

The state of the market is determined by population, per capita consumption, and unit price. Furthermore, it depends on how many new markets are emerging, how many markets are declining and disappearing, and the overall number of markets.

Key Points of the Mechanisms of Production, Distribution, Expenditure, and Finance

Production, distribution, consumption, and finance each form independent spaces and unique mechanisms. The mechanism of production involves investing in production means, using production means and raw materials to produce goods, and selling them. Distribution involves providing production means, obtaining income as compensation, and using the obtained money to acquire goods from the market. Consumption involves using money to acquire and consume goods and allocating surplus funds to reinvestment.

The current economic system is characterized by the spatial and temporal overlap of the mechanisms of production, distribution, consumption, and finance. Temporally, the mechanism of distribution operates based on the mechanism and results of the previous stage of production, and the mechanism of consumption operates based on the income distributed according to the mechanism of the previous stage of distribution. The mechanism of production operates based on the results of the stage before the previous one. The basic structure of the economy is that finance adjusts the surplus and shortage of funds in each stage of production, distribution, and consumption by leveling the periods.

These four mechanisms are independent and operate according to their unique rules. What connects the four mechanisms are people, goods, and money.

For example, production and distribution are linked by sharing organizations. Organizations integrate the elements of people, goods, and money. The work of individuals connects all phases. In the production phase, individuals’ work appears as costs; in the distribution phase, as income; in the consumption phase, as expenditure; and in the financial phase, as borrowing and lending. Costs are constantly under downward pressure, income under horizontal pressure, and expenditure under upward pressure. Their interaction produces appropriate wages.

Moreover, the results of production lead to revenue and income. Revenue results in profit as a cost-effectiveness outcome, and income leads to living expenses and expenditure. Output consists of intermediate consumption and value-added items. Output exerts economic utility by converting to revenue. Intermediate consumption and compensation of employees/mixed income are costs. Operating surplus is intermediate consumption. Costs are consumed in the intermediate stage.

If productivity increases, it is necessary to also measure the rise in the labor distribution rate. If the labor distribution rate increases but is not reflected in prices, it worsens employment itself. The principles of distribution and production efficiency are not directly related. Production and distribution share the same organization but have different mechanisms. They are only connected through rewards, income, and expenditure. Therefore, prioritizing profit and increasing productivity can lead to high revenue for the economic entity but worsen distribution efficiency and reduce employment. Achieving one billion yen in profit with 100 people is superior in production efficiency compared to achieving the same profit with 10,000 people, but the latter is superior in distribution efficiency. However, raising wages indiscriminately would naturally lead to a loss of competitiveness. The issue is how to harmonize revenue and costs. Production efficiency and income are often considered separately, but total production and total income are closely related. To correct the distortions in production, distribution, and consumption, regulation is necessary. Indiscriminate deregulation only expands distortions.

Production begins with investing in production means. Investment forms stock.

There is also investment in consumption. Representative examples of consumption investment are housing investment and investment in durable consumer goods. There are also educational investments. Consumption is fundamentally based on life planning. In other words, the basis of consumption is a person’s lifetime. Not all people need to engage in production, but all people need to consume goods to live. Therefore, the basic unit of the economy is consumption.

Expenditure is converted into income, circulating funds. Expenditure is also the income of the transaction partner. The relationships of buying and selling, lending and borrowing, and selling and lending establish and maintain the symmetry of external transactions in the economy. Internal transactions are asymmetric, and profits arise from internal transactions.

Basic Algorithm

Living by earning money through work and supporting one’s family. Companies borrow money to invest in production facilities, recover the invested funds from sales, i.e., revenue, repay the loans, circulate money to suppliers, and distribute income to the people working. This is the basic flow of the economy. Today, there is a disruption in this flow.

Algorithms consist of sequential structures, selection structures, and iterative structures, forming the framework of money algorithms, material algorithms, and human algorithms.

Accounting is an attempt to classify the functions of money into short-term and long-term, aggregate economic movements into unit periods, and control production entities.

The flow from production to distribution and expenditure is sequential and repetitive. At each juncture, it is classified into investment and costs. Investment indicates long-term functions, while costs indicate short-term functions. Surplus funds are accumulated as stock, functioning as long-term funds. Short-term funds generate added value and exert economic utility, forming the flow. Expenditure is classified into consumption and savings. Savings form claims and debts, becoming stock. The surplus and shortage of money between sectors are aggregated into stock.

Monetary value is fundamentally a natural number and a discrete number. The monetary unit is open-ended. Additionally, accounting is based on balance principles, assuming additive and subtractive operations. The sum of individual transactions is zero-sum, and inevitably, the total volume of transactions in the entire market is zero-sum. This principle of balance generates the force to balance the market.

To analyze the economic state, it is necessary to monitor the surplus and shortage of money between sectors, the direction and strength of money flow, the power relationship between flow and stock, and their impact.

In a market economy, market movements determine the direction of the economy. The market always exerts a force to balance itself. There are two types of forces to balance the market: expanding equilibrium and shrinking equilibrium. When analyzing the economic state, it is essential to first determine whether the market is heading towards expanding equilibrium or shrinking equilibrium. If there is no certainty, an assumption is made. In such cases, the basis of the assumption is shown, and it is clearly stated that it is an assumption. The total volume of market activity is expressed as the product of quantity and amount. The forces acting on the market can be expressed as the product of quantitative expansion or contraction and monetary expansion or contraction. Whether the market is in an expanding equilibrium state or a shrinking equilibrium state is determined by the direction of money flow in the market. If money flows towards claims, i.e., the operational side, the market heads towards expansion. If money flows towards debts, i.e., the procurement side, it heads towards shrinking equilibrium. The flow of money towards claims is considered forward, and the flow towards debts is considered reverse. Money exerts utility by flowing towards the real market and is restrained by flowing towards the financial direction.

The surplus and shortage of funds are ultimately aggregated into the relationship between assets and liabilities, i.e., the surplus and shortage of funds between sectors. The increase and decrease of claims and debts in a unit period reflect the surplus and shortage of funds in the sector. The imbalance of funds in each sector indicates the flow of funds between sectors. The relationship between flow and stock appears as the direction and strength of expansion or contraction.

The economic algorithm consists of money algorithms, material algorithms, and human algorithms, each having independent algorithms while closely interrelated, forming the overall economic algorithm.

For example, in the human algorithm, the sequential structure forms the basis of birth, aging, illness, and death. The selection structure appears at life’s turning points, and the iterative structure represents the cycles of a day, a week, a month, the four seasons, and a year. Thus, there is an algorithm in a person’s life and daily life. By clarifying the algorithms hidden in a person’s life and daily life, the economic algorithm is elucidated.

Claims form human and material accounts, while debts form monetary accounts. Therefore, claims are real accounts, and debts are nominal accounts. Real accounts become variables, and nominal accounts become constants. The market is based on the balance between real accounts and nominal accounts. Therefore, it is necessary to measure the power relationship between real accounts and nominal accounts, which is profit and net assets (capital). Therefore, profit and net assets become difference accounts.

When considering the algorithms of people, goods, and money, it is essential to note that people and goods have physical constraints, while money does not. The total consumption volume, limited by population and unit consumption, has a natural limit. Production volume is also constrained by raw materials and equipment. However, revenue and income can be increased indefinitely if desired. This point is crucial. The end of high growth and market saturation, coupled with population decline due to low birth rates, means a contraction of human and material markets. The key is how to maintain the economic state by controlling the circulation volume of money.

The market economy is based on revenue and personal income. It is essential to remember this point. It is necessary to constantly monitor the state of revenue and costs, personal income, and private consumption expenditure. Income and expenditure appear as employment and prices. The tax system determines the framework of revenue and income.

The basic flow of the market is based on the exchange of funds between production entities and consumption entities. Finance facilitates the surplus and shortage of funds between entities, and fiscal policy corrects the imbalance of funds. Therefore, finance and fiscal policy need to be controlled to maintain neutral balance between sectors.

The collapse of the bubble in 1991 and the subsequent decline in asset values gradually weakened the expansionary pressure on the market. During the financial crisis in 1997, the flow of money reversed from forward to reverse. The reversal of money flow from forward to reverse exerted downward pressure on the market. The downward pressure on the market is due to the speed of stock expansion significantly exceeding the speed of flow expansion. Unless the direction of money flow is changed, supplying money to the market is futile and only inflates surplus funds. Surplus funds form payment reserves and expand stock. Since flow operates based on stock, the relative expansion of stock over flow diminishes the vitality of flow. The function of flow is expressed as a ratio to stock, i.e., interest rates, profit rates, inflation rates, income growth rates, and asset growth rates.

The issue is how much flow can withstand the pressure from stock. However, the current state of the market is one of excessive money supply. Surplus funds pressure the management of financial institutions. When financial institutions can no longer withstand the pressure and the direction of money flow reverses, abnormal upward pressure on the market is expected. Currently, excessive force is stored in stock as payment reserves, making it difficult to control inflation. It is essential to be clearly aware of this point. How to control prices and interest rates holds the key to success. A single mistake could jeopardize the entire economic system. Therefore, it is necessary to anticipate the situations that may arise when the direction of money flow reverses and predefine actions for each case.

The economic system is an information system, where arbitrary information is input against predefined initial conditions and settings, and subsequent settings are made based on the output results. The economic system itself is usually a black box.

Therefore, after confirming the initial settings and conditions, decide what to input, confirm the output results, and then decide what to input next. This is the basic flow.

Fundamentally, all initial conditions are set to zero. Therefore, it starts with borrowing and lending. All entities prepare for payment by borrowing money against the production means they possess. The moment production means are collateralized, economic value is derived and confirmed. Money itself has no substance.

Money is a means of distribution and settlement. In today’s world, nothing can be done without money. The key is how to acquire money. Money is anonymous, so obtaining more money than others by any means satisfies one’s desires.

When people struggle to live despite working hard, public order deteriorates. More people will resort to killing or deceiving others to obtain money because they cannot live without it. A state of money trouble does not merely refer to a lack or shortage of money. It refers to an extremely biased distribution of money. In other words, it is a state where some have an abundance of money while others lack even the means for living expenses. This indicates a breakdown in the system of money distribution. Wealth and poverty are relative, not absolute.

The basic principle of the economic system is to cyclically repeat production, distribution, and consumption. To maintain this repetition, money must constantly circulate throughout the market. When the circulation of money stops, the economy collapses. Imbalances, stagnation, and stagnation of money worsen the economic state. Production, distribution, and consumption are linked by the movement of money. Production, distribution, and consumption have a sequential structure. Production creates the basis for distribution, which is spent according to distribution, and consumption occurs within the scope of expenditure. Consumption forms the basis of production. Thus, production, distribution, and consumption are cyclically connected. Production, distribution, and consumption are realized with payment preparation. Since payment preparation is based on money, fund procurement precedes everything. Therefore, borrowing and lending precede everything. Borrowing and lending form stock, and buying and selling form flow. Production determines income, income constrains consumption, and consumption determines the scale of production. This relationship forms the economic state.

Starting from production, it flows sequentially through distribution and consumption. Therefore, to observe interactions, it is necessary to overlay the three stages sequentially. Notably, production entities also serve as distribution entities organizationally. A decline in the profitability of production entities directly affects income and weakens distribution capacity. When income is compressed, the market faces contraction pressure.

Modern society has forgotten the function of distribution. The function of distribution is borne by costs. This is because costs ultimately lead to labor costs. Reducing costs compresses income. In other words, if costs are relentlessly reduced, the function of distribution is lost. The ultimate efficiency of production is automation. Automation excludes people from the production site, depriving them of work opportunities. Is working such a bad thing?

The actions of economic entities are based on forecasts, planning, comparing actual results with plans, and deciding what to do. This is forecast and actual management, the basis of economic control. This principle of action applies not only to production but also to distribution and consumption. Whether consciously or unconsciously, people analyze the current situation, make plans, implement them, and correct any discrepancies between plans and reality. Therefore, the basic algorithm follows this procedure.

Forecast and actual management is based on forecasts and plans, promptly inputting information available at each point in time, and making it useful for the user’s decision-making. It must be designed in such a way to be meaningful. Information has uses, timing, and freshness. Very old information has limited utility, while new information lacks verification and credibility. How to use preliminary and confirmed values depends on the user, their purpose, and convenience.

The use of information is influenced by the user, purpose, and convenience. Therefore, it is necessary to predefine the user and purpose. This forms the initial conditions and settings of the algorithm.

The economic system is driven by the flow of money, which is created by the surplus and shortage of money. The movement of the economy is controlled by adjusting the surplus and shortage of money.

The mechanisms of production, distribution, and consumption are connected sequentially and in parallel.

The whole process starts with the procurement of people, goods, and money, followed by combining them for investment. Then, substantial business begins. Fundamentally, not only companies but also households, fiscal policy, and finance are businesses.

Investment exists not only in the production sector but also in the fiscal sector, household sector, financial sector, and overseas sector. While investment in the production sector is capital investment, fiscal policy involves public investment, households involve consumption (housing investment, etc.) investment, financial institutions involve financial investment, and the overseas sector involves capital investment. It is essential to note that investments other than production investment do not generate added value. Therefore, increasing public investment or housing investment does not directly contribute to economic growth.

The economy’s structure and mechanisms change according to the growth stage. During the growth phase, it operates based on expanding equilibrium, but during the maturity phase, it shifts to shrinking equilibrium. Simultaneously, the relationship between stock and flow also changes.

Therefore, it is necessary to change the indicators according to changes in preconditions and environmental conditions.

Next, set the indicators. Indicators are listed according to the purpose and combined according to their function. Indicators depend on the nature of the underlying data.

Information has characteristics, and a system is required to provide the minimum necessary information promptly according to the situation and scene. The characteristics of information are, first, the source of information. The basis of the information determines its credibility and effectiveness. Conversely, information without a clear source is quite dangerous, as it may have political intentions. Second, the freshness of the information. Information has freshness. The freshness of information depends on its quality. Population changes slowly, and the freshness of the underlying numbers is relatively long-lasting. However, the freshness of exchange rates and crude oil prices deteriorates and becomes obsolete quickly. Third, the difference between qualitative and quantitative data. Fourth, the difference between raw data and processed data. The data used in the national economic accounts are secondary data, and primary or raw data are not used directly. When using processed data, it is necessary to verify who created the information and with what intention. Fifth, the accuracy or density of the information. Whether there is bias or change in the information. In short, it is a matter of data dispersion and average, a matter of probability. Sixth, the means of collecting information. The method of collecting information constrains post-processing. The difference between a complete survey and a sample survey is a good example. Seventh, the credibility of the information. The credibility of information largely depends on the source. However, even if it is a public institution or statistics created by an authoritative institution, as recently revealed by the government’s falsification of statistical data, there is no absolute certainty. If there is an abnormal change in some numbers, it is necessary to suspect whether the data standards have been changed. It is desirable to have information based on objective facts as much as possible. Information based on speculation or conjecture should be excluded as much as possible. Eighth, the amount of information. Today, with the dramatic improvement in data processing capabilities, it is possible to process large amounts of information in a short period. However, simply having a large amount of information does not necessarily mean it is good. Rather, narrowing down the information according to the purpose may lead to better results. Ninth, the structure of information and the relationship between information. Ultimately, since the aim is to understand the regularity behind the data, the relationships between data cannot be ignored. Especially correlations often play a decisive role in making predictions. There are limits to predicting fluctuations and future predictions from the movement of a single data point. The issue is how to analyze multidimensional data. Tenth, the continuity of information. The national economic accounts have been revised several times, and it is well known that statistical data have changed accordingly. The problem is the signs of intentional falsification. In any case, it is necessary to be careful when using data over the long term.

To use information correctly, it is essential to confirm whether it is suitable for the intended purpose. The key is what data to use for what purpose. First, information that accurately recognizes the current situation is required. The current situation is based on position, movement, and relationships, along with the surrounding environment and predictions. In short, everything starts with a current situation survey and confirmation. Making snap judgments without accurately understanding the current situation leads to failure. Second, information for making judgments in a so-called normal state, information for making correct judgments within the expected range. To make correct judgments, it is necessary to determine whether the position, direction of movement, and relationship with factors affecting one’s movement at each point in time are consistent with the initial plan. In other words, it involves judging whether it is normal or not. Surprisingly, making judgments when nothing is wrong can be more challenging. It is crucial to firmly establish the standard, benchmark, and basic form. We tend to mistake abnormal things for normal if they persist for a long time. For example, zero interest rates. After more than twenty years of zero interest rates, we may mistakenly believe that zero interest rates are normal. As a result, we start thinking based on the premise of zero interest rates. However, it is always necessary to check whether zero interest rates are normal. Otherwise, the core of the economy may change without notice. One of the purposes of analyzing information is to determine what is normal and what is abnormal. Third, the detection of abnormal values. Providing information that allows decision-making according to each situation, whether normal or abnormal. What is abnormal? What is affected by the abnormality, and what obstacles arise? This is the essence of the problem. If the issue is predicting something and taking measures, it is necessary to first set what is abnormal and what is normal. Indeed, it is an abnormal value, but if there are no other problems, it is merely an abnormal value. Even if there is a day of heavy rain, if there is no damage, it is just an abnormal value. However, if heavy rain continues for several days, repeats for years, and rivers overflow each time, it is necessary to clarify the cause of the continuous heavy rain and take measures. Zero interest rates are abnormal. Zero interest rates are abnormal values. However, unless it is clear what obstacles are appearing and what is being affected by zero interest rates, it is impossible to take measures. It is like having a fever without a diagnosis. Even if you want to give an antipyretic, if you do not know the cause of the illness, there is nothing you can do. Fourth, information for determining whether it is an emergency or urgent situation. This also involves the definition of emergency and urgent situations. Emergency and urgent situations are different from abnormal values. Misreading this will lead to incorrect responses. Abnormal values may be a precursor to emergencies and urgent situations, but abnormal does not immediately mean emergency, and emergency does not immediately mean abnormal. In emergencies, the system and response are the most critical issues. Underestimating this will prevent early response by merely considering it abnormal. Fifth, finally, information for organizing and integrating all information to take long-term measures. When a problem is exposed, there is a big fuss, but after temporary and emergency measures, the fundamental measures are often forgotten. However, if the root problem is not resolved, recurrence cannot be prevented.

The nature and use of data are deeply related to the purpose of using the data and affect the algorithm.

When monitoring the economic system, how to process information is the key. The ultimate goal may be to quickly identify what is changing and what is not, the differences between predictions and reality, and their causes. The process of verifying changes and differences becomes the algorithm.

The upcoming tasks include current situation analysis, elucidating the relationships and mechanisms between the elements constituting the economy, modeling the economy, identifying current issues and formulating comprehensive measures, detecting abnormal values and taking measures, considering preventive measures for emergencies and urgent situations, and finally, constructing the ideal state based on past events and machine learning results. This is the basic algorithm.

To create a general economic model, it is necessary to clarify what people expect and desire from the economy. Natural phenomena and economic phenomena are different. Economic phenomena are not natural occurrences but actions. The ultimate goal of the economy is to make things as desired. Therefore, what needs to be elucidated must be both the dependent variable and the target of manipulation. If it is not clear what economic state is desired, the direction will be lost. Modern Japan has lost sight of which direction to head. The biggest problem is that the goal is not visible

Overall

The overall system has the role of controlling the functions of its parts. In a liberal economy, it is a principle not to set up an institution that directly governs the entire economy. Instead of having some power institution at the center arbitrarily controlling the whole, the idea is to control the entire system through the market mechanism. Therefore, the economy needs to incorporate functions that govern the whole into its system. It is not a specific institution that controls the parts, but the functions of the parts and the overall system. Hence, the key theory is control theory. Since norms control the functions of the parts, the whole is controlled by regulations. Therefore, arbitrarily relaxing or eliminating regulations poses a risk of destroying the free economy, leading to direct governance. Some blame market failures and market responsibility, but this is a shift of responsibility. It is the responsibility of those who arbitrarily relax regulations and prevent the market from functioning normally. However, regulations are not absolute, and regulations that no longer function due to changes in the market environment or that no longer fit the times need to be revised or abolished.

Next, the economic system is established by circulating money. In other words, the monetary system can be said to be a mechanism for circulating money. The key to the economic system is to ensure that money permeates every corner of society and continues to circulate constantly. If the liquidity of money is lost and it no longer circulates throughout society, the economic system will cease to function. Factors that hinder the circulation of funds include extreme disparities, stratification, biases, blockages, and obstacles. The overall function of the economic system is to achieve balanced production, distribution, and consumption by circulating money evenly. The important thing is to permeate and circulate money throughout the market. Permeating means continuously supplying the necessary amount of funds to all consumers without bias and as needed. To facilitate the smooth circulation of funds, it is necessary to balance people, goods, and money.

The direction and amount of money flow play a decisive role.

The overall role is to maintain the value of money. To maintain the value of money, it is necessary to circulate currency smoothly while controlling the amount of currency. This serves as a financial indicator. Additionally, it is essential to maintain balance in four directions: horizontal, vertical, inter-sectoral, and time axis. It is necessary to constantly monitor the balance in these four directions, and indicators are required for this purpose.

The relationship between investment and consumption is the flip side of the relationship between stock and flow. Additionally, the relationship between the surplus and shortage of funds between sectors and how it reflects on consumption and investment forms the basis of the relationship between stock and flow.

From the distribution perspective, the trends in prices are interpreted along with changes in income and market structure.

Horizontal Balance

Horizontal balance includes the balance of production, distribution, and consumption. Another aspect is the balance of the components of added value.

The economy circulates money by sequentially developing and repeating input, production, distribution, consumption, and reinvestment.

The balance of flow and stock includes horizontal balance and vertical balance. In other words, looking at a unit period, the vertical relationship of borrowing and lending and profit and loss is balanced, and further, the horizontal balance of flow and the horizontal balance of stock are maintained. The balance of stock is accumulated as the surplus and shortage of funds in each sector.

Horizontally, the relationship between total production, total income, and total expenditure is formed. Total production, total income, and total expenditure mean added value. Economic growth means the expansion of added value. Factors that expand added value include quantitative factors, artificial factors, and price factors. This is because sales are the product of quantity, customers, and price. It is necessary to pay sufficient attention to this point. While quantity and population are finite, prices are open-ended.

Horizontal balance constructs the relationship of total assets = total capital = total expenditure. Total production = output – intermediate consumption. Total expenditure = final consumption expenditure + total capital formation + exports – imports. Total income = compensation of employees + operating surplus + mixed income + taxes on production and imports – subsidies. This forms the three-sided equivalence.

Added value is the balance account of the production account. It is obtained by subtracting intermediate consumption from output (Introduction to Macro Accounting by Masao Kono and Akira Omori, Chuo Keizai-sha).

To maintain horizontal balance, it is necessary to have a mechanism that can balance investment and fund transfer, revenue and costs, supply and demand, income and expenditure, consumption and borrowing and lending (assets, liabilities), living and prices. Assets include deposits.

Income is paid as costs from revenue, and expenditure is made within the range of income to consume. Surplus funds are deposited and turned into investment. When revenue declines and costs are reduced, income decreases, expenditure is pressured, and consumption declines. Investment is also restrained. Revenue forms the basis of supply, and expenditure generates demand. Prices are determined by the relationship between supply and demand. As long as the supply-demand relationship is maintained, prices remain restrained, but when the balance of supply and demand is broken, the amount of payment preparation plays a decisive role in prices.

Prices, income, consumption, savings, taxes, interest rates, and profits are adjusted to balance at certain ratios. The correlation between price inflation rate, income growth rate, savings rate, tax rate, interest rate, and profit rate is examined. These correlations differ depending on the preconditions, so it is necessary to change the preconditions and explore the factors causing changes. If the interest rate is lower than the price inflation rate, investment is promoted, and price inflation accelerates. If income growth cannot keep up, households will collapse. Conversely, if the tax rate is low, fiscal policy will collapse. Although these elements do not necessarily change uniformly, it is essential to clarify their correlations. The range of fluctuations forms a standard. The issue is the range. What standard to use to adjust the range between elements.

Interest rates lead time value, and tax rates and interest rates are constants that can be directly managed. In this sense, zero interest rates are considered to weaken the correlations between individual elements. The correlations that worked between elements weaken, making mutual checks less effective.

Fiscal, monetary, and tax policies exist because prices, public investment, interest rates, and tax rates are considered to be linked. If prices, public investment, interest rates, and tax rates are not linked, these policies cannot be established.

To see the horizontal balance of stock, look at the balance of borrowing and lending between sectors and the international balance of payments.

Ultimately, it converges to the relationship between per capita production, per capita income, per capita consumption, per capita assets, per capita liabilities, and prices. Per capita represents a representative value, and representative values include not only the average but also the median and frequency, which are used according to the purpose. When calculating per capita values, dispersion, deviation, minimum value, and maximum value are important.

Why do private companies need to use double-entry bookkeeping and accounting systems to settle period profit and loss? It is to measure the movement of money in a unit period. Cash flow alone cannot clarify the short-term and long-term functions of money. Therefore, the functions of money based on investment and the functions of money based on regular operations are classified, and the surplus and shortage of cash are adjusted.

This is because, in a market economy, the main pillar is to procure funds, invest, generate revenue through the invested production means, recover the invested funds from the revenue, and repay. Repaying loans, including the principal, from income is common to all sectors. It is a mistake to think that fiscal policy does not need to repay. Currently, it is only applied to market transactions, i.e., profit-oriented private companies, but in reality, fiscal policy and households need to be measured by the same standards.

Vertical Balance

Vertical balance means the balance of flow and stock. It also represents the serial relationship of output, intermediate input, and total production.

National Economic Accounts

It represents the relationship between sales, gross profit, cost (expenses), interest, and taxes. Costs represent raw materials (purchases), labor costs, other expenses, interest, and depreciation.

The part corresponding to costs is intermediate input and intermediate consumption. The value-added method is used to calculate intermediate input, and the commodity method is used for intermediate input. Intermediate input and intermediate consumption are considered to be consistent.

Cabinet Office National Economic Accounts

Funds have long-term and short-term functions, with long-term functions forming stock and short-term functions forming flow. Vertical functions are derived from the relationship between the denominator and numerator that constitute individual elements.

In non-financial corporations, stock constitutes total assets and total capital, and flow means sales, so the total asset turnover rate is an important indicator.

Corporate Statistics

In the vertical direction, the ratio of the denominator to the numerator is important. While the composition ratio is the standard in the horizontal direction, the ratio of the numerator to the denominator is the basis in the vertical direction. Therefore, interest rates, price inflation rates, income growth rates, and profit rates are the main indicators. The idea is that price inflation leads to increases in interest rates and income. Also, rising interest rates lead to price inflation and income growth. Income growth is thought to lead to increases in interest rates and prices. Lowering interest rates leads to an increase in liabilities. Increasing liabilities puts pressure on interest rates. However, these things cannot be stated unequivocally if the preconditions change.

Vertical relationships arise from investment and current account balances. Investment varies depending on the economic entity. Production entities generate added value through investment in production means such as equipment and repay from revenue. Public investment is investment in social capital, recovered through taxes. Investment by consumption entities, such as housing investment, is repaid from regular income. The overseas sector prepares payments for settlements between countries.

The relationship between investment and current account balances generates the supply and flow of cash. Therefore, flow and stock are connected by time value.

Accumulated liabilities pose a risk of shallowing the bottom of the flow. In other words, it reduces fund efficiency. Shallowing the bottom of the flow makes fund flow unpredictable and increases the risk of flooding. Overflowing surplus funds destabilize market movements.

Leveraging creates the illusion of increasing profit rates on the surface, but it ultimately dilutes monetary density.

Temporal Balance

Temporal balance refers to the balance along the time axis, including flow and stock, long-term and short-term fund functions, investment, and fund management. Temporal balance generates time value. When temporal balance is not maintained, time value diverges instead of converging.

Temporal balance appears as time-series changes.

Inter-Sectoral Balance

Inter-sectoral balance means the surplus and shortage of funds and is represented as borrowing and lending between sectors. The surplus and shortage of funds specify the direction of fund flow. Inter-sectoral balance appears as the direction and amount of fund supply and demand, and balance.

Generally, during the growth phase, non-financial corporations, which are the center of production entities, face a shortage of funds, while households, which are the center of consumption entities, have a surplus of funds. This creates a structure where funds flow from households to private companies, and financial institutions and the government supply funds neutrally to circulate funds in the market. The flow of money from financial institutions to the market is a forward flow, and the flow from the market to financial institutions is a reverse flow. The forward flow increases claims and debts, expanding the market. The reverse flow decreases claims and debts, contracting the market.

Horizontal, vertical, and time axis correlations are all important. The factors and preconditions that establish these correlations hold the key to economic policy.

As indicators representing the whole, industry is cost-effectiveness, i.e., production and labor costs. The market is supply and demand trends, and life is consumer price trends. What you want to clarify from the indicators becomes the criterion for selecting indicators. What you want to know is whether the current state is sustainable, and if it is difficult to maintain, what factors will make it unsustainable.

If the current state becomes unsustainable, what state will it fall into? The first possibilities are hyperinflation, fiscal collapse, and financial crisis. In any case, signs will appear in long-term interest rates, the balance of flow and stock, crude oil prices, and exchange rates. Therefore, it is necessary to pay close attention to the trends in long-term interest rates, flow and stock, crude oil prices, and exchange rates. Also, from a long-term perspective, population trends become a fundamental requirement.

It is the change in the composition of total assets, total income, and total expenditure. The composition of added value and total expenditure represents the real state of the economy.

The fundamental of the economy is to produce or procure the resources necessary for national life and to sustain the lives of all citizens. The movement of money is merely a means to that end.

If the lives of those engaged in the basic production of commodities such as food and daily necessities become unsustainable, the economic foundation will inevitably be lost. The economy is based on the balance of production, distribution, and consumption of goods.

Materials Needed for the Whole

• National Economic Accounts
• Consumer Price Index
• Flow of Funds Accounts
• Corporate Financial Statements
• Population Statistics
• Balance of Payments Statistics

もちろんです。以下が英訳です：

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Household

Households are the main entities of consumption. Consumption is the essence of life itself, and therefore, it forms the foundation of the economy. The starting point of a household is disposable income, and the endpoint is final consumption expenditure and savings.

Consumption forms the foundation of the economy and is based on the population.

Households provide labor, a means of production, to production entities and receive compensation (income) in return. Generally, households live within the income earned from providing labor, i.e., working. When money is insufficient, they either use past savings, sell assets for cash, or borrow money using assets as collateral to cover the shortfall.

The key to a household is how to earn income.

In Japan’s tax system, income is classified into ten types: interest income, dividend income, real estate income, business income, salary income, retirement income, forest income, capital gains, occasional income, and miscellaneous income.

Income levels have not reached the peak levels of the bubble era even by 2019. Despite apparent economic improvement, the reality has not improved at all.

Notably, since the first oil crisis, the ratio of business income to salary income has reversed. Additionally, miscellaneous income has shown a sharp increase during events like the first oil crisis, the bubble, and the Lehman Shock. This reflects income trends well and suggests that income trends are significant factors in economic fluctuations.

The key to modern economics is how to stabilize income. Stabilizing income is crucial because while expenditure is fixed, income is unstable and uncertain. The stability and certainty of income determine the stability of the economy and, further, the state of social security. One means of achieving income stabilization is through stable employment and income. Stable employment is realized through job security, and stable income is achieved through regular and continuous payment of wages. Stable employment and income enable borrowing and improve borrowing techniques. The tax system also fundamentally assumes salary income. This is evidenced by the fact that employee income constitutes a major part of income in the national economic accounts. Employment includes day labor, regular employment, and irregular employment.

The premise of final consumption expenditure in households is disposable income.

Households also engage in investment, with the largest being housing investment. Housing investment itself does not generate added value; it is a consumption-targeted investment.

Consumption investment assumes stable employment and income. Generally, loans incurred from household investments are repaid within the range of income. Losing stable income means struggling to repay fixed monthly loans, potentially leading to bankruptcy in the worst case.

The important relationship in households is between disposable income and expenditure.

The basic algorithm of a household is to earn money and use the earned money to purchase necessary goods from the market. If money is insufficient, they either borrow or use savings to supplement. Surplus money is saved.

Losing a job means losing the means to earn money, making the unemployment rate an important indicator of economic conditions.

Households form purchasing power, which depends on income. Generally, households spend within the range of their income.

Prices are determined in the market by supply and demand. Demand derives from household needs, i.e., consumption. Supply is based on production capacity and procurement capacity.

Ensuring a certain standard of living and guaranteeing a minimum standard of living are essential.

Households are the main entities of consumption and form the core of consumption. They are fundamental factors in determining consumption trends.

Households are the main entities of consumption. The indicators of consumption are, first, prices; second, disposable income (average income); and third, population. The key is how changes in consumption behavior affect the economy.

For example, changes in consumption structure due to changes in population composition. This fundamentally involves household issues. A good example is the problem of declining birthrates and aging populations. Future consumption trends must be built on the premise of declining birthrates and aging populations.

Currently, households are surplus entities, meaning expenditure is less than income. However, not all households are surplus entities. Some are deficit entities, primarily due to housing investment. Households can also procure funds by securing future income.

Consumption determines the broad framework of industries. Changes in consumption propensity alter the economic structure. As economic growth increases and the market becomes saturated, consumption propensity changes, the Engel coefficient decreases, and educational and self-realization expenditures increase. The economy also shifts from quantity to quality, improving quality. However, expanding investment increases fund transfers, pressuring real disposable income. In other words, the bottom of the money flow becomes shallow. Without borrowing, there is no risk of bankruptcy. Conversely, increasing debt expands the risk of bankruptcy.

Goods are completed by being consumed by people in households. People complete the process by purchasing necessary goods with earned income. However, surplus money is not consumed but accumulated as deposits in financial institutions and returned to the market as investment. Goods are consumed, but money is not. Money is recirculated into the market through financial institutions, creating the circulation of money.

Indicators Representing Households

Indicators should reflect the roles and functions of each sector. Households represent the function of consumption. They are the endpoint of production, distribution, and consumption, forming the basis and demand. Therefore, indicators should reflect the economic foundation and consumption structure.

• Consumer Price Index
• Disposable Income
• Population Trends

Materials Supporting Households

• Household Statistics
• Housing Starts
• Consumption Expenditure
• Income by Type (Income from Taxes)

もちろんです。以下が英訳です：

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Non-Financial Corporations

Non-financial corporations are production entities. They constitute the means of production and revenue, and they are the starting point of economic activities. They also generate claims and debts, serving as the source of the market. Additionally, they are institutions that distribute money through income.

Non-financial corporations are production entities. They are also distribution entities. The functions of non-financial corporations are measured based on cost-effectiveness, profit and loss, and the relationship between assets and liabilities. Corporations systematically distribute income according to work. By combining the roles of production and distribution entities, they link households (consumption), companies (production), and income (distribution).

Non-financial corporations invest in physical means of production, procure raw materials, use labor (a means of production) from households to produce goods, and sell them. They pay costs (especially labor costs) and distribute income. They repay investment funds and loans from their revenue. Their important functions are: first, to procure funds through some means (loans, capital means); second, to procure raw materials and produce goods; third, to distribute income according to work; and fourth, to repay debts within the range of revenue. These four functions generate investment, debts, assets, revenue, costs, profits, repayment of funds, income, interest, and taxes. Through these functions, goods and income are produced and distributed to individual sectors.

There are two flows of money: one from investment and the other from current account balances. The investment flow forms stock, debts, and assets, while the current account flow forms the flow.

Non-financial corporations are crucial in the production phase and lead economic growth from the production side. Their functions can be measured through accounting systems. Non-financial corporations are based on revenue and cost-effectiveness. The foundation of profit and loss lies in assets and liabilities. The structure is such that profit and loss rest on assets and liabilities. Asset and liability transactions are transfer transactions, and the effectiveness of money is exerted through profit and loss transactions. However, asset and liability transactions handle cash flow, and the direct cause of corporate bankruptcy is cash flow issues.

Non-financial corporations contribute to distribution by creating employment. Distribution is systematically conducted based on profit and loss. Non-financial corporations also convert production into distribution. They have the function of streamlining uncertain and unstable revenue and costs, especially labor costs. In other words, they stabilize income and revenue, ensuring the stable circulation of money in the market.

Private companies serve as both production and distribution entities. If increasing production efficiency leads to distribution bias, it becomes detrimental to the overall economy. Simply increasing productivity is not enough. The key is how much of the increased productivity can be reflected in income. The significance of increasing productivity lies in its ability to be reflected in income. If increased productivity leads to lower prices, income is suppressed. The issue is whether to reflect increased productivity in revenue (i.e., income) or in expenditure (i.e., prices). Current policies reflect increased productivity in prices, leading to deflation. Increased productivity can only be converted into income when it is reflected in profits. Appropriate prices are based on appropriate costs. As long as policies treat costs as the enemy, revenue will be endlessly pressured, and the market will shrink. The choice is whether to seek competitiveness in prices or quality, whether to increase income or lower prices and inflation. Chasing two hares will result in catching neither.

By stabilizing income and revenue, non-financial corporations enable debts and loans. They have the function of balancing the surplus and shortage of funds. They compensate for the surplus and shortage of funds arising from changes in the environment and revenue structure through debts.

The correlation between the revenue of non-financial corporations and the economic growth rate was strong until the bubble burst. When the bubble burst, the correlation between revenue and economic growth was lost, as if hitting a wall. Clarifying the cause of this loss of correlation will reveal the impact of corporate management on the economy.

Correlation between Total Sales of All Industries and Gross National Income

Changes in the production structure and their impact. How the industrial structure, revenue, and cost relationships have changed over time and how they will change in the future. Clarifying causal and correlation relationships.

When measuring the balance between sectors, it is essential to keep this point in mind.

In non-financial corporations, trends in the industrial structure are crucial. Changes in the industrial structure are largely due to market changes. Assessing how market conditions are changing.

Non-financial corporations should bear the burden of loans because other sectors do not generate added value. The basic principle of a market economy is to repay the principal and interest of loans from revenue. Non-financial corporations are the only sector capable of generating added value while repaying loans because they can generate revenue even with debts.

In a market economy, non-financial corporations are the main pillars of the economic system. The biggest problem in the modern economy is that the role of non-financial corporations as the main pillars of the economy has been forgotten. Economic growth is generally brought about by the expansion of added value. The expansion of added value increases total income and total expenditure. Private companies are the driving force behind the expansion of added value. General governments, households, and financial institutions do not fundamentally generate added value. The basic approach of capitalism is to lend surplus funds to private companies to generate added value and promote economic growth. The business model of a market economy is for private companies to borrow money, invest in production means, procure labor (a means of production) from households, distribute income as compensation, produce goods using production means, sell the produced goods, generate revenue, and repay loans from the revenue. If the environment for private companies to invest, expand their business, and increase revenue is not in place, the economy will head towards shrinking equilibrium. Private companies need collateral to invest, which can be surplus assets or future revenue. During the bubble burst, intentional depreciation of asset values and promotion of excessive competition weakened revenue, leading to restrained investment and deteriorated revenue. Unless this point is improved, fundamental economic recovery cannot be expected. It is necessary to clarify this structure.

Industries that have matured and stopped growing are the benchmark industries because they are stable. In the past, so-called commodity industries like agriculture and daily necessities were key industries. Emerging and growth industries are unstable. After the industrial revolution, with waves of intense technological innovation, the situation reversed. Growth and emerging industries became the benchmark, and management could not be maintained without assuming change. Established industries declined and fell into recession. However, they are essential and can maintain stable revenue. As we have returned from an era of constant change during high growth to an era of low growth, it is necessary to refocus on mature industries. Financial institutions cannot find good lending opportunities because solid businesses have been undervalued.

Indicators for Private Companies

The role of private companies is to produce goods and distribute costs, especially labor costs (income). In other words, they provide the foundation of added value.

The basic principle of a market economy is to repay debts with revenue. If money circulates, the management of economic entities can be sustained. However, this will cause debts to swell. Therefore, the relationship between revenue and debts is crucial. The relationship between revenue and debts is reflected in turnover rates. The key is also how much revenue is generated from invested funds. Additionally, the state of surplus and shortage of funds in each sector and the direction of fund flow are crucial as they hold the key to economic growth.

• Total Capital Turnover Rate
• ROE
• Profit Rate
• Long-term Loan Trends
• Short-term Loan Trends
• Operating Cash Flow
• Investment Cash Flow
• Financial Cash Flow
• Land Price Trends
• Labor Distribution Rate
• Unemployment Rate

Supporting Materials for Non-Financial Corporations

• Input-Output Tables
• Corporate Statistics

Fiscal Policy

Non-profit institutions serving households are included in fiscal policy.

The role of fiscal policy is fundamentally the redistribution of income. Therefore, public investment and public works are essentially income transfers and do not generate added value. They do not contribute to economic growth because they do not generate added value. The need for income redistribution arises because distribution completes in two stages: distributing money and using the distributed money to purchase necessary goods from the market. From an individual’s perspective, the distribution of money is income. First, income must be distributed to all citizens. Private companies alone cannot achieve full employment. Without full employment, income cannot be distributed to all citizens. Additionally, the labor population is limited. The labor population that can earn income as compensation for work is limited within the total population. Therefore, the state needs to correct income disparities. This is the basis for income redistribution.

Fiscal policy requires financial functions independent of financial institutions. Financial institutions’ role is to correct the surplus and shortage of funds based on market demands. Financial institutions do not directly correct income surplus and shortage. They manage funds based on profit and loss and balance. However, this leaves behind socially disadvantaged people who cannot procure the necessary money for living on their own. The role of the general government is to redistribute income to support the lives of economically disadvantaged people. The function of the economy is distribution. Socially disadvantaged people include infants, students, the elderly, and those requiring care who cannot earn a living through their work, as well as those who cannot earn the necessary money due to childcare, unemployment, illness, or disability. While their actual care may be provided by family or guardians, financial assistance is essential. Therefore, income redistribution is carried out. Additionally, extreme income disparities hinder the development of a healthy market. Therefore, the government’s role is to correct income disparities to maintain fairness for consumers.

Fiscal policy serves as both production and consumption entities. It corrects imbalances between production and consumption and corrects distribution disparities through income redistribution. Fiscal policy also supplies funds to the market through government bonds and controls the circulation and flow of funds. Since fiscal policy does not generate added value, it does not directly contribute to economic growth. However, it indirectly stimulates the economy through income. Excessive reliance on economic stimulus measures is a mistake. While public investment can stimulate the economy, it lacks sustainability. Sustained maintenance requires market and industrial policies. Excessive dependence on public investment turns it into vested interests.

Repaying debts with revenue applies to the government as well.

Fiscal policy serves as both production and consumption entities. It corrects distribution disparities through income redistribution. It builds social capital. Public investment and public works do not generate added value other than income. The primary duty of fiscal policy is to protect national sovereignty and independence. The state guarantees the value of currency and secures currency value through tax revenue. The role of fiscal policy is to control and circulate funds. It is cash-based. It is based on a single-year principle. It is based on the independence of the fiscal year.

The purpose of fiscal policy is not economic measures but the well-being of the national economy.

Increasing public investment under the guise of economic measures is not in the national interest. Public investment does not generate added value. Public works and public investment are not profit-oriented businesses or investments. Therefore, they do not generate added value. The effect of investment or business is fund transfer. Therefore, increasing public investment as an economic measure has inherent limitations. It does not lead to expanded reproduction. The primary cause of the current economic environment is not fiscal policy but rather exchange rates, monetary policy, and land policy. However, if the fiscal state deteriorates unilaterally, it is a different story. Fiscal collapse can cause economic collapse. The real issue worsening the economy is the imbalance between sectors and changes in market structure. Unless these issues are addressed, the economy will not improve, and sectoral imbalances will expand. Seeking public investment to clean up economic downturns has limited effectiveness. Public investment is temporary and lacks sustainability. Permanent public investment creates vested interests, leading to corruption of power.

Currently, there is strong opinion that government bonds should be issued, and public investment increased as economic stimulus measures. However, arbitrarily increasing government bonds makes it difficult to control the money supply and risks inflation. First, there is a high risk of fiscal collapse. What is the purpose of public investment or income redistribution? Pension systems and other future expenditures need to be reviewed. Public investment or projects aimed at economic measures are highly suspicious. Blaming public investment for economic stagnation is misguided. Measures to revitalize the market should be taken first. As long as corporate revenue deteriorates and fund procurement is difficult, the economy cannot improve.

The key is what to concentrate limited resources on. The idea of equal distribution to everyone yields no effect. Effective investment involves narrowing down the investment target. A typical example is educational investment. The purpose of university is not merely to attend but to learn something meaningful. Simply promoting free tuition and increasing the number of universities without purpose only increases the fiscal burden. It is crucial to create an environment where those without motivation or ability can become economically independent. It is not about making everyone attend university equally. There is no need to send those without the will or understanding to university, and the state should not bear the cost for such individuals. Resources are not inexhaustible.

Thinking about the economy is not a bad thing. Resisting measures to improve the economy and taking economic measures only after the economy worsens harms both the economy and fiscal policy.

Adhering to the single-year principle or the independence of the fiscal year principle disrupts fiscal balance. This is because the economy operates along a time axis, making it impossible to measure temporal balance. Investment is based on the function of long-term funds. The temporal balance of the economy is based on the function and effectiveness of long-term and short-term funds. Forcing balance within a unit period distorts fund flow. The most affected are fixed expenditures like pensions. Pensions need to be designed based on long-term fund balance.

Many critics attribute economic stagnation to tax increases, but concluding that economic stagnation is due to economic factors is premature. The fundamental support for the economy is the supply-demand relationship of goods. No matter how much taxes are increased, if there are necessary goods, the economy will not stagnate. The main issue is the lack of desired goods. Economic conditions are influenced by production, consumption, and monetary factors. Even if there are desired goods, prices cannot be maintained. The background of economic stagnation lies in the inability to maintain appropriate prices due to the commoditization of many products following the end of high growth. Additionally, market oversaturation has led to a lack of desired goods. Blaming the tax system for economic stagnation without identifying the cause is irresponsible and worsens fiscal policy. Taxes play a crucial role in distribution and fund circulation. Using taxes as a political tool without clarifying their role and expectations is foolish. Tax increases do not worsen the economy or cause deflation. The real issue is the underlying causes of economic stagnation and deflation. Clarifying these factors is crucial.

もちろんです。以下が英訳です：

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Indicators for Assessing Fiscal Condition

• Primary Balance
• Trends in National Debt Balance

Basic Materials for Fiscal Policy

• National Economic Accounts

Financial Institutions

Financial institutions are financial entities. They do not produce goods themselves. The revenue of financial institutions comes from the interest margin between deposit interest rates and loan interest rates. They have the responsibility to build and maintain the credit system. Financial institutions grant credit to borrowers. They earn revenue by balancing the surplus and shortage of funds. By taking collateral, they assign monetary value to collateral assets. Financial institutions create time value through interest rates. Zero interest rates eliminate time value. The added value of financial institutions is generated by interest, but the principal does not generate added value. Loan and borrowing principals are transfers. The funds they manage include investment funds and working capital. Financial institutions guarantee the value of currency.

First, it is about where financial institutions procure funds. Banks procure funds by collecting deposits from an unspecified number of people. They earn revenue from the interest margin by managing the collected funds. Therefore, deposits are considered loans from the perspective of financial institutions.

The issue is the source of money. Money is issued by the issuing bank, which is the Bank of Japan in Japan. The issuing bank, which is the central bank, manages money. However, if the central bank issues unlimited amounts of money, it cannot manage money. Banknotes are essentially the debt of the issuing bank. Therefore, a system for issuing money is created. During the era of convertible banknotes, the central bank issued banknotes backed by gold. However, this constantly constrained the available gold. As the economy began to grow, there was always a shortage of funds. Therefore, the government issued government bonds, which commercial banks bought and used as collateral to circulate money in the market. In other words, government bonds limit the upper bound of currency flow.

Government bonds are the government’s debt, and banknotes are the debt of the issuing bank, which is the Bank of Japan in Japan. This is the premise. The keyword is credit. In modern Japan, the issuing bank supplies money to the market by taking collateral from commercial banks and lending funds. The collateral is deposits and government bonds. In other words, the total amount of deposits and government bonds determines the upper limit of currency flow. Deposits arise from the circulation of currency in the market, so the actual supply of money is the amount of banknotes issued. However, the Bank of Japan requires commercial banks to deposit reserves in the Bank of Japan’s current account as payment preparation. Therefore, the issuance limit of banknotes is the sum of the outstanding banknotes and the Bank of Japan’s current account deposits. Additionally, deposits in financial institutions serve as a guarantee in credit transactions. In other words, deposits circulate money in the market through lending. The Bank of Japan supplies banknotes to commercial banks using government debt as collateral. Government bonds are the government’s debt, and banknotes are the Bank of Japan’s debt. In other words, banknotes have the same structure as promissory notes. Capital has the nature of a guarantee in credit transactions. In other words, the market economy is based on the credit system. If the credit of government bonds, banknotes, or deposits is lost, it affects other elements. If fiscal policy collapses, the credit of banknotes and deposits is also lost. Financial crises affect the credit of fiscal policy and banknotes. The financial algorithm is based on this structure. The function of money is fundamentally based on debt and borrowing. Money is a fiction and an illusion.

The government issues government bonds (debt) and borrows funds (assets and claims) from financial institutions. Financial institutions receive government bonds and lend funds to the government. Financial institutions use government bonds as collateral to borrow funds from the central bank. The Bank of Japan, the issuing bank, can also supply funds to the market by buying government bonds from financial institutions. In this way, the government, financial institutions, and the central bank form assets and liabilities by exchanging equal amounts of claims and debts, issuing banknotes, and supplying them to the market. When supplying funds to the market, they lend to economic entities excluding financial institutions, such as corporations, general government, households, private non-profit institutions serving households, and the overseas sector. The essence of money is claims and debts.

When money flows from financial institutions to the market, an equal amount of claims and debts is generated.

The algorithm consists of sequential structures, selection structures, and iterative structures. Analyzing the sequential, selection, and iterative structures in finance can predict fiscal and price trends.

If the resources necessary for national life are insufficient, they must be procured from abroad. In such cases, if the types of money in circulation differ, both types of money must be prepared for settlement. This is foreign currency reserves. The exchange rate of both types of money is determined by trade volume. However, this leads to a shortage of foreign currency reserves in import-surplus countries. Therefore, trading countries lend and borrow each other’s money. The exchange rate at this time forms the foreign exchange rate, which determines import prices. One-sided trade does not work. Trade must be bidirectional. To acquire foreign currency, there must be imports, and to borrow foreign currency, collateral is required. If tax collection rights are used as collateral, national sovereignty is threatened. The importance of foreign currency reserves lies in their relation to national sovereignty. Many countries have experienced domestic interference due to depleted foreign currency reserves. During the gold standard era, foreign currency reserves were backed by the country’s gold holdings. Currently, the key currency as a settlement currency backs foreign currency reserves. The US dollar is generally considered the key currency. The key currency has the power to form an economic zone. The key currency can also form a separate currency market from its home country, such as the Eurodollar. Key currency countries do not need to prepare foreign currency. If foreign currency is insufficient, they can issue government bonds and supply their own currency.

The role of financial institutions is to circulate funds by lending from surplus entities to deficit entities and create time value through interest rates. The balance between deposits and loans is crucial.

The revenue of financial institutions comes from the interest margin between loan interest and deposit interest. Loan interest is the product of loans and loan interest rates. Deposit interest is the product of deposits and deposit interest rates. The interest margin is influenced not only by the interest rate difference but also by the ratio of loans to deposits. Therefore, the trend of the loan-to-deposit ratio has a decisive impact on the revenue of financial institutions.

Financial institutions lend based on the latent profits of investment assets and future revenue. The problem for financial institutions after the bubble burst was the loss of latent profits due to a significant decline in asset values, especially land prices, and the end of high growth, which reduced corporate revenue. As a result, neither the latent profits of assets nor future revenue could be used as collateral. Even if non-performing loans are resolved, non-performing debts remain. Hidden non-performing debts do not appear on the surface but pressure interest rates.

Market changes have altered the financial algorithm and changed the options. Clarifying what changed the options reveals the market structure. The issue is the preconditions. Changes in the financial algorithm have directed the post-bubble Japanese economy. The direction of money flow has shifted from the real market to the financial market.

After the bubble burst, a reversal phenomenon occurred where funds were collected from deficit entities and lent to surplus entities. As a result, in the short term, private companies shifted from deficit entities to surplus entities around 2000.

Currently, the biggest cause of pressure on the performance of financial institutions is the inability to find promising borrowers, leading to an extreme imbalance between deposits and loans, and the compression of the interest margin due to declining interest rates. If this issue is not resolved, it will be difficult for financial institutions to secure normal profits, risking dysfunction. Additionally, if a large amount of government bonds remains unsold and stagnates in the financial market, it will pressure healthy loans, known as crowding out. The biggest concern for the economic outlook is a financial crisis, meaning the dysfunction of financial institutions.

The expansion of stock pressures the flow and reduces liquidity. The effectiveness of loans is crucial. The quality of loans is essential. Poor-quality loans can affect the entire credit system. Financial products and speculative products without backing reduce fund efficiency. Monetary value becomes diluted.

Money without backing disrupts the economy. Unnecessarily expanding loans to increase leverage makes it difficult to maintain appropriate long-term interest rates. Manipulating long-term interest rates through policy is risky.

Trying to keep long-term interest rates low expands stock and reduces the loan-to-deposit ratio. Fund efficiency worsens, and monetary value becomes diluted. It also pressures market interest rates. In the worst case, financial institutions may become dysfunctional, and liquidity may be lost.

To prevent such situations, it is essential to maintain fiscal health and limit the issuance of government bonds beyond a certain limit.

It is necessary to observe how changes in interest rates reflect on currency and deposits.

Indicators Representing Finance

• Trends in Interest Rates
• Loan-to-Deposit Ratio
• Trends in the Money Multiplier

Supporting Materials for Financial Institutions

• Flow of Funds Accounts
• National Economic Accounts

Overseas

The most important function of the overseas sector is the function of foreign exchange. As mentioned earlier, foreign currency must be prepared for overseas travel and settlement. The amount of foreign currency is an indicator of a country’s economic strength. However, foreign exchange rates are relative values and constantly change. Foreign exchange rates often influence a country’s economic condition and are politically manipulated. However, manipulating foreign exchange rates for short-term political reasons risks distorting the economy in the long run. The foreign exchange system is a fundamental part of the national economy.

Foreign exchange determines the value of currency, meaning it establishes the relative value between currencies. Foreign exchange significantly impacts trade by creating and fluctuating price differences between domestic and foreign markets. Price differences between domestic and foreign markets can disrupt domestic markets and change industrial structures. It also affects prices and can directly cause hyperinflation. In the worst case, it can lead to trade friction and trade wars between countries. Trade friction can directly cause armed conflict. Currency management is the most important issue in the overseas sector.

Procure resources lacking domestically through trade (imports) from overseas. Procure funds for importing resources by exporting surplus production goods. Prepare funds and payment reserves for settling trade with overseas. This is foreign currency reserves (payment reserves). Adjust currency value fluctuations caused by trade.

Trying to protect and enclose the market with tariff barriers risks causing market dysfunction. Tariff barriers are effective for events like foreign exchange fluctuations, but changing tariffs cannot cope with sudden foreign exchange fluctuations. It cannot handle the rapid daily fluctuations of foreign exchange. The overall market is composed of many small, intricately intertwined, and overlapping markets. The markets that make up the overall market differ in nature and structure. Foreign exchange fluctuations benefit some markets and disadvantage others. Not all markets are uniformly affected by foreign exchange fluctuations. The issue is how to protect individual markets, not whether a strong yen is good or bad. Market devastation caused by overseas trade occurs because the premise of fair competition cannot be maintained. It is unreasonable to expect fair competition with a competitor whose labor costs are one-tenth. If labor costs and working conditions are the cause, some regulations are necessary. Fair competition cannot occur where rules differ. Uniform tariffs only worsen fund circulation and burden those imposing tariffs.

Simply establishing tariff barriers does not provide a fundamental solution. The issue is the different production conditions in each country. The problem cannot be solved by imposing one’s own convenience while leaving unfairly low labor costs and poor working conditions unchanged. It leads to exporting poverty and lowering labor conditions to increase competitiveness.

The economy must be viewed from both quantitative and qualitative perspectives.

Clarifying the purpose of trade is essential. The purpose of trade is to procure resources lacking domestically by exchanging surplus resources for lacking resources. Creating a one-sided flow with money ultimately worsens employment.

As seen in the world of sports like the Olympics, common rules are necessary to achieve fair international competition.

Supporting Materials for Overseas Conditions

• Balance of Payments
• National Debt Investment Balance
• Other Changes in Financial Assets and Liabilities

Indicators for Overseas

• Trends in Foreign Exchange
• Current Account Balance

The expansion of distortions between flow and stock is evident on a global scale. The expansion of distortions between flow and stock has rigidified the flow market, while stock has expanded, and surplus funds are wandering in search of investment opportunities. This sometimes leads to violent behavior in the market, damaging the market itself. It also binds economic policy and attempts to make the market closed. Economic control failure is a sign of turmoil. If the economy collapses, society and politics cannot remain unaffected.

The expansion of stock pressures added value, especially costs. Funds are siphoned off to the capital market and do not flow into the real market. The pressure of debt increases, compressing interest rates. Private investment is restrained, relying more on public investment. The balance between private and public investment is lost. If prices cannot be maintained, profits cannot be raised. Profits approach zero. Fiscal burdens increase, and the relative weight of taxes rises. Protectionist tendencies increase.

It is often assumed that the declining birthrate and aging population are negative phenomena, but the declining birthrate is actually the result of intentional policies aimed at avoiding a population explosion. For example, China adopted the one-child policy for specific reasons. If we now criticize the declining birthrate as a bad thing, we fail to understand the essence of the population issue.

One of the reasons behind the declining birthrate is the increase in people who do not marry or have children. This is primarily because men and women of marriageable age are not getting married. The first reason for this is that women have become economically independent. If having a job makes childbirth and child-rearing obstacles or burdens, women will hesitate to marry and have children.

The question is whether the declining birthrate is truly a bad thing. More important is whether the citizens can lead fulfilling and comfortable lives. Even if this results in a declining birthrate, it cannot necessarily be deemed negative. Women’s economic independence is not a bad thing. The problem lies in neglecting the various issues that accompany women’s advancement in society.

The same applies to aging. It is a blessing that people live long lives. At the very least, it is not a bad thing. The problem is that in their later years, people may no longer be able to work or earn an income. Additionally, elderly people living alone without anyone to care for them is an issue. This cannot be resolved simply by addressing pension and institutional facility issues.

Why does the economy fail to function smoothly? It is because there are no jobs. A moderate level of busyness enriches life. Having a job is proof that one is needed by society. Taking away someone’s job is equivalent to taking away that proof. Saying “you don’t need to work” is not beneficial to the person and can sometimes be a cruel act. Living by earning money through work is fundamental. It is different if one can no longer work, but…

Even if one gains the power of a god and believes they can do anything they want, acting on every whim and desire only means that their soul is controlled by desire. Humans cannot become gods. It is foolish for finite beings to act like infinite beings, and it ultimately leaves them empty. Living becomes meaningful when one realizes they are being kept alive. Fulfilling one’s life involves being grateful to the existence that keeps them alive and living a meaningful life within the limits of their existence. Since humans cannot become gods, they should pursue happiness as humans. One should realize that giving in to desires does not necessarily lead to happiness.