The Algorithm of Consumption
The Significance and Purpose of Consumption
Consumption is the endpoint of an economic process. It is self-contained and does not generate added value. Consumption is an internal economy, thus it is a non-market economy and a non-monetary economy. The economy is not solely composed of the market economy; there are economies that exist outside the market. The market economy is just the tip of the iceberg. Market transactions alone can lead to distribution imbalances, which is where finance and government play a role. Finance corrects the excess or shortage of funds through lending and borrowing, while the government corrects income disparities through income redistribution.
You cannot always get everything you want. Even at an all-you-can-eat buffet, there is a limit to how much you can eat. Excessive consumption and expenditure beyond limits will only lead to economic collapse. What is required for consumption efficiency is saving, consuming everything without waste. In the past, I was scolded for leaving food, being told that it was disrespectful to the farmers who worked hard to produce it. Overfishing can even lead to species extinction. The reason poverty persists despite mass production is due to flaws in the economic system. The main cause is the economy’s excessive focus on production and the lack of a well-established consumption economy. Production and consumption are the two wheels of the economy, and distribution is the axis that connects them.
Consumption is an internal economy that exists within the space of the consumer. The most typical and important role is household labor. Household chores are the origin of the economy and constitute the two wheels of production labor and the economy. Goods are created through production labor, and life is sustained through consumption. Consumption labor is unpaid and has no compensation. Therefore, despite its high economic effect, it has no marketability, which leads to misunderstandings. The notion that unpaid labor has no value is a misconception. Unpaid labor simply lacks market value and does not generate added value. Consumption labor is valuable precisely because it is unpaid. This is because consumption is a self-contained act. The significance lies in the fact that it is completed within the consumer. If it were given marketability, the consumer would collapse. The value of consumption labor lies in its lack of marketability. Unpaid labor requires love.
Not all economic value can be monetized. Some things are valuable precisely because they cannot be or are not monetized. Why do we work for our families? It is not for money. This is the essence of the consumption economy and household labor. For this reason, the consumption economy has been unfairly undervalued and placed outside the market economy. It is natural for households with limited means of earning income, such as single-parent households, to receive some form of assistance. That is what the economy is.
There is no difference in the economic function between consumption labor and production labor. Rather, the fact that consumption and production are equivalent means that they perform almost the same function despite their different roles. The importance of economic function does not change just because the roles of consumption labor and production labor are different. The essence of the internal economy is love, and that is why the economy is completed through consumption. The consumer constitutes the basic unit of the economy. Consumption forms the goal. Production goods are completed through consumption.
Outsourcing consumption equates to measuring love with money. This changes the fundamental meaning and existence of the economic entity. Because it is self-contained and unpaid, it cannot earn income. For this reason, it has been unfairly undervalued, and the outsourcing of consumption labor has progressed. The process of outsourcing consumption labor compresses the internal economy. However, this means that the market economy is encroaching on the internal space. As the internal economy is encroached upon, the scope of the production entity (distribution entity) expands, leading to a relative decline in individual income units. Even if outsourcing progresses, the production volume does not change, and only the added value increases, making the value thin. Before outsourcing, meals, cleaning, and laundry, which were not accounted for in the household budget, are now recorded as expenses. Just by outsourcing, it pressures the profits of other industries such as food, clothing, and durable consumer goods, relatively lowering the income of those engaged in those industries. Even if both spouses work, if the outsourcing of household chores progresses throughout society, the overall share remains unchanged, resulting in no real change in the share. The essence of the economy is distribution. If the total production volume does not change and only the number of jobs increases, the unit income decreases as the number of jobs increases.
It is not enough to just catch prey; it is completed by distributing and consuming the caught prey. The purpose of agriculture is not to harvest but to distribute and consume the harvested products. The economy means that process.
Outsourcing the internal economy rather reduces consumption efficiency. Consumption is not suitable for mass production because it values quality. Cooking is different from feeding.
It is not about consuming according to production but producing according to consumption. It is not about producing for the sake of making money but making money for the sake of production. This principle is reversed in modern society. Indeed, technological innovation has produced various things beyond people’s expectations. However, ignoring consumption and producing just because it has been produced is putting the cart before the horse. Consumption is both the endpoint and the starting point of all economic activities. Producing unnecessarily without need is wasteful.
Sell what customers want. Selling what consumers do not want is high-pressure sales. The market clarifies and proves what consumers want. What is needed is purely subjective, that is, determined by each person’s preference.
Consumption is expended and becomes revenue, which is returned to production. By returning to production, money returns to the starting point and circulates.
The ultimate goal of the economy is consumption. This point must not be misunderstood. Thinking about consumption broadly means thinking about the state of society, the economy, and the nation, and for oneself, it means thinking about one’s life and way of living. The state must ensure that citizens can consume the minimum necessary to live. This is to guarantee the minimum standard of living. If one wants to consume more than that, it is the principle of the nation-state that one must earn it by one’s own power. Misunderstanding this point obscures the truth of the economy. The economy is not about production or making money. Production is the result, and making money is a means. The purpose is consumption. Produce based on necessity and consume without waste. The root of necessity is consumption. Consumption constitutes demand and is adjusted by supply. Production is constrained by supply capacity. Overproduction leads to waste. Produce only what is needed. Make only what is needed and do not make extra. This is the principle. This point is forgotten. And it is the individual’s desire and consumption that create necessity. Production is constrained by supply capacity. In nature, even predators do not hunt more than necessary. Even tigers and lions are safe as long as they do not invade the territory of others when they are full. Only humans hunt animals for fun. Production not linked to consumption is wasteful. This is the fundamental rule of the economy. The root of the economy is consumption.
Certain consumption is indispensable for living. In a market economy, disposable income must be secured as a source of funds for consumption. The problem is that disposable income is not constant. Income and revenue, which are the sources of income, are inherently unstable. The mechanism to stabilize and equalize unstable income is the distribution entity, which is generally integrated with the production entity. It must be noted that consumption, expenditure, and income are not consistent. Similarly, production, revenue, and costs are not consistent. Basically, consumption occurs regardless of whether there is income or not. Expenditure necessary for consumption does not always fall within the range of income. Conversely, expenditure does not occur solely for consumption.
Consumption is fixed and constant. Therefore, the amount of consumption becomes the standard of the economy. Consumption appears as expenditure. Consumption is only a part of expenditure. Money that cannot be consumed is turned into investment or savings. Savings become the source of funds for financial institutions to invest, so it can be said to be indirect investment. In other words, surplus funds are turned into investment. Basically, the consumer is designed to save surplus funds as a reserve fund. However, it is not absolute that the consumer has surplus funds. Expenditure for consumption does not always fall within the range of income. The consumer is always at risk of falling into a shortage of funds. When the balance between income and consumption is broken and expenditure for consumption exceeds income, the consumer cannot make ends meet. The insufficient money must be taken from past savings or borrowed from others. If the state where consumption exceeds income continues, it will lead to bankruptcy. Even if savings are used up, and while consumption is certain, income is uncertain. Revenue is uncertain and difficult to control. The production volume of industrial products can be predicted to some extent by supply facilities. However, how much will sell is unknown until it is sold. On the other hand, many costs are certain. The purpose of the economy is realized by costs and consumption. It is consumption that supports life, and income exists to realize consumption. No matter how much you save money, if the family falls apart, it is putting the cart before the horse. No matter how much profit is made, if the lives of those who work for it are not sustained, it is meaningless. In other words, the core of the economy is costs and consumption. Costs are intermediate consumption. Income exists for consumption to be realized. However, sometimes consumption cannot be realized due to insufficient income. That is the problem. The biggest challenge of the economy is how to stabilize and equalize revenue and income against fixed costs and consumption. From there, the idea of regular employment, regular income, monthly salary, and wages was born. Currently, the economy is built on the basis of employee compensation, that is, wages and regular income. Regular employment and regular income develop the technology of borrowing. Changes in employment forms alter the foundation of the economy.
The economy moves through income and expenditure. If income is input, expenditure is output. If fund procurement is input, operation is output. If revenue is input, costs are output. If the economy repeats a series of flows of input, production, distribution, expenditure, and then consumption and savings, input is input, and output is consumption expenditure and savings. Consumption is both the goal and the starting point. Consumption expenditure, which is the exit, is output for the consumer, but consumption expenditure is income and input for the producer. Savings are output for the consumer but are invested in the producer through financial institutions. In other words, it is input for the producer. In other words, consumption expenditure and savings shape the producer and industry. The consumer’s expenditure is a mirror of the industry.
The main consumer is the household. Besides households, the general government is also a consumer. The fact that households occupy the main part of the consumer means that households form the foundation of the economy. As proof, not all citizens belong to the production entity, but households cover all citizens. When we think of the economy, we tend to focus on industries, but we must not forget that the foundation of the economy lies in households.
The foundation of the economy is consumption. This is because the economy is the activity of living, life. Life is consumption. It is the basic principle of the economy to efficiently consume the resources necessary for living after procuring or producing and distributing them. Indeed, it is necessary to procure and produce what is needed for life. So, what do we procure and produce? It is what is necessary for living, what is necessary for life. Life is consumption. In other words, we procure and produce what is necessary for consumption. It is not about consuming what has been procured and produced. There is a misunderstanding in today’s economy regarding this point. This is because production is often prioritized and valued over consumption.
They say “gold coins to a cat, pearls to a pig,” but a cat does not kill its companions for gold coins. A pig does not fight its siblings for pearls. So, which understands the true economic value better, humans or cats, humans or pigs? Originally, the purpose of the economy is to produce and procure what is necessary for living. Modern people produce unnecessarily and wastefully, discarding what they produce. How many resources are lost, and how much nature is devastated because of this? The purpose of the economy is not to make money. It is to supply the necessary goods to those who need them when they need them, as much as they need. The root of this is consumption.
The economy consists of the production economy and the consumption economy. Labor also includes labor for production and labor for consumption. The root of economic discrimination lies in the tendency to value only production labor and despise consumption labor. It is necessary to reconsider consumption from the perspective of the root of the economy.
The market economy is controlled by the power of prices. Prices are created by the balance of supply and demand. So, what is the root of demand? It is consumption. Consumption creates demand. And the essence of demand is necessity. What is necessity? There are two types of necessity. The first is what is necessary for living. The second is what is necessary for self-realization. The first necessity for living refers to the resources needed in a biological sense. The second necessity for self-realization refers to what is necessary for living as a human being. In a biological sense, what is needed for living includes food, clothing, and shelter. In contrast, living as a human being refers to self-realization, that is, what is necessary for one’s purpose in life. This often refers to the means of living, such as work, rather than the products of production. For example, for a baseball player, it is something like baseball.
Consumption is the activity of living. The purpose of consumption is life itself, that is, birth, aging, illness, and death, as well as food, clothing, and shelter.
There are things that are absolutely necessary for living and things that are better to have if possible. Originally, the value of absolutely necessary things should be higher. However, the actual price does not necessarily reflect necessity. Air is absolutely necessary for living, but it is free. Diamonds are not absolutely necessary for living, but they are expensive. The true economic value cannot be captured by price alone. Without understanding this point, the essence of the economy cannot be seen. Market value is expressed by price, but price does not necessarily represent economic value. In modern times, things indispensable for living are unfairly cheap, while things that are desirable are abnormally expensive. There is a risk that the price-setting function is not working properly due to the market environment. The market is a kind of mechanism, and if you try to directly control prices, the function of the market will be impaired, but if you unconditionally relax regulations, there is a risk that the market will not function as it should. It is always necessary to optimize regulations, but it is dangerous to deny regulations outright. The market is a mechanism. In sports, it is forbidden to change the rules to suit one’s convenience.
The place of consumption is the place of life. Consumption means the trajectory of life. The root of consumption is birth, aging, illness, and death. The core of consumption is food, clothing, and shelter. Consumption realizes life.
Consumption is the ultimate goal. Consumption realizes the purpose of the economy. Without a design for what kind of consumption, that is, what kind of life, the overall picture of the economy cannot be constructed. Consumption is the embodiment of living and life. Consumption is reality. Consumption is culture.
Consumption has quality, quantity, and density. Even with food, if the price is the same, the question is whether to value quantity or quality. When it comes to quantity and quality, the ultimate issue in consumption is quality. This is because the quality of consumption is related to life. And changes in the quality of consumption bring about decisive changes in the economy.
Consumption is not waste. Consumption is based on individual thoughts. It is the realization of thoughts.
In modern economics, there is a tendency to focus only on production and not consider consumption as part of the economy, but consumption is one of the two wheels alongside production. Just as the production economy is established, the establishment of the consumption economy is also urgent.
Generally, it is consumption, not production, that leads the economy. Necessity takes precedence over production capacity. Except for some exceptions, demand creates supply.
The basic unit of the economy is the consumption unit. This is because consumption is the basic activity for living. Therefore, the place of consumption is the place of life, and the consumption unit is the basic unit of the economy.
Modern economics undervalues consumption and is overly focused on production. As a result, the function of distribution does not work properly. Consumption and production are the two wheels that drive the economy. The economy stabilizes when the balance between consumption and production is achieved. Even if production rotates quickly, if the rotation of consumption is slow, the economy will not move straight.
The core of regular consumption is food, clothing, and shelter. In recent years, transportation, energy, and communication have been added. On top of such daily life, life events such as weddings and funerals are built.
In the market economy, consumption appears as expenditure. On top of the expenditure for daily life, there is additional expenditure (investment) for self-realization.
The market is created by consumers. Consumption shapes the framework of industries.
Consumption does not exist for sales. Consumption exists because of necessity and desire. Forcing food on a full person is economically wrong. However, mass production requires mass sales, and mass sales require mass consumption. Mass consumption leads to grand waste and extravagance. In the era of mass production, disposable use is encouraged, and the importance of things is not taught. Saving and frugality are no longer virtues. However, waste and extravagance are uneconomical. Mass consumption leads to overdevelopment, resource depletion, and environmental destruction. Mass production causes excess facilities and overproduction. Mass consumption is uneconomical.
The Center of Consumption
The center of consumption is the household. Besides households, the general government also acts as a consumer. Households and the general government constitute the minimum consumption expenditure.
However, when viewed from the perspective of life, the center of consumption is the household. Therefore, the function of the household forms the function of consumption.
What is a household? A household is composed of daily life. The basics of a household are food, clothing, and shelter. These are also the core of consumption. As food, clothing, and shelter become more abundant and life becomes more comfortable, expenditures on education and entertainment increase. Additionally, spending on food, clothing, and shelter shifts from quantity to quality. Initially, people are satisfied with just being able to eat, but their preferences gradually shift to delicious and healthy foods. This change in preferences also alters the trends in industries and markets. The center of consumption shifts accordingly.
If the foundation of production is a business plan, then the foundation of consumption is a life plan and a living plan. The market is formed by consumers. Producers work to raise prices, while consumers work to lower prices. The balance of power between producers and consumers causes economic fluctuations. This forms the supply-demand relationship.
The economic entity that forms the core of consumption is the household. Accounting is based on a cash basis, and taxes are also collected on a cash basis.
The center of consumption is expenditure. Expenditure has constraints. Without constraints on expenditure, distribution loses its meaning. We can only live a selective life.
At any given time, we can only choose one thing. It is this constraint that makes life meaningful. You are only yourself. Life is finite. Living is the essence of the economy. If living for others is life, then living at the expense of others is also life. Living purely and correctly is life. Surrendering to desires is also life. It is not a matter of right or wrong, but a matter of how you choose to live.
What to eat for lunch. Whom to love. We must decide these things to live. It is about what to spend on and what to consume, and that is the economic issue.
The production entity and the distribution entity utilize the same organization. Increasing production efficiency does not necessarily increase distribution efficiency. Monopolizing everything is no different from having nothing.
One person can be a producer, a distributor, and a consumer. This reflects the essence of the economy. Harmony and balance are important, and if they are skewed, nothing will work.
What consumption seeks is to improve the quality of consumption. To improve the quality of consumption, it is necessary to improve the living environment. The foundation of life is in the local community. In other words, improving the quality of consumption ultimately means transforming the local community into a more livable place.
Modern economics, instead of improving the quality of consumption, seeks only production efficiency, thereby exhausting and degrading the living environment. The living environment is deteriorating. Human life is becoming impoverished both materially and spiritually. People are losing true richness.
The Nature of Consumption
The structure and quality of consumption form the broad framework of the economy. Changes in the structure and quality of consumption alter the nature of industries.
In national economic accounts, consumption consists of intermediate consumption and final consumption. Final consumption is divided into private final consumption and government final consumption. Final consumption appears as final consumption expenditure.
Intermediate consumption refers to services and goods that are used up in the production process, meaning costs.
The agents of consumption are private corporate enterprises for intermediate consumption, and households, private non-profit organizations serving households, and the general government for final consumption.
Consumption has waves, and these waves form the economic cycle. The waves of consumption include daily waves, weekly waves, monthly waves, seasonal variations, semi-annual waves, annual waves, waves based on the product life cycle, and life waves. The waves of consumption are based on lifestyle habits.
Production and consumption are two sides of the same coin.
Expenditure is the source of revenue. Since industries are formed by revenue, consumption can be said to be the mother of industries.
Consumption creates demand. The cycle of consumption creates waves of demand. Industries are determined by the waves of consumption. If consumption declines, the industries related to those goods also decline. When considering the economy, it is meaningless to ignore the waves of consumption.
The economy has certain stages of development. When we were children, shortly after the Pacific War, houses were being built, and as long as we didn’t indulge in luxuries, we didn’t have trouble finding food. However, not long before that, there were incidents where people starved to death because they strictly adhered to rations and couldn’t find enough food for the day.
When we were children, meals were often simple, like plain udon noodles or udon with just fried tofu or tempura bits. Clothes were often second-hand, and if they tore, they were patched up. Despite this, since everyone was poor, there was no shame in wearing hand-me-downs or patched-up pants. Contrary to what one might think, the economy of that time was not inactive compared to today. In fact, it was quite the opposite. That’s the mystery of the economy. People worked hard to live, and as a result, economic activities were vibrant. The vitality to live becomes the driving force of the economy. A shortage of goods can exhaust the market, but an excess of goods can also devastate the market. Evidence of this is seen in today’s world, where despite an abundance of goods, shopping streets are deserted, jobs are declining, and workers lack energy. These phenomena reflect the essence of the economy. The essence of the economy is working to live, not merely having an abundance of goods. No matter how many goods there are, if people lose the motivation to work to live, the economy loses its vitality. Despite supposed prosperity, there is a sense of poverty. Lack is poverty.
The economy is an activity for living. Making money is a means, not the essence of the economy. The loss of essence leads to a loss of economic vitality. A shortage of goods does not mean a bad economy. Goods are abundant.
As living standards improve, the structure and quality of consumption naturally change. The market and industries must adapt to the changes in the structure and quality of consumption. It is a shift from quantity to quality. If the shift from quantity to quality does not go well, the market deteriorates, and the economy declines.
Once people can eat, they start to care about clothes. Once they have their favorite clothes, the next step is to build a house. After food, clothing, and shelter are taken care of, the next goal is to improve quality. When there is more comfort, people no longer settle for just being able to eat; they start demanding delicious food. Improving the quality of life becomes the next challenge. Once food, clothing, and shelter are in place, people want electricity, gas, and then a telephone. They also want cars and furniture.
When there is more comfort in life, people become more enthusiastic about their children’s education. As life develops, the home appliance and automobile industries expand and develop.
In my father’s generation, people would upgrade their alcohol and car ranks with each promotion. Today’s children start with public goods and new cars, and eventually lose interest. The economy changes with the times. The preconditions change with the times. Consumption is deeply related to the preconditions of the economy.
There is an environment where a minimum standard of living can be maintained even with low wages. Without considering this point, it is impossible to understand the impact of wage levels on the economy. The resources necessary for living are not determined solely by the amount of wages. Living standards and market conditions are preconditions for economic growth. Without considering living standards and market conditions, the role of wages cannot be clarified.
In the early stages of development, when the market is in its infancy, there is a shortage of goods, and the market absorbs products like water in a desert.
We often use material wealth as the standard for economic growth, but in reality, there are people’s lives. No matter how prosperous industries become, it is meaningless if people’s actual lives do not become richer.
The issue of aging is often discussed in terms of facilities, systems, and finances, leaving out the issues of family and morality. If there is no money, we should think of alternatives to money. The most important and substantial thing is people’s lives. The essence and reality of the economy lie in life. The moment the issue is replaced with money, the essence and reality of the economy become invisible.
Even if productivity increases, if prices are not maintained, it cannot be returned to the workers. Instead, under the name of rationalization, personnel are reduced, and wages are lowered. Economists and politicians say that deregulation and intensified competition will lower prices. However, this means lowering prices, increasing unemployment, and reducing income. This is clearly a deflationary policy. As long as deflationary policies are implemented under the guise of deflation measures, the economy will never improve.
Politicians often use public works as an economic measure. However, it is essential to carefully consider the utility of public works. Many believe that scattering money through public works will improve the economy. Public investment is not only useful for expanding potential demand. The significant meaning lies in improving the living environment and expanding the market by enhancing social capital. Conversely, when living standards reach a certain level, the economic effect of public investment diminishes. The utility of money differs between laying new roads and railways and using it for maintenance, repair, and renewal of facilities. This is because maintenance, repair, and renewal of facilities do not create new markets. In other words, expanded reproduction does not occur. The belief that public works can be carried out without principles and worsen finances is based on the misconception that money is everything. More important is the relationship between investment and effect. Investments that cannot be expected to have an effect only increase debt.
Modern society is excessive in everything. Excessive facilities, excessive debt, excessive funds. And the excessive parts cause problems. Surplus funds disrupt the market. However, there is a general belief that excess is better than shortage. This belief sometimes leads the economy to runaway. Wild animals do not catch unnecessary prey. Better to be a lean wolf than a fat pig. That is the law of the wild. For wild creatures, unnecessary fat means death. There is a limit to everything, and it is necessary to adhere to the idea that moderation is just right. That is the middle way. The idea of moderation is the root of the economy. The economy does not function when limits are exceeded. The economy requires moderation and restraint. When people become greedy, they fall into a bottomless swamp and lose self-control. If limits are unknowingly exceeded, restraint becomes ineffective. Alone, one cannot understand limits. Therefore, mutual checks are necessary. Economic value is a matter of perception, so it is relative and not absolute.
Consumption and Population Composition
Total expenditure is formed based on the population composition. Population is a fundamental requirement of the economy, and its impact is long-term. Once the population starts to decline, it is difficult to recover in the short term because population issues are based on long-term accumulation. Population, including total population, labor population, and age composition, forms the foundation of a country’s economy. This is because population creates the framework for production and consumption.
Population composition includes productive and non-productive populations. Labor also includes productive and non-productive labor. Power structures begin with the dominance of the productive class by the non-productive class. This structure has not fundamentally changed. With the rise in productivity, the proportion of people engaged in non-productive labor has increased, changing the distribution of income. The problem is that the income of those engaged in non-productive labor has relatively increased, while the income of workers engaged in productive labor has relatively decreased.
The issue is that the population involved in production does not match the population involved in consumption. Therefore, only a limited number of people can earn the income necessary for consumption. Others must depend on the income of those who have earned it to live. The productive population becomes the production force, which determines the supply volume. The supply volume constrains total income, while the consumption population forms the basis of total expenditure.
In a market economy, funds circulate based on the surplus or shortage of money. Fund transfers work to compensate for the surplus or shortage of money, and taxes are one of the means of fund transfer. The problem of declining birthrates and aging populations is the generational gap caused by fund transfers. The burden on the working-age generation becomes excessive as they are forced to transfer funds from relatively small generations to larger generations, leading to a decline in the overall productivity of the national economy.
The mechanism of intergenerational income redistribution, such as pensions, needs to be built on a long-term perspective with a thorough analysis of population composition. The saying “a nation’s hundred-year plan” means that the factors that form the foundation of the national economy change over a long period, yet their effects extend to the entire economy. Measures against declining birthrates and aging populations are decisively influenced by population composition. Although changes in population composition are gradual, their impact is certain. Therefore, national planning must look ahead a hundred years to ensure the nation’s survival.
In a market economy, income is paid as compensation for the results of some production means, such as assets or labor. Those without assets or labor cannot earn income. The value of production means is determined by market transactions. Therefore, no matter how much ability or knowledge one has, if not valued by the market, one cannot earn income, leaving room for discrimination.
While consumption is necessary for everyone, only a limited number of people can earn income. To distribute the necessary income to all citizens, a system must be created to allocate a certain income to each consumption unit. This consumption unit is the household. Besides households for private consumption, there is the general government for public consumption.
To ensure that income reaches all citizens, each consumption unit must include at least one person. The problem is households like single elderly households that cannot earn income on their own. Such households need public assistance. In any case, the market economy cannot function without a system that ensures income reaches all consumption units.
The population that can utilize production means is generally considered the working-age population, which is the working generation. The working-age population is not fixed and varies depending on social systems, family systems, and population policies. It is a relative population.
The population composition, once a broad-based pyramid, has changed to a bell shape, gradually narrowing at the bottom.
This change in population composition significantly distorts the ratio of the working-age population to the rest of the population. The issue is not about money but about how much population is needed to produce the necessary goods for a nation’s citizens. Misunderstanding this point leads to confusion about the relationship between population and economy. It is about the ratio of people who can earn income through work to those who cannot earn money on their own. This causes an imbalance between income and expenditure. Even if productivity increases and one person can do the work of three, if their income does not triple, the total income decreases by the number of people whose jobs were eliminated due to increased productivity. Therefore, merely increasing productivity to produce three times the goods is insufficient. The issue is how many people’s lives one person’s earnings can support.
Thus, the relationship between the proportion of the working-age population and total income is crucial. Even if income increases, if it is hoarded as personal money, it does not circulate. The fundamental issue is the imbalance between the productive and consumption populations.
Of course, the decline in population itself is a serious problem, and it is progressing at an unprecedented rate. The decline in population is largely due to the neglect of the internal economy. By considering only the external economy and being negative towards the internal economy, families collapse, leading to declining birthrates. More discussion should be devoted to the nature of families and people’s ways of living, but by easily dismissing the internal economy, the space that the internal economy has supported becomes diluted.
Behind the declining birthrate are late marriages and non-marriages, reflecting changes in people’s values and family structures.
Population determines a nation’s production capacity and consumption volume, which are the sources of national power.
If there is no change in population and production goods, but only an increase in the circulation of money, prices will inevitably rise. Moreover, if the population is declining and the market is saturated, increasing the circulation of currency will raise prices. Despite the central bank printing so much money, prices are not rising because the money is not being supplied to the market. Rather than not being supplied, the flow is reversing. Generally, households are surplus fund entities, while non-financial corporate enterprises are deficit fund entities. In other words, surplus household funds flow to non-financial corporate enterprises and are invested in equipment. However, non-financial corporate enterprises have lost their ability to procure funds and have turned into surplus fund entities. Consequently, the general government has fallen into a deficit and is absorbing household funds. Even if the government invests funds, it does not create added value, so funds do not circulate in the market. As a result, money is accumulating in financial institutions.
Funds have lost their outlets, and interest rates have stuck to zero. Zero interest rates are no longer abnormal but have become the norm. If this state continues, financial institutions will soon collapse. The central bank is wandering in a maze with no exit. Rather than having no exit, it has blocked the exit itself.
Industries exist because people feel the need for the goods they produce. Goods that no one needs do not form industries. Since the economy is based on people’s needs, it does not expand beyond the population. The idea of perpetual growth is an illusion. At some point, expansion equilibrium stops and shifts to contraction equilibrium. An economy based on growth has clear limits. The economy does not expand beyond the population.
The trend of household expenditure condenses the rise and fall of industries. By looking at expenditure alone, the movement of the economy becomes clear. That is total expenditure. Total expenditure reflects total production and total income. Therefore, total expenditure, total production, and total income need to be analyzed in conjunction.
For example, the baby boomer generation has driven high growth. Since the baby boomer generation passed the working age, the stagnation of the Japanese economy has become evident.
Consumption Entities and the Place of Consumption
The endpoint of the economy is consumption.
The smallest unit of consumption is the individual. Consumption is realized through personal motivation. The place of consumption is the household, which is also the place of living. Individuals come together to form economic entities. The work of individuals shapes the economy. Economic entities are composed of production entities, distribution entities, and consumption entities, each forming production units, distribution units, and consumption units.
Production units, distribution units, and consumption units become the goals of the respective economic entities. In other words, production volume is the production goal of the production entity, distribution units are the goal of the distribution entity, and consumption volume is the goal of the consumption entity. The goals of each economic entity signify their reason for existence. This is the essence of demand. Each economic entity is not self-contained but exists in a mutually dependent relationship. Production exists to satisfy consumption, distribution exists to maintain the balance between production and consumption, and consumption exists to promote production. The fundamental role of the market is to form and sustain the place of distribution.
The basis of production units is goods, while the basis of consumption units is people. The basic framework is formed by how many people produce how much, how much is distributed to each person, and how much each person consumes.
Expenditure per unit, income per unit, and production volume per unit are interdependent. Expenditure and income are two sides of the same coin.
If the balance between total volume and per-unit production and consumption is not maintained, the economy cannot function. The production of each individual becomes their income, and each individual’s income generates their consumption. The economy falters when this relationship is disrupted by extreme disparities or imbalances. Increasing production efficiency, lowering income, or reducing consumption without considering the balance between production, income, and consumption will not make the economy function smoothly. The reasons for increasing productivity, maintaining income, or reducing consumption are derived from their interrelationships. Profit and price are merely indicators. If profit improvement or discounting is seen as an economic indicator, the balance between production, income, and consumption cannot be maintained. For-profit corporations, when exposed to unprincipled competition, cannot maintain their original roles and functions on their own. It is the role of politics and administration to adjust and control this. The role of the state is to bring law and order to the market. Therefore, neutrality is required in politics and administration.
The proportion of food in total expenditure forms the revenue of the food industry and becomes the source of income for each person engaged in the food industry. This point is often overlooked. The unit income of the food industry is determined by the proportion of food expenditure in the household budget. If the proportion of food expenditure in the household budget does not change without an increase in productivity, the income of workers in the food industry will not change. Conversely, if productivity increases and the number of people engaged in the food industry decreases, the income per person will rise, and if food expenditure decreases, the real income of food industry workers will decrease. Therefore, the household is a condensed form of the economy. The composition of the household condenses the economic structure of a nation.
It is noteworthy that while consumption expenditure has been declining since the bubble burst, food expenditure has remained flat, and the proportion of food expenditure in consumption expenditure has relatively increased. The proportion of food expenditure in consumption expenditure rapidly declined from the 1970s to the 1980s. Therefore, even if it has somewhat recovered after the bubble burst, it is only marginal.
As the proportion of food expenditure in the household budget decreases, the agricultural population also decreases. However, the absolute amount of food expenditure remains flat. In other words, the income of agricultural workers has not changed in absolute terms but has relatively decreased. This could lead to a loss of motivation among agricultural workers. It is important to determine whether this decline is due to increased productivity or a decrease in per-unit income. Income, prices, and the proportion of the household budget influence the structure of industries. The composition of consumption affects industries through revenue, and the structure of industries reflects consumption through income. Before discussing food self-sufficiency rates, we need to clarify what we should stand for. If we sacrifice industries necessary for living, there will be no workers left. Subsidies for agriculture have a strong meaning of income redistribution beyond the perspective of improving self-sufficiency rates and protecting industries. If we try to monetize all economic values, we need to foresee how the economic structure will change by monetizing all economic values. The bias in distribution based on the market becomes apparent. We need to have a clear vision for the nation’s way of being and the economic system, rather than leaving it to chance. The roles of supply and demand and industries in the nation are not directly related. Even if it is an indispensable good for the nation and its people, it is not necessarily traded at a fair price.
In essence, economic issues are about how society distributes the goods it produces to people, and this is well reflected in consumption units. Since it is about distribution, not only average values and absolute quantities are important, but also dispersion and deviation are crucial in the economy. Disparities and imbalances hinder the function of distribution.
Consumption entities are economic units formed out of the necessity to earn income. The fundamental unit is the family. As an economic unit, it is the household. Economic entities form consumption units. Consumption units are also units of income and expenditure.
If the number of income sources increases, total income is subdivided accordingly. If production volume remains constant, the share of per-unit income decreases. It is important to understand that even if income increases, if production volume does not change, the share per person does not change. It only means that two people will have a larger share than one person. If both spouses work, income indeed increases. However, household labor decreases by the amount of time lost due to both working. Inevitably, compensation for the lost household labor is required.
In administrative systems, the consumption unit is the household, which is based on the family. The basic unit of family composition is the individual. Household composition has vertical and horizontal structures. Family structures are formed around a pair of men and women. The vertical structure is based on parents, the individual, and children, i.e., grandparents, parents, and children. The horizontal structure consists of siblings and spouses. The basic family structure is three generations. However, today, nuclear families are becoming more common, with the core couple as the basic unit.
Family composition includes single individuals, couples, couples with children, and parents with couples and children.
In the Ministry of Health, Labour and Welfare’s “Basic Survey on National Life,” households are classified into three or more generations, single parents with unmarried children, couples only, and single-person households. The issue is how to distribute the necessary money to the people. Generally, people are concerned only with the amount of their income, but income is relative and not absolute. It is susceptible to disparities and prices. To ensure that income reaches all citizens, each consumption unit must include at least one person. The problem is households like single elderly households that cannot earn income on their own. Such households need public assistance, i.e., social security. Japan’s social security consists of social insurance, public assistance, public health, and social welfare (from “Population Decline and Social Security” by Shiro Yamazaki, Chuko Shinsho). In any case, the market economy cannot function without a system that ensures income reaches all consumption units. In the past, the husband was the primary income earner, but now dual-income households are becoming the norm, and it is becoming less common for the husband to monopolize the income. This change is also reflected in consumption trends.
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The Origin of Consumption Lies in Disposable Income
Households are the main entities of consumption. Consumption is life itself. The economy is driven by both production and consumption. Households provide labor to production. Consumption forms the foundation of the economy. Households are the key to consumption. Consumption is expenditure, and its root is disposable income. Consumption expenditure is constrained by disposable income.
The key to consumption is how to earn income.
In Japan’s tax system, income is classified into ten types: first, income; second, interest income; third, dividend income; fourth, real estate income; fifth, business income; sixth, salary income; seventh, retirement income; eighth, forest income; ninth, capital gains; tenth, miscellaneous income.
It is evident that the proportion of business income has rapidly decreased, while salary income has increased. In absolute terms, business income has declined since the bubble burst in 1991. This indicates a shift from income proportional to revenue to fixed income.
When rewards are stabilized, consumption also stabilizes, making it easier to secure loans. Consumption, especially essential items like food, is consistently consumed in certain quantities. In contrast, business revenue is unstable and uncertain, leading to constant concerns about money shortages. Borrowing is also difficult because it is unreliable and plans cannot be made. The foundation of modern income tax lies in the stabilization of income, revealing the inherent nature of income.
Households provide labor as a means of production to production entities and receive compensation (income) in return. Generally, households live within the income earned from providing labor. When money is insufficient, they either use past savings, sell assets for compensation, or borrow money using assets as collateral to cover the shortfall.
Modern economics is structured by the balance between production and consumption. If this balance is disrupted, the economy becomes uncontrollable.
The structures of consumption, production, and distribution are interrelated. It is evident that while the labor population in the service industry is increasing, the population in agriculture and forestry is decreasing. This trend reflects the structure of households. Additionally, since the bubble burst, the number of employees in manufacturing has decreased, while the number of employees in the service industry has increased.
The Role of Consumption
Consumption represents the final stage and goal of the economy. It can be said that the economy exists to realize consumption. The foundation of the economy is shaped by the way consumption occurs and how goods are consumed. Some goods are consumed instantly, while others are consumed gradually over time. The nature of goods is influenced by how they are consumed.
The most essential item for living is food. Food is consumed daily because it is necessary for survival. Food forms the core of the economy and is its fundamental basis. Food must be consumed daily and continuously replenished. This characteristic of food forms the basic nature of the economy. While some food is consumed daily, excess food is preserved. Without food, humans cannot survive. The economy evolved through the procurement of food. Production began with the aim of procuring food, markets were formed, and money was created.
Next is housing. Houses are consumed over a long period. By being consumed over a long period, houses become property and assets.
Clothing gave birth to fashion. Clothing is both a necessity and a luxury. It is also a means of self-expression. In this way, consumption characterizes the economy. Consumption creates culture.
In the modern economy, consumption is based on expenditure. In national economic accounts, consumption means consumption expenditure. Expenditure consists of consumption and savings. The portion of disposable income that is not consumed is saved.
The basic structure of algorithms includes sequential, selection, and iterative structures. Choosing between consumption and savings is a selection structure.
Consumption expenditure consists of intermediate consumption and final consumption. Intermediate consumption refers to expenditure necessary for production, meaning costs. Final consumption includes household final consumption expenditure, government final consumption expenditure, and consumption expenditure by non-profit institutions serving households. Final consumption expenditure is divided into individual consumption expenditure and collective consumption expenditure. Collective consumption expenditure occurs within government final expenditure, while households and non-profit institutions serving households only have individual consumption expenditure.
Consumption forms the market. Consumption is realized through expenditure. Expenditure forms prices. Therefore, prices are formed based on consumption. Prices are the cost of goods, and costs form revenue. Revenue is the root of business entities and industries. Therefore, business and industries are influenced by consumption trends.
Consumption constitutes life. It can be said that consumption is life itself. Therefore, consumption is reflected in living expenses.
The composition of living expenses is constrained by the nature of goods. The nature of goods is formed by how they are consumed. For example, household expenditure consists of daily consumed goods like food and energy and long-term utility goods like housing.
The amount a person can consume is fixed, but prices fluctuate. Of course, the supply and demand of goods are influenced by shortages or surpluses and population changes. However, prices can fluctuate wildly even when people and goods remain unchanged. This means that prices are not necessarily constrained by people and goods. Understanding what causes price fluctuations is key to explaining economic phenomena like inflation and deflation.
The amount of food a person eats is constant, and food is consumed daily. Food is an indispensable resource for living. Most food, such as agricultural and marine products, is influenced by weather, crop conditions, and environmental changes. These factors determine the nature of goods, which is reflected in market price changes.
The difficulty with clothing is that it is both a necessity and a luxury. While one can survive without clothing, it is a necessity along with food and shelter. As people become more comfortable, they spend more on clothing. Generally, people change clothes according to purpose, such as everyday wear and formal wear. While food expenses are a core indicator in the Engel coefficient, clothing is not a poverty indicator. Clothing is more a means of self-realization than a necessity for survival. It symbolizes the shift from quantity to quality.
The expansion of quantity leads to changes in quality. Changes in quality subdivide quality and create grades. Food is also classified into premium, mid-range, and standard.
Expenditure items result in final consumption and gross capital formation.
Final consumption can be considered the goal and endpoint of economic activity per unit. The final utilization forms of the economy consist of intermediate consumption, final consumption, and fixed capital.
Consumption is the Source of Income
Consumption is carried out by consumption entities. A consumption entity is a living community. A living community has both an inside and an outside. The inside forms an internal space, which is a non-market and non-monetary space, while the outside forms an external space, which is a market space and a monetary transaction space. A consumption entity is a collection of individuals. It forms households and constitutes the household economy, which is based on income.
The source of consumption is household income, or disposable income. Not everyone receives income, but everyone consumes. There must be at least one person in the consumption entity who receives income. The resources obtained from the income received by the consumption unit are distributed to all members of the consumption entity. Income is the source of funds for the living expenses of the consumption entity. The income received by the consumption entity must guarantee a minimum standard of living.
Consumption is expenditure. The principle is that expenditure is made within the range of income. If it exceeds the range of income, it is necessary to deplete savings or borrow money to cover the shortfall. Expenditure consists of final consumption expenditure and savings. The remainder after deducting the expenditure paid from income is turned into savings. Savings are classified as either direct investment or indirect investment. Expenditure and income are two sides of the same coin. The sum of income and expenditure in external transactions is zero. The asymmetry lies in internal transactions. Within an economic entity, income and expenditure do not match. This discrepancy creates a surplus or shortage of money, which in turn creates the flow of money. This flow of money drives the economy.
In national economic accounts, the counterpart of consumption is disposable income. The root of consumption is income.
The basic algorithm of consumption is to earn money and use the earned money to purchase necessary goods from the market. If there is not enough money, one borrows or depletes savings to make up the shortfall. Any leftover money is saved. In other words, the algorithm of consumption starts with finding a way to procure money. Income is the source of consumption.
Earning money and using the earned money to purchase necessary goods from the market is a sequential structure. Repeating this process forms an iterative structure. What to buy is a selection structure.
There are two types of wealthy people: high-income earners and asset owners. High-income earners receive a high monthly income (flow), while asset owners possess vast assets (stock).
The current market economy is based on distributing money according to some predetermined standard or basis, and using the distributed money to purchase necessary goods from the market. In other words, distribution is not done in the market but is realized by distributing money based on some standard or basis beforehand. It is not determined by what to buy but by how much one earns. Therefore, just looking at the market does not reveal the essence of distribution. The key is what standard is followed and what distributes the money.
Investment and consumption determine income. Investment is based on consumption. In short, the root of income is consumption, and expenditure for consumption.
Expenditure determines income, and expenditure arises from consumption. In other words, income and expenditure are two sides of the same coin, and expenditure is realized through consumption. This relationship must not be forgotten. It is not money that determines the scale of the economy, but consumption that determines the actual scale of the economy.
Consider hotel management. The number of rooms in a hotel is limited. The revenue of a hotel is determined by the product of the number of rooms, occupancy rate, and unit price. The number of rooms and occupancy rate are physically determined. Without reinvestment, the number of rooms does not increase. Therefore, there is a natural limit to the value based on the number of rooms. To increase revenue or income, the unit price must be raised. This is the fundamental form of the economy. Even if revenue or income is changed by raising or lowering the unit price due to economic fluctuations, the actual scale of the economy does not change unless the number of rooms changes. The actual change in the economy is determined by consumption. Therefore, it is necessary to build an economy based on consumption.
Since income is limited, households try to smooth out expenditure as much as possible. This also leads to the smoothing of income. The smoothing of income is linked to the demand for stable jobs and stable income. Therefore, the form of employment becomes important. There is also a tendency to return to salaried workers. This is true not only in liberal countries but also in socialist countries. Therefore, the form of employment determines the foundation of the economy. If the number of non-regular employees increases, the market structure becomes distorted, and the market changes.
Income is required to be paid in money. Any leftover money is saved and turned into investment. Savings form a stock. Savings become a reserve fund when money is insufficient and also serve as the principal for investment. Money circulates in the market.
The important point here is that while goods and services are consumed, money is not consumed but accumulates in the market. Money is a circulating entity.
What people want, what is lacking, and what is needed are the origins of the economy. Producing without regard to consumption leads to either overproduction or underproduction. Production efficiency is determined based on consumption. Consumption forms demand, and production is the source of supply. The market adjusts supply and demand, and money is the means. Forgetting this relationship and being misled by the movement of money obscures the essence of the economy.
What creates demand? Demand is created by consumption. What determines consumption is necessity. The nature of demand varies based on necessity. First, goods necessary for living. Second, goods necessary for self-realization.
Production and consumption are the two wheels of the economy, and distribution is the axis that connects the economy and consumption.
Income varies based on employment forms and salary systems. Employment includes self-employed individuals, salaried workers, temporary workers, part-time workers, and casual workers. Types of salaries include hourly wages, daily wages, daily monthly wages, monthly salaries, annual salaries, commission-based pay, and full commission-based pay.
Why is it necessary to divide income into unit periods for payment? It is due to the nature of consumption. The nature of the consumption of goods constrains the nature of the industries related to those goods. Dividing income into unit periods is necessary because there are goods that are replaced in a short period. There are goods like fresh food that are consumed in a short period, and such goods are consumables and necessities. Income corresponding to such goods is generally paid monthly. In the past, there were daily wages, but they did not provide stability or allow for planning. On the other hand, annual wages do not support daily living. Therefore, a fixed amount of money is paid as a salary for a unit period. This is the monthly salary. By paying a fixed amount at a stable cycle, daily consumption is averaged. This plays an important role in stabilizing the economy. Therefore, employment holds the key. The significance of production entities lies not only in making a profit but also in periodically distributing a fixed amount of salary according to work. If production entities forget the role of labor costs in their pursuit of profit, they cannot fulfill their original function. The origin of consumption lies in income.
Income is the backing for expenditure and the source of funds for consumption. The nature of income constrains consumption. Without guaranteed income, consumption does not grow.
Household Claims and Debts
Generally, income refers to disposable income. However, income is not limited to disposable income. Income can also be obtained by disposing of financial or non-financial assets, and borrowing is also income. Income from borrowing turns into claims and debts. We often treat income from borrowing separately from disposable income because borrowing comes with repayment obligations and interest. In other words, income from borrowing feels like temporarily holding someone else’s money. Bank deposits may seem like deposits to depositors, but to banks, they are debts. As of 2019, the loan-to-deposit ratio of small and medium-sized financial institutions is below 50% because they cannot find enough investment opportunities for half of their loans. Moreover, not all earned income is spent. Many households save some money for emergencies, and these savings become financial assets. Bank deposits and other financial assets are debts to financial institutions.
Income from such lending relationships is considered a transfer because it does not affect profit and loss. The problem is that this transfer is also income and expenditure. However, it is not usually recognized as disposable income or regular expenditure. Transfers work as long-term capital flows beneath the surface. Many people focus only on profit and loss and do not notice the capital movements from lending beneath the surface. In accounting, there are no accounts representing the inflow and outflow of funds related to lending. This is the problem. In reality, it is not profit and loss but a lack of funds in lending that causes economic entities to fail. Lending represents the function of long-term capital.
Claims and debts are formed when money flows to the market side. Once claims and debts are formed, there is a constant repayment pressure from claims to debts.
In households, it is debt that causes bankruptcy. No matter how much one wants to waste money, it cannot be done without money. The fear is debt. However, when considering economic issues, people focus only on profit and loss and overlook the movement of money beneath the surface. Without debt, there is no bankruptcy. Yet, debt is a silent hidden threat. Debt drives people crazy more than financial hardship because debt cannot be resolved alone. Debt involves trust and morality. The root of debt is trust and promises. Debt is based on promises that must be kept as a person. Therefore, it is debt that breaks down personality. Debt enslaves and binds people. Yet, debt quietly lurks beneath the surface. Managing the movement and transfer of money from lending is an essential requirement in a market economy.
There are two aspects to income and expenditure: profit and loss, and transfer. Generally, people focus only on profit and loss and overlook transfers. However, the recovery of funds does not generate added value unless it is based on revenue. Funds invested are transfers. Funds borrowed and invested are also transfers. Transfers do not affect profit and loss. Therefore, transfers do not generate added value. Profit and loss are affected when private companies that received transfers recognize them as revenue and turn them into costs. Only then are funds supplied to the market. Public investment and government bonds do not generate added value on their own. Private companies cannot recover funds simply by converting them into revenue. The biggest problem lies there. While recovering funds through periodic profit and loss, there is no account for repaying the recovered funds. The accounts are depreciation and after-tax profit, but these alone cannot cover all transferred funds. Funds that were not recovered and not recorded as profit and loss remain in the market continuously.
The repayment of government bond principal is through taxes. The source of taxes is income, revenue, and added value. Inheritance tax is capital transfer and does not affect finance. The principal repayment of government bonds cannot be made unless funds circulate in the market and generate added value. Government bonds are not recovered unless funds are supplied to the market and converted into revenue or income.
The economic system is similar to an internal combustion engine or an electric machine. It operates by circulating money. The problem is how much and how to circulate money. Therefore, the important factors are the circulation volume and rotation speed. Indeed, money can be obtained through borrowing. However, this only inflates debt. If debt cannot be repaid from revenue, debt grows exponentially. Some people involved in public works believe that as long as money circulates, it does not matter how much deficit there is, but this makes it impossible to control interest rates.
Debt has the nature of an advance payment. Strictly speaking, income is not one’s own money but temporarily held. Therefore, deposits are debts. There is an obligation to repay over a certain period in the future. This obligation is firm. Expenditure for repayment is based on contracts and cannot be changed at one’s discretion. One must continue to repay a fixed amount for a certain period. If income falls below the repayment amount, bankruptcy often occurs. Moreover, repayment of lending is a transfer and does not generate added value. It does not lead to economic growth. This state is called dormant capital.
Lending does not generate added value. However, lending as income and expenditure is no different from profit and loss. In other words, there are two aspects to income and expenditure: lending and profit and loss, and the difference is whether added value is generated.
In the market, consumption appears as expenditure. Expenditure is the reverse of income. Not all income is consumed, and the surplus is invested. Deposits form part of investment as indirect investment. Investment includes not only indirect investment but also direct investment such as housing investment. Thus, expenditure includes consumption expenditure and consumption investment.
Investment generates claims and debts.
The composition of households, the central consumption entity, consists of daily and regular expenditure, savings, claims for future expenditure such as pensions and insurance, and debts such as mortgages.
Household debt is basically a transfer account, not a settlement account. In other words, even if households borrow funds such as mortgages from financial institutions, the money passes through the households and goes to construction companies, and is not reflected as income for the households but is recognized as claims and debts. The actual utility of money is realized when the debt is repaid according to the agreement.
Therefore, household expenditure is recognized when monthly mortgage repayments are made, functioning similarly to rent for households. The difference from rent is that mortgage repayment is fixed and comes with a legal obligation as debt. It cannot be easily changed just because the household is struggling. In the case of rent, moving can save on rent, unlike debt. However, if a house is obtained through borrowing, ownership of the house is acquired.
Households, which operate on a cash basis, recognize not only interest but also principal repayment as expenditure.
This is the problem. Generally, debt is recognized as repayment in the current account, and its nature is no different from consumption expenditure. However, in reality, there is a transfer of funds behind it, and if income is interrupted or insufficient, it starts to squeeze other consumption expenditures. Rent is a cost, and debt repayment is a transfer. As long as a certain income is maintained, there is no impact on living, but once income decreases, it disrupts living. This is the terrifying aspect of debt. Moreover, the decline in asset value worsens the collateral power of claims, which also suppresses new investment. From the perspective of the entire market, the circulation of money worsens.
Just as the starting point of production entities is claims and debts, the starting point of households, the consumption entities, is also claims and debts. However, households fundamentally operate on a cash basis, so they do not start with debt (money) but with claims (assets, goods).
Households start with the existence of real goods, i.e., assets. Assets include houses and land. Labor is also one of the production means households possess. In other words, labor is the greatest capital. It is often said that the body is capital, referring to labor.
First, labor is provided to earn income. This is the starting point. Living is based on the income earned from working.
Living involves purchasing necessary goods from the market within the range of income. The surplus after deducting expenditure for living from income is turned into savings, which becomes household claims. Deposits are household claims and also debts of financial institutions. This is how money starts to circulate. The utility of money is realized through the exchange of money between economic entities. There is a giver if there is a receiver. The economy is formed by the mutual relationship between givers and receivers. Looking at only one aspect does not reveal the function of claims and debts in the entire society.
Among household claims, there are also pensions. It can be said that the market economy is based on debt. Debt requires collateral. Collateral can be assets or future income.
Household claims form household assets. Household assets include financial assets and fixed assets. Financial assets include cash deposits, pensions, insurance, and securities. The purpose of creating financial assets is to prepare for future expenditure and unforeseen circumstances. Future expenditure includes housing, education, marriage, childbirth, childcare, and retirement funds. Unforeseen circumstances include illness, disasters, and accidents.
Household claims and debts arise not for production but as a result of consumption. In other words, household financial assets are formed by surplus funds after deducting consumption expenditure from income. As the economy stabilizes and gets on track, households tend to save rather than spend all their income, leading to the accumulation of household financial assets. The funds accumulated in households are reinvested in private companies, allowing money to circulate. This is the healthy flow of the market economy. However, after the bubble burst, this flow was disrupted, and surplus funds began to flow back from private companies to financial institutions. As a result, funds that lost their destination stagnated in financial institutions or went to finance. In other words, surplus funds are not returning to the market but are stagnating in finance and fiscal policies. This flow is contracting the market.
Household claims also form fixed assets. Household fixed assets mainly refer to housing. Housing is a means of consumption, not production. Therefore, housing does not generate added value. It only involves expenditure. In the case of homeownership, this expenditure appears as loan repayment and is not recognized as a cost like rent. Once housing investment is made, the expenditure for repayment becomes fixed, narrowing disposable income. A decrease in income or loss of income becomes the biggest factor in household bankruptcy because loan repayment comes with a legal obligation. It cannot be reduced just because the household is struggling.
Debt is the cause of the failure of economic entities.
Money is distributed as income and returned as revenue. This movement circulates money in the market. The surplus or shortage of money is compensated by lending. Finance manages lending. Income disparity worsens the circulation of money, so income redistribution evens out the distribution of money. The government redistributes income.
Basically, money circulates between production entities and consumption entities, extending its utility to the entire market. The distribution system realizes this. The purpose of distribution is to constantly and widely distribute necessary resources to all citizens. The role of the economic system is to continuously supply money to all citizens.
The difference between the function of claims and debts of production entities and consumption entities must be noted. Production entities form claims and debts to invest in production means, while consumption entities form claims and debts as a result of consuming income.
Household debts, such as mortgages and car loans, are basically for specific purposes. If there is a shortage of funds, borrowing is necessary. The largest part of household debt is mortgages.
Households, the largest consumption entities, hold the largest surplus funds and supply funds to non-financial corporate enterprises, the largest production entities. This dynamic flow of funds has maintained the market economy. The government, which acts as both a production and consumption entity, adjusts the imbalance between economic entities, and financial institutions compensate for the surplus or shortage of money. This is the basic structure of the domestic economy.
However, private companies, deprived of their funding ability, began to procure funds internally and turned into surplus fund entities. As a result, funds stopped flowing into the market, and finance became chronically short of funds to compensate for the flow, contracting the market because finance does not generate added value. When the market contracts, income decreases, relatively strengthening the function of debt. This is the background of zero interest rates and deflation.
Consumption Expenditure
Consumption expenditure is a microcosm of a nation’s industry. By looking at the structure and composition of expenditure, one can see the state and structure of the country’s industry. In this sense, consumption expenditure leads the economy of a nation.
Consumption expenditure turns into revenue. Therefore, consumption expenditure forms the foundation of industries.
From consumption expenditure, it is also evident that the proportion of food is continuously decreasing. However, it has slightly increased since the Lehman Shock. This reflects the rise and fall of the food industry. Food remains the foundation of life. The issue lies in the productivity of the food industry. The production structure reflects the consumption structure.
What is important is the nature of consumption. There are items that must be consumed daily without fail, and there are items that are consumed only once or twice in a lifetime but have a decisive impact on one’s life. The role and nature of consumption differ between these types of expenditures. The difference in the role and nature of consumption brings about a decisive difference in the nature of industries.
The source of consumption expenditure is disposable income. In national economic accounts, disposable income is defined as the maximum amount that consumption entities can consume in goods and services without disposing of or increasing financial or non-financial assets (from “Introduction to Macro Accounting” by Masao Kawano and Akira Omori, Chuo Keizai-sha).
Generally, the consumption entities are the government and households. Household expenditure is basically composed of consumption and investment, including savings.
Consumption expenditure is expenditure for living. Living expenses are the costs associated with activities necessary for living. Since the economy is an activity for living, living expenses are the foundational costs of the economy. Without guaranteeing minimum living expenses, the economy cannot function.
Consumption expenditure includes fixed expenditure and variable expenditure. Variable expenditure includes temporary expenditure and periodic expenditure.
Fixed expenditure refers to expenses that occur at a fixed amount, like rent. Variable expenditure refers to expenses that occur periodically, like heating costs. Temporary expenditure refers to costs that occur temporarily, like medical expenses.
Consumption expenditure includes personal consumption expenditure and shared consumption expenditure. Personal consumption expenditure refers to individual consumption, while shared consumption expenditure refers to consumption shared by the consumption unit. Personal consumption expenditure includes food and clothing costs, while shared expenditure includes rent.
Consumption expenditure includes short-term expenditure and long-term expenditure. Short-term expenditure is consumption expenditure derived from daily life. Long-term expenditure is consumption expenditure derived from the life cycle, which means birth, aging, illness, and death.
Additionally, expenditure includes irregular and temporary expenditure and unforeseen expenditure. Typical irregular and temporary expenditure includes ceremonial occasions like weddings and funerals. Unforeseen expenditure can cause serious situations, such as illness or accidents. Insurance has developed to prepare for unforeseen circumstances. Medical expenses occupy a unique position in expenditure. The burden of medical expenses varies by household, and elderly people also face caregiving issues. Excessive medical expenses can threaten the viability of a household. The issue is whether fair medical care can be received. Medical expenses are expenditures related to human life and death and should not be forgotten. Additionally, medical expenses include not only private expenditure but also public expenditure and fund transfers, making the overall flow of funds complex.
The basics of consumption expenditure are expenditures related to food, clothing, and shelter. In recent years, energy and communication costs have been added to food, clothing, and shelter. The core of consumption expenditure is expenditures related to lifelines. Daily expenditures related to life and death form the foundation of households. Expenditures related to life and death are indispensable. This part is the sustenance of life. Ensuring the resources consumed daily and related to life and death is directly connected to national policy and strategy. A shortage of such resources can disrupt national life and threaten national independence. Daily resources related to life and death include, first, water and food, and second, energy such as electricity. Recently, communication and transportation means have become as essential as food and energy. Clothing and housing are not absolutely indispensable for living, but without them, the minimum standard of living cannot be maintained. In cold regions, they are also resources related to life. The consumption of such goods constitutes foundational living expenditures.
The most important items are water and food. Without water and food, one cannot live. These are necessities, consumables, and perishables. In other words, they are supplies that must be continuously replenished daily. Food can also be an indicator of poverty, like the Engel coefficient. Wealth and poverty are relative matters created by disparities. One of the important indicators of a national economy is what minimum income is necessary for a human-like life. It is not income but expenditure. Expenditure and consumption are two sides of the same coin, but they are different.
Once the necessary goods for living are secured, the next requirement is expenditure for a human-like or self-like cultural life. Cultural expenditure includes social expenditure and expenditure for self-realization. Typical social expenditure includes ceremonial occasions like weddings and funerals, which are the essence of culture.
Food, clothing, and shelter are foundational expenditures but also include cultural expenditures. As people’s lives stabilize, they seek quality. They seek delicious food, personal fashion in clothing, and self-expression in housing.
Modern industries were shaped by the tremendous rationalization of household chores and the technological innovation of home appliances that promoted this rationalization. Discussing households without considering this point is impossible. The rationalization of household chores fundamentally changed the nature of families and the overall structure of the economy. The most important point is that it eliminated the need for organized household chores and the division of labor within families. Household labor was replaced by individual labor, changing the hierarchy within households. Families became nuclear and single-person households, contributing to late marriages and non-marriages. In other words, the necessity for families to be groups or organizations was lost.
When considering housing costs, it is important to note the difference in expenditure nature between owning and renting. Rent is a cost, while loan repayment is a fund transfer. Costs generate added value, while transfers do not. This changes the function of funds. An increase in social debt like mortgages changes the flow of funds. This must not be forgotten when considering the economy.
Consumption expenditure changes with human growth. In infancy, childcare costs are high, and in school age, education costs like tuition arise. When children reach adulthood and form separate households, childcare costs disappear. When workers retire, they must rely on pensions for income. Therefore, consumption expenditure cannot be uniformly considered. Consumption entities change with human growth, from single-person households to couple-only households, from couple-only to couple with children households, and to three-generation households if parents are present.
Consumption expenditure includes foundational living expenditures and cultural expenditures. Foundational living expenditures are necessary for living, while cultural expenditures are for self-realization, like education and entertainment costs. As living standards improve, the proportion of education and entertainment costs increases. However, these are also part of social distribution and should not be forgotten. They affect individual income and expenditure structures. Understanding the role of education and entertainment costs requires considering productivity efficiency and distribution together. If the proportion of entertainment costs increases, commodity industries are pressured. Balance is important. If the productivity of pressured industries does not improve, meaning if per capita production does not improve, the relative income of workers in pressured industries decreases. The extent of pressure is evident from the proportion of goods in household expenditure.
Consumption Investment
Consumption investment represents the prototype of the economy.
There is also investment in consumption. The largest consumption investment is housing investment. Besides housing, there are investments in durable consumer goods like automobiles. There are also educational investments and investments in financial assets such as insurance and stocks. Savings for old age can also be considered a type of investment. Under the extended family system, children took care of their parents when they became too old to work. Therefore, the virtue of filial piety was emphasized. In the past, childcare was also considered a type of investment. Before the establishment of nation-states, there was no idea that the state would guarantee the lives of its citizens. People protected their own lives with their own power. Those who could not engage in productive work were abandoned. Even in our parents’ generation, it was common to think that if one could no longer work, the family would be left destitute, or one had to earn a living. Taking care of elderly parents was the duty of the children, and they could not rely on the state or society. Therefore, saving for old age and raising children were considered types of investment. The modern nation-state is based on the idea that education and care for the elderly are the responsibilities of the state. Therefore, the main consumption investment today is related to housing.
Consumption investment constitutes the claims and debts of households. The function of long-term funds is based on the relationship between claims and debts. The settlement of debts takes a long time and involves the movement of funds that do not appear in profit and loss. Although it does not appear in profit and loss, it is related to income and expenditure, and failing to manage long-term funds is a direct cause of the failure of production entities.
Using housing investment as an example of consumption investment, the process is as follows. First, for consumption investment to be established, the consumption entity must decide to invest in housing. Besides housing investment, renting is another means of obtaining housing. Basically, the consumption entity compares the economic effect of investing in housing with that of renting. In other words, the economy is measured by comparing the costs of renting with the costs of investment.
Even when comparing renting with investing in housing, economic calculations begin with calculating the funds required for housing investment. The factors to consider include people, goods, and money. It is important to pay close attention to these points. If investment is limited to a money issue, the meaning of investment is lost. This is a major flaw in modern economics. The physical value of housing includes factors such as land area, construction techniques, geographical conditions, whether it is new or used, the age of the building, useful life, depreciation period, and market value at different times. Next, the human factor is the payment ability of the consumption entity. For example, whether stable income is secured, whether there are sufficient assets like savings, how many years of income are guaranteed, the family composition, and whether there is someone to guarantee payment if it cannot be made. The money factor includes the principal, interest, total repayment amount, repayment method, monthly repayment amount, and monthly income. This is the basic of the economy and shows the relationship between flow and stock.
The condition that the repayment amount must not exceed income is a fundamental premise. If this premise is not met, housing investment will fail. If expenses exceed income, debts increase, and if they exceed a certain level, repayment becomes impossible. Flow and stock are closely related.
Consumption investment is not a small amount. Housing investment has as much impact on the economy as capital investment.
The function of funds includes short-term and long-term functions, which closely influence each other. Many people only see the short-term function of funds and overlook the long-term function. In reality, the short-term function of funds appears on the surface, but the long-term function does not easily appear, making it easy to overlook. However, it is the long-term function of funds that can disrupt life.
A typical example is consumer finance. The trouble with consumer finance is underestimating the immediate shortage of funds and easily borrowing high-interest funds, leading to financial difficulties. Even small debts should not be underestimated. If the principal increases like a snowball, the interest payments alone can exceed monthly income. Flow and stock are closely related.
The result of investment appears as gross capital formation. The contents of gross capital formation include housing, other buildings and structures (buildings other than housing, roads, railways, pipelines, waterways, etc.), machinery and equipment (production equipment, communication equipment, vehicles, etc.), weapon systems (fighter jets, submarines, tanks, missiles, warships, etc.), cultivated biological resources (plants and animals under institutional management, fish, etc.), costs of transferring ownership of non-produced assets, and intellectual property rights (research and development costs, mineral exploration, software, databases, original works of entertainment, literature, and art) (from “Introduction to Macro Accounting” by Masao Kawano and Akira Omori, Chuo Keizai-sha). Gross capital formation, liquid assets, and liabilities constitute stock.
Consumption and Savings
Consumption and savings represent the final stage of the economy. In a sense, they can be considered the ultimate goal of the economy. Expenditure ultimately becomes the sum of savings and consumption expenditure, and it can be said to be the outcome of economic activities within a unit period. Savings and consumption investment are two sides of the same coin, forming the stock and becoming the fixed capital formation of the household sector.
Consumption and consumption investment create culture. Consumption is self-expression, most clearly seen in fashion. Clothing is an ideology and a philosophy. If labor is a means of self-realization, then consumption is a means of self-expression. Consumption is an aesthetic.
Consumption appears as final consumption expenditure. Final consumption expenditure includes private final consumption expenditure and government final consumption expenditure.
The function of money is transfer and settlement. Transfers form the stock, and settlements form the flow. Stock prepares for payment, and flow realizes the utility of money.
From income, necessary goods for consumption are purchased, and the remaining portion is saved. Purchasing goods translates into expenditure. Expenditure is the sum of consumption expenditure and savings, creating the flow of money. Therefore, the nature of expenditure is shaped by the content of consumption and savings.
Consumption has both quality and quantity. The key to expenditure is whether to prioritize quantity or quality. When dining out, one might struggle with whether to choose quantity or quality for the same price. When young, quantity is prioritized over quality, but as one ages, quality becomes more important than quantity. In any case, the lack of options is problematic.
The essence of a market economy is choice. When choices are limited or disappear, the market economy loses its vitality. Therefore, the market economy dislikes monopolies.
If excessive competition occurs, prices collapse, and profits cannot be secured. To maintain profits, it is necessary to regulate the market. If the market cannot be regulated, it tends towards monopoly and oligopoly. That is the nature of a market economy.
The ultimate goal of the economy is consumption. The portion that is not consumed is saved. Savings form the stock. The essence of stock is assets and liabilities.
The Composition and Quality of Consumption
Just as production involves investment and current accounts, consumption also involves investment and current accounts. While production includes investment in production means and current accounts for production, consumption includes investment for consumption and current accounts for consumption.
Consumption forms both public finance and household budgets. Therefore, the composition of consumption is reflected in the structure of public finance and household budgets. Public finance is based on the public sphere, while household budgets are based on the living sphere. Consequently, public finance consists of public expenditure, and household budgets consist of private expenditure.
There are public consumption and private consumption. Similarly, expenditure that forms the basis of consumption includes public expenditure and public consumption. Public expenditure includes public investment, income redistribution, and public consumption. The main purposes of public investment are social capital and national defense. National defense also relates to public consumption. Post-war Japanese people tend to avoid discussing national defense, making it difficult to provide clear guidelines. Before the war, military expenses were considered untouchable, leading to fiscal collapse. However, avoiding national defense endangers the nation’s survival. Japanese people must seriously and earnestly address national defense to sustain the national economy.
Japan’s post-war economic growth was undoubtedly due to peace. Therefore, it is necessary to consider national defense as a cost required to maintain peace.
The motivation for creating national economic accounts lies in the costs of war and the sustainability of war. One should not forget this fact. Fiscal discussions cannot exclude the impact of war on the economy. War is also a cause of government bond issuance. It is necessary to calculate the economic gains and losses of war from an economic perspective, not just discuss it morally. The economy is not an ideal or a concept; it is a reality.
The necessity of public expenditure also includes preparing for disasters that occur once every hundred or two hundred years. Wars and major earthquakes are events that may occur once every hundred years. Even if they occur once every hundred or two hundred years, they cause immense damage and are crucial to the nation’s survival. Expenditure to prepare for wars and major earthquakes occupies an important position in public expenditure.
Households have different layers based on the nature and role of consumption. The most fundamental layer involves expenditures related to lifelines, food, clothing, and shelter. The nature of goods causes differences in expenditure cycles for each item. Some items, like food, are expended three times a day, while others, like houses, are expended only once or twice in a lifetime. Each expenditure can be small or large. Some expenditures are daily and planned, while others prepare for unpredictable events.
Household budgets represent activities for living. Activities for living include survival activities and self-realization activities, but the boundary between them is not always clear. Activities for living are commonly represented as food, clothing, and shelter. The minimum necessary resources for living include clothing, food, and housing. Today, energy and communication are also included as lifelines.
One of the temporary expenditures in household budgets is ceremonial occasions like weddings and funerals. These are the most social, cultural, and ceremonial expenditures and occupy a significant portion of household budgets.
Public finance constitutes the public sphere. The public sphere includes social capital (infrastructure), such as transportation, energy, communication, disaster prevention, security, national defense, education, and healthcare. It also refers to economic foundations like the financial system.
The essence of consumption lies in the entity that consumes. Those without substance cannot consume. Money cannot be consumed; it is expended. One of the purposes of expenditure is consumption.
Consumption also has quality. The quality of consumption lies in the object of consumption. The object of consumption is not always tangible. It can include intangible items like services, information, and energy. Expenditure for consumption is not limited to the object of consumption; it also includes costs for transportation and storage. Some useful items in the world have toxicity or danger.
Petroleum, gas, electricity, and nuclear power are undoubtedly dangerous. Necessary items can harm people if mishandled. Safe utilization requires appropriate equipment, and transportation and storage incur costs.
Consumption includes items consumed instantly and resources that provide utility over a long period. Long-term utility items like houses, cars, furniture, and home appliances are considered investments in consumption. Investment applies not only to production means but also to consumption means.
The flow of money in consumption includes investment and current accounts. Major investments include housing and education. Savings are also part of investment. Savings include the surplus after deducting expenditure from current income, preparation for emergencies, and temporary expenditures like childbirth and ceremonial occasions. They also include preparation funds for housing investment and old age.
Current accounts are based on necessary daily expenditures. Basic expenditures include food for survival and clothing. Today, they also include infrastructure expenditures like gas, water, and electricity. Next, semi-basic expenditures like transportation and communication are added. These expenditures form the foundation of living.
Additionally, fixed expenditures like social insurance and taxes are deducted. The amount left after deducting public expenditures from annual income is disposable income, which can be used privately.
Consumption has cycles. These cycles include daily, weekly, monthly, seasonal, semi-annual, annual, and lifelong (long-term) cycles. These cycles form the basis of the consumption algorithm. The cycles of consumption overlap with the cycles of expenditure.
Markets are formed by consumers. Therefore, China, with the largest population, will eventually have the largest market. In reality, the Chinese market is always the largest. This point must be well understood when considering the economy.
For consumers, choices are important. Mass production and mass sales may lower prices but also lead to the homogenization of production goods, depriving consumers of choices. Maintaining prices is essential for the shift from quantity to quality. A fair price does not mean a low price. A fair price is maintained only when fair costs and profits are sustained.
Just as production entities also act as distribution entities, consumers also act as workers and producers. Lower prices lead to lower revenue. When revenue decreases, cost reduction and rationalization are required. The largest burden among costs is labor costs. Ultimately, costs are a mass of labor costs. When revenue decreases, employment and income are inevitably pressured.
Transforming the economy from quantity to quality can only be achieved by improving the quality of consumption. It means shifting from factory-produced food to homemade meals, from common goods to luxury goods. Improving quality increases added value. It also means using both low-cost, common goods and luxury goods appropriately. It involves differentiating between mass-produced and handmade goods. In other words, creating options for consumers through product differentiation and stratification.
It is not about making everything cheap or everything luxurious but expanding the range of choices according to individual preferences. Giving consumers free will is true equality.
Family Structure
The way consumption is carried out varies depending on the family structure.
Family structure reflects the times. The shift has moved from the extended family system before the war to the nuclear family system, and now to individuals. Families have transitioned from being a collective of shared fate to a collection of individuals. This shift is due to the transition of income earners from the head of the household to individuals, promoting the collapse of the outdated family system.
Additionally, the nature of families is greatly influenced by the marriage system and family system. In recent years, issues such as late marriages, non-marriages, and declining birth rates have become problems, contributing to population decline.
The reason for delayed marriages or an increase in people who never marry lies in the economy. One reason is the economic independence of women. During the extended family system era, it was difficult for women to achieve economic independence. As a result, women were in a socially weak position and could not live without getting married. Even after marriage, they were in a subordinate position. After the war, women were liberated, their social status improved, and their economic independence was promoted. The inability of society and people’s awareness to keep up with these changes in women’s status is behind the trends of late marriages and non-marriages. Simply raising women’s status and promoting economic independence is not enough; a corresponding social system must be established to solve these issues.
Particularly, how to support and assist women in matters unique to them, such as childbirth and childcare, and caregiving for the elderly, which have traditionally been considered women’s work. It is not just about improving women’s status but also re-evaluating the work women have been doing, such as household chores. This also means establishing a consumption economy. As long as only paid work is considered economic work, family issues cannot be resolved. Women have always been responsible for half of the economy and will continue to be so in the future. This does not mean masculinizing or neutralizing women. Maternal qualities are indispensable to the economy. This also questions the very nature of families.
Changes in family structure have also led to issues such as elderly people living alone and social withdrawal. Families themselves are collapsing, as evidenced by rising divorce rates. When considering aging, discussions often focus on systems, facilities, and money, rather than filial piety or ethics. The foundation of the economy is ethics. Without established ethics, the economy cannot function. Discussing caregiving and childcare without this understanding is futile.
Originally, consumption is an internal economy, meaning it is an issue within the community. The nature of the internal space is moral and non-monetary. Introducing external economic means, such as contractual and monetary methods, into this internal space leads to its disintegration, promoting the collapse of families. Therefore, the reconstruction of local communities is necessary. Human elements are rapidly being lost from the economy, and it is necessary to restore the economy as a human endeavor.
The transition from extended families to nuclear families, non-marriages, and late marriages has changed the nature of consumption spaces and the foundation of the economy, preparing for an aging society with a declining birth rate.
Particularly, women’s advancement in society has promoted their economic independence, liberating them from family constraints while also promoting the collapse of traditional families. It is necessary to establish a new family structure while maintaining women’s liberation. This also means re-evaluating the household labor and domestic work that women have been responsible for. Denying non-monetary labor and consumption labor leads to the outsourcing of household and domestic work, reducing economic efficiency. Disregarding women is not only a disregard for women but also a disregard for the household and domestic work they have been responsible for, broadly speaking, consumption labor. Household labor is the origin of all work and represents the original landscape of the economy, as seen in the role of home cooking. Discussions about evaluating household labor in monetary terms are a misconception. Consumption labor arises from horizontal division of labor and should be evaluated almost equally to production labor, being closely related to employee compensation. The difficulty women faced in achieving economic independence only gave them various disadvantages. The issue cannot be resolved simply by women’s advancement in society.
Additionally, it should not be forgotten that household labor is one of the most rationalized and mechanized jobs in modern times.
As women achieve economic independence and income becomes attributed to individuals, the economic significance of forming families, except during childcare periods, is lost. This undermines the necessity of maintaining families for economic reasons. Consequently, it becomes necessary to seek family bonds in more spiritual rather than economic terms, requiring purer emotions.
Differences in Livelihoods by Age
People’s economic environments change as they grow. When they are born, they cannot live on their own. As children, they rely on their parents, and when they start school, education expenses arise. Until they graduate and become working adults, they are not economically independent. When they get married, the couple forms a new household, and if they have children, child-rearing expenses are incurred. When they grow old and can no longer work, they either deplete their savings or rely on their children. They also need to receive social assistance.
In the past, families were formed out of economic necessity. The weakening of this economic necessity has led to the collapse of families. Originally, women were not economically independent and needed working men. Children cannot live on their own and need caregivers. Children, women, and the elderly were in a state where they had to depend economically on others, which is why they were connected to each other. It was natural for the elderly to rely on their children when they could no longer work, and this was more of a moral issue than a systemic one. Because it was a moral issue, families were bound together, and the extended family system was maintained. Economic factors were hidden behind family bonds.
Today, each person is economically independent and does not need to help each other. When they become elderly, it is common to rely on caregiving systems or facilities, making it a monetary issue rather than a moral one. Trust and bonds between each other have become meaningless, which is why families do not hold together. The value placed on families has changed, but one must not overlook the changes in the economic system behind this shift in values. It has shifted from a human issue to a monetary one.
Women’s economic independence inevitably leads to late marriages, non-marriages, a decrease in the number of children born per woman, and an increase in divorce rates. If one does not face difficulties without marriage, it is logical to avoid troublesome and annoying human relationships and continue doing the work they love. Couples have become more like cohabitants, and there is no need to live with someone they dislike forever. Childbirth and childcare are significant tasks for mothers and can be lonely. If they no longer find meaning in childbirth, there is no need to have children, especially since they cannot expect their children to take care of them in old age.
If one seriously wants to stop the population decline, they must face this reality. Without finding something other than monetary necessity to attract and bind families together, families themselves will disappear.
Individual livelihoods differ by age group. Basically, they are divided into productive working age and non-productive working age. In other words, the age at which one can earn income on their own and the age at which one cannot secure income on their own. Non-productive working age includes those before school age and the elderly.
Livelihoods change according to the stages of infancy, school age and adolescence, young adulthood, middle age, and old age.
In the past, childcare was also considered a type of investment. The purpose was to have children take care of them when they could no longer work. In other words, they raised children for the time when they could no longer work, which is why morality was important. Until adulthood, they relied on their parents, and after becoming adults, they earned their livelihood through their work. When they could no longer work, they used to rely on their children, but now they rely on their savings and pensions. It has become an era where money is more trusted than morality. Modern Japanese people take it for granted that the state protects its citizens. However, the idea that the state protects the lives and property of its citizens came after the establishment of nation-states. In the past, citizens’ lives were not guaranteed. The state did not guarantee individual rights and duties. The concept of citizens did not even exist, and state power was not much different from private power. The principle was to protect one’s own life. Those who could not engage in productive work were abandoned. The right to life was recognized only after citizens’ rights and duties were guaranteed by the constitution. Even today, in dictatorial or totalitarian countries, the idea that the state must guarantee citizens’ lives is not established. In such countries, private property rights are constantly violated by state power.
Today, the issues of declining birth rates and aging populations are being raised. This is due to the compression of the proportion of the productive working population within the total population caused by changes in population distribution. One reason is that society has not kept up with changes in population distribution. The increase in life expectancy has led to an increase in the elderly population. Moreover, it means that the healthy age has also increased. However, the retirement system tends to lower the working age. Even though they are still healthy and able to work, they are forcibly retired and have to rely on pension income.
Additionally, the unification of work into salaried income has led to a decrease in self-employment. Starting a business after retirement is financially and physically challenging. In the past, farmers and craftsmen worked as long as they could, regardless of age. Salaried workers, however, are generally bound by retirement, and their previous careers are nullified. In the past, craftsmen were said to never go hungry if they had skills, but salaried workers do not have that assurance. Unless they have special skills, re-employment after retirement is difficult.
Moreover, salaried workers’ wages increase with age, and their treatment and benefits are structured accordingly, making it difficult to lower their treatment easily. High wages become an obstacle to re-employment. In an aging society, it is necessary to have a flexible approach to work. The peak of consumption expenditure and the peak of income do not coincide.
As people age, it becomes difficult to earn income on their own, and there are limits to the income they can receive. However, the risk of increased medical and caregiving expenses is high. Once they require caregiving, it becomes difficult to live independently. The number of elderly people without relatives is also increasing, while the population of young people supporting them is decreasing. Without changing the structure of life and society, it will be impossible to maintain the current standard of living.
(Source) Ministry of Internal Affairs and Communications “Census” and “Population Estimates,” National Institute of Population and Social Security Research “Japan’s Future Population Estimates (January 2012 Estimates): Medium Birth and Death Estimates” (Population as of October 1 each year), Ministry of Health, Labour and Welfare “Vital Statistics.”
It is foolish not to address foreseeable issues.
As mentioned in the section on population composition, the issue of declining birth rates and aging populations is a problem of intergenerational fund transfers. The mechanism of intergenerational income redistribution, such as pensions, needs to be built on a long-term perspective with thorough analysis of population composition. Changes in population composition do not immediately affect, but they are changes that occur over a long period and are certain. Although there should be plenty of time to prepare for these changes, in reality, action is not taken until the time comes, resulting in being too late. While various excuses can be made, reality is reality, and once it happens, excuses become irrelevant. The generation at that time will bear the consequences. Therefore, consumption is an ideology and a national philosophy.
People often focus on how to make money and neglect how to use it. However, making money without considering its use is meaningless. The biggest problem in the modern economy is that people are so focused on whether money can be made that they forget why they are trying to make money. Making money is meaningful because it clarifies its use. Otherwise, people become obsessed with money and become slaves to it.
Public investment aimed at economic stimulus is futile. If the underlying vision of what kind of nation to build is not clear, it will be wasted. Expenditure without real demand is harmful.
Public expenditure also varies by age group. For childbirth, there is medical and caregiving support. In early childhood, there are subsidies for daycare centers. During compulsory education, there are subsidies for education costs, and universities also receive subsidies. When reaching old age and requiring caregiving, there are caregiving and pension systems, and the economy continues until the end of life. The criteria for what to prioritize and what to aim for, such as welfare, education costs, income redistribution, and public investment, are based on national philosophy. In other words, it stems from the constitution. Missteps can endanger the foundation of the nation. Consumption is culture and ideology. Basically, expenditures on welfare and education are income redistribution and fund transfers. They do not generate added value but constitute fixed expenditures. If distribution becomes imbalanced, it will shake the foundation of fiscal expenditures. The design philosophy at the time of system design is key.
The Algorithm of Consumption
The starting point of the algorithm of public consumption is the founding spirit and national philosophy. In other words, it is a question of how to use public funds. The basis of the algorithm of private consumption is life and living. Delving into the algorithm of consumption leads to the origin of the economy. This is because the origin of the economy is activities for living, and the economic system exists to sustain people. To sustain everyone, it comes down to what each person needs to live. This means the way of consumption.
First, confirm how much usable money is available. Next, estimate how much income can be expected. The resources available for consumption determine everything. This applies to both public and private sectors. The starting point is funds.
The economic system is not for sustaining specific people or forces. The economy is about sustaining everyone. Therefore, it is about building a system where the necessary resources for living are distributed to everyone. The economic foundation is to create a system where necessary goods are supplied to people evenly and continuously as needed. Money is the means for this. The fundamental question is how to use money to produce, procure, distribute fairly, and consume necessary resources efficiently. The most fundamental question is how much goods are consumed by how many people and in what way. Overall, it is about distributing evenly and without disparity according to work. The movement of money not linked to consumption distorts the market. The goal is to eliminate wasteful movements of money and achieve distribution according to people’s work.
The purpose of the economy is to produce or procure necessary goods and supply them evenly and continuously to everyone.
Basically, daily actions determine the algorithm of consumption. That is, waking up in the morning, eating, going to work, having lunch, working in the afternoon, returning home, eating, bathing, and sleeping. This algorithm is influenced by customs, habits, and religion. Therefore, it cannot be uniformly determined. However, the daily action pattern is the basis of the algorithm. The algorithm of consumption fundamentally has a repetitive structure.
The repetitive structure of each day and the sequential structure of birth, growth, marriage, maturity, and old age combine to form the algorithm of consumption.
In the workplace, the algorithm of consumption is formed by combining routine and non-routine tasks. Therefore, the structure of consumption is formed by how routine and non-routine consumption are combined.
Production is often thought to exist only in factories, fields, or manufacturing sites. However, there is also production related to consumption. A typical example is household chores. Household chores are versatile and require comprehensive knowledge to be realized. They are comprehensive production activities. Household chores are the origin of all industries and the prototype of public finance. Therefore, planning and conception are key to household chores. Consumption is the source of all economies.
Therefore, the algorithm of consumption begins with life planning. For general governments, it is based on urban planning, that is, national conception. Money is not used because it is available; it is used because it is necessary. When money is insufficient, the important question is how to earn or supplement it. If there is surplus money, it should be directed towards debt repayment or new investments. Using money unnecessarily just because it is available or borrowing recklessly because money is insufficient leads to financial difficulties.
Just as there is labor for production, there is also labor for consumption. While production labor is linked to income, consumption labor is linked to expenditure. This creates a perception that production labor is positive and consumption labor is negative. People who are positive about the production economy tend to be negative about the consumption economy, leading to changes in the economy. The focus is often on production, while consumption is ignored. However, this does not reveal the reality of the economy. Waste and inefficiency are not resolved, and issues like global warming and waste problems cannot be solved. Environmental issues, global warming, and waste problems are more about consumption than production.
Expenditure and income are two sides of the same coin. The framework of expenditure forms the foundation of industries. If consumption declines, industries also decline. Forcing consumption creates distortions in the economy. The modern economy is too forceful. Both shortages and excesses are problematic. Overfishing leads to resource depletion, and waste leads to decadence. Overeating is unhealthy. Moderation and restraint are necessary in everything.
Consumption labor involves temporal and personnel division of labor, and production, income, and expenditure are sequential structures. It is not vertical division of labor. In other words, income and expenditure are inseparable. The value of consumption labor and production labor is the same. Pursuing production efficiency while neglecting distribution efficiency weakens the market and impoverishes consumption. Disregarding consumption efficiency leads to grand waste and inefficiency.
Consumption appears as expenditure. However, expenditure cannot occur immediately. Naturally, available funds are an issue. In other words, consumption also begins with fund procurement. Expenditure for consumption is not a means to obtain revenue or income like expenditure in production. It is expenditure without compensation or return. In other words, consumption itself does not generate added value. Expenditure for consumption is fundamentally without income because it is not based on compensation. This is the fundamental difference between expenditure for production and consumption. In other words, work for consumption is unpaid. Work for consumption is not without economic value, but its economic value is not converted into monetary value and is not recognized as a market transaction. This is the decisive difference between production and consumption.
Consumption is fundamentally depletion and does not assume reproduction. Therefore, revenue from expenditure cannot be expected. This nature is the same for both current accounts and consumption investment.
Therefore, consumption is fundamentally based on basic income. Basic income refers to fixed and stable income. The means and systems to maintain fixed income play a decisive role in the economy of a country. The systems supporting fixed income include employment forms, wage systems, the structure of business entities, accounting systems, economic laws, social security systems, social insurance systems, and pensions. Stable income establishes consumer finance. The means of borrowing depend on the structure of basic income.
The priority of expenditure is determined by the state of household income. This forms the basis of the algorithm of consumption.
Factors that Disrupt the Algorithm of Consumption
What disrupts the algorithm of consumption? It is when consumption becomes disconnected from production and distribution. Consumption should lead to production, but when consumption is done for the sake of production, it is putting the cart before the horse. When consumption loses its original purpose, production becomes meaningless. We are supposed to make money to live, but at some point, it feels like we are living to make money. Focusing only on making money and not thinking about how to use it is a problem. Money has significance in its use. When consumption loses its original purpose, the algorithm of consumption becomes distorted. Essential things for living are traded at unfairly low prices, while useless things are traded at high prices. Respectable people are poor, while those who are greedy for money thrive.
The algorithm of consumption collapses when the significance and purpose of consumption are lost. If one consumes aimlessly, driven by desire, they lose restraint and self-control, leading to the collapse of not only the algorithm of consumption but also their life. Desire is a double-edged sword. If one cannot cut off regrets, they may end up selling their soul.
People form groups, creating societies and organizations. The root of the economy lies in why people form groups. Groups form economic entities, which develop internal economies. Internal economies are self-contained spaces that are non-monetary, non-market, organized, moral, and normative.
Why do people form groups? By forming groups, they protect themselves from external threats and disasters, leading to a secure life. They help each other and leave descendants. The main reason for forming groups is economic. Groups are formed because of significant economic advantages. Without economic advantages, groups would not form.
If the economic advantages of forming families disappear, forming families becomes a burden. When individuals become economically independent, the economic benefits of forming families disappear. If one gets married and becomes a housewife, their income decreases. Having children incurs expenses for childbirth, childcare, and education, increasing living costs. Single individuals do not face these reductions in income or childcare burdens and can continue doing the work they love. Both men and women find it economically easier to remain single, allowing them to focus on their interests. Therefore, it is logical not to marry, leading to an increase in unmarried and divorced individuals. The significance of marriage lies in something that cannot be converted into money. This non-monetary significance is the soul of the economy and the essence of the algorithm of consumption.
Marriage and family formation are not for money. However, when economic meaning takes precedence, decisions are made solely based on money, indicating subservience to money.
Marriage is not for an easy life. Marriage brings more hardships, not ease. One marries to face hardships together. If one seeks an easy life, they should not marry. This misconception increases the number of unmarried individuals. Living means seeking hardships, not ease. Childbirth and childcare are not easy; they involve many hardships. When hardships are rewarded, people feel the joy of living. This is the economy, the activity for living. Marriage is about finding someone to share hardships with because joy in life comes from facing hardships together. Seeking ease does not bring the joy of living.
When people stop forming groups, the algorithm of consumption begins to falter. This is because groups are formed based on consumption. Groups form in the process of producing and distributing based on consumption. The disintegration of groups occurs when the need to form groups disappears, losing the economic significance of communal living. One reason is the outsourcing of internal labor, and another is the increase in income sources. The increase in income sources, such as dual-income households, promotes the outsourcing of internal labor, monetizing it. Dual-income households are not inherently bad, but the significance of families must be sought beyond monetary factors. The original significance of the economy is the activity for living.
As groups expand, they become socialized, divided into labor, and form organizations. People produce or procure necessary resources for living, share them, and live by utilizing them. When groups are self-contained, markets and money are unnecessary, and money is merely a symbol of power. People worked together, shared harvests and prey, and consumed only what was necessary without waste. Production, distribution, and consumption were integrated. As society expanded, it split into ruling and ruled classes, with the ruling class handling non-productive work and the ruled class engaging in productive labor. This necessitated taxes and power.
As society further expanded, production and consumption spaces split, forming mechanisms and spaces for distribution. These became distribution entities and markets. Distribution entities integrated with production entities, and markets integrated with consumption entities, forming the market economy.
In the process of forming production and consumption spaces, economic entities split into production, distribution, and consumption entities. External economies formed outside these entities, creating monetary, market, non-moral, non-organized, and free spaces.
There are market and non-market production goods. Market production goods are based on monetary transactions, while non-market production goods are produced in internal spaces. All production goods are based on consumption.
Why do people form groups? Primarily to protect themselves from external threats and disasters. Post-war Japanese people were under the protection of the US military. However, in nature, those who cannot protect themselves cannot survive. Therefore, the weak form groups, aware of their weakness. In nature, animals fight to the death to protect their territory. Post-war Japanese freedom is the freedom of domesticated animals, not wild freedom. Living beings work desperately to live. The most important thing to remember is what to protect from what. Modern Japanese people lack awareness of what they must protect. They forget that they are being kept alive and that other countries are fighting desperately for survival. This is the fundamental crisis.
The essence of consumption lies in its purpose, which is living. Final consumption expenditure reflects the true nature of a nation. Countries with high military spending prioritize military, while those with high childcare costs prioritize childcare. Countries with high medical spending prioritize health, and those with high housing spending prioritize housing. Countries with high cultural spending value culture.
Consumption is the ultimate goal. Losing sight of why and for whom one works leads to a loss of life’s meaning. The economy is the purpose of life and living, and its essence lies in consumption. Consumption embodies what is necessary for living.
People do not work for money or themselves. They work to leave descendants, protect their families, and support their companions. The phrase “for the world and for people” has become clichéd in modern society, but it is the essence of work. Working for the world and people gives work its meaning. Individualism means making the most of oneself, not selfishness. Making the most of oneself means working for those who sustain oneself. Those who sustain oneself are those one must protect.
Modern freedom is the freedom of domesticated animals. Without knowing why and for whom one lives, one cannot be free. True freedom is wild freedom. Do not become a fat pig; become a lean wolf.
Modern people mistakenly believe that money is everything. Some even think that making money is the purpose of life. They measure life’s success by how much money they earn and leave behind. This thinking disrupts the algorithm of consumption. When the purpose of consumption is lost, the algorithm of consumption falters. Without knowing what is necessary for living, the premise of the algorithm of consumption becomes distorted. The essence of the algorithm of consumption is the purpose of living.
The root of consumption lies in why and for whom money is used. When this is distorted, the algorithm of consumption collapses. The purpose of consumption is to make people happy. Waste only leads to corruption.