The monetary economy made it possible to quantify and circulate monetary value by giving it a tangible form. This created a flow of money in the opposite direction to the flow of goods, thereby promoting the flow of goods through the flow of money. This is the fundamental vitality of the monetary economy. Once a monetary economy is established, the economy is measured and expressed in terms of money.
The monetary economy is similar to gambling. The game begins when the house distributes chips to the players, and it ends when the chips run out. Players essentially borrow chips and exchange them for goods as needed. Initially, players borrow chips from the house, which is akin to the central bank. The essence of money is rooted in debt, symbolizing the nature of the monetary economy. Just as the game cannot start without distributing chips to the players in advance, the monetary economy cannot function without distributing money to consumers in advance. How and in what manner money is distributed to consumers is fundamental to the monetary economy. Ultimately, the economy collapses when it defaults, meaning it becomes unable to pay, leading to a depletion of balances.
The economy does not function effectively if production and means of production are not linked. For example, an economic system where labor and distribution are not linked cannot be controlled.
The real, substantial, and positive aspects of the economy lie in goods and people. Money is the shadow of the economy, a negative aspect. The basics of the goods economy are production and consumption, while the basics of the human economy are means of production and distribution. Labor is a type of means of production.
Overall equilibrium and partial equilibrium are not necessarily unified. In a free economy, partial imbalances are a prerequisite for overall equilibrium. How to harmonize partial imbalances overall is the essence of a liberal economy.
The monetary economy can be viewed as a collection of monetary values.
To make the monetary economy function effectively, it is necessary to understand the nature of money. The nature of money depends on its attributes. To understand the nature of money, it is necessary to clarify its attributes. Money is, first and foremost, numerical information representing value. Secondly, monetary value is a natural number, a discrete number. Thirdly, it determines the monetary value of the object. Fourthly, it materializes the unit of monetary value. Fifthly, it can be materialized. Sixthly, it can be exchanged. Seventhly, it can be owned. Eighthly, it can be moved and transported. Ninthly, it can be stored and hoarded. Tenthly, by unifying standards, it can unify value and enable the calculation of heterogeneous items. Eleventhly, any institution can manufacture and issue it. Twelfthly, money can construct an independent system with any unit. Thirteenthly, it is a means and tool for transactions. Fourteenthly, it promotes the circulation of goods and services. Fifteenthly, it is a means for buying, selling, lending, and borrowing. Sixteenthly, it is a means of evaluating labor. Seventeenthly, money is a right and proof based on the credit system. Eighteenthly, it is an artificial object.
Monetary value is a relative value determined by transactions.
The functions of “money” are, first, to prepare for payment. Second, exchange. Third, a means of distribution. Fourth, to relate production and consumption. Fifth, unification of value. Sixth, a measure of value. Seventh, preservation of value. Eighth, quantification of value. Ninth, nominalization, abstraction, and symbolization of value. Tenth, to give liquidity to economic value. Eleventh, to anonymize economic value.
A collection can be said to be points or numbers gathered based on some premise or condition. There is some material at the root of the points or numbers. Rather, the points or numbers that make up the collection symbolize some object. And the points or numbers that make up the collection have some bias or characteristic. Even a collection of numbers that appears flat has bumps. Moreover, these bumps have characteristics and biases. The elements that make up the collection reflect real phenomena.
Mass production and mass consumption work to standardize and homogenize products. In other words, mass production and mass consumption average products. Mass production and mass consumption work to offset the individuality of each product by averaging. This is the drawback of mass production and mass consumption. The way of thinking about the economy depends on whether individual desires are unified and uniform or diverse. Both mass productionism and communism share the same direction. In other words, both mass productionism and communism are moving towards the homogenization of life.
Human desires are not uniform. That is the premise. The homogenization of life goes against humanity. Therefore, it goes against the autonomy of the economy. Wealth lies in diversity. The maturity of the market is to diversify.
The elements that make up the collection are important for their function, and the direction of the function is also important.
To control motion by making it rotational, it is necessary to set it so that when one function acts, a function in the opposite direction also acts. This set function is in a relationship of action and reaction. In the monetary economy, the flow of money and the flow of goods are in a relationship of action and reaction. The flow of money forms nominal value, and the flow of goods forms substantial value.
What creates the action-reaction function in money is the zero-sum relationship.
The function of money is established by transactions. Transactions are basically zero-sum.
There is a flow of money in the opposite direction to the flow of goods. This point is important. The problem lies in the balance between monetary value and the value of goods. A current account deficit means a capital account surplus. In other words, the money needed to import goods must be borrowed. Therefore, before addressing the issue of money shortage, the issue of creditworthiness to procure money should be addressed.
The basics of the economy lie in inflows and outflows. In other words, the state of the economy is determined by how much and in what manner people, goods, and money flow into and out of economic entities.
The function of circulating money is lending and borrowing, buying and selling. The function that promotes the circulation of money is interest. Lending and borrowing create rights, and buying and selling create logistics. Lending and borrowing, buying and selling are established as a pair. In other words, from a different perspective, borrowing is lending, and selling is buying. Lending and borrowing, buying and selling are two sides of the same coin. And this basically means inflows and outflows. In other words, the flow of funds is balance, inflow, outflow, balance.
Income for economic entities is the sum of income and borrowed funds. Expenditure is the consideration for consumption, investment, and surplus. Investment is considered a means of production, and surplus is considered savings. Borrowed funds, means of production, and savings form stock.
Savings, from a different perspective, are loans to financial institutions and liabilities of financial institutions. In this way, lending and borrowing are two sides of the same coin, and savings and liabilities can be seen as having the same function.
In a monetary economy established by the action-reaction relationship of zero-sum, averages and variances have special meanings. And the fact that averages and variances have meaning suggests the importance of the central limit theorem and normal distribution. It also suggests the effectiveness of Bayesian probability. When predicting economic phenomena, how to set prior probabilities and posterior probabilities is a key. Therefore, Bayesian probability and Bayesian statistics are important.
It should be noted that cash flow is non-zero-sum. Cash is a natural number, a positive number. Therefore, in cash flow, the balance is important. Double-entry bookkeeping is an operation that converts non-zero-sum cash flow into a zero-sum relationship. And when converting from non-zero-sum to zero-sum, the key is the time value.
When predicting economic phenomena, it is necessary to clearly distinguish between flow and stock. Economic phenomena arise in the process of production and consumption. Flow is formed by the flow of cash, and stock is formed by means of production and rights.
Consumption is an act of spending value. Investment is the act of injecting funds into means of production or expenditure on means of production. In terms of the function of money, investment is basically an act of spending value, similar to consumption. The distinction between investment and consumption is a matter of period, that is, the time axis. The function is basically the same.
Means of production include depreciable assets and non-depreciable assets. Depreciable assets are those whose value is predetermined to be lost over a certain period. Non-depreciable assets are those whose value is determined by the market. However, this operation is an accounting operation and does not refer to substantial value. Substantial value is the value determined by market transactions. Accounting value is a hypothetical value. Also, monetary transactions form nominal value. While the value of goods does not necessarily match the accounting value, nominal value generally matches the accounting value.
In corporate accounting, the relationship between the repayment amount of long-term borrowings, depreciation, profit, tax, and cash flow is important. This is also a fundamental issue related to the economy.