The Algorithm of Distribution
The Significance of Distribution
It can be said that the economy culminates in distribution. Distribution is about the share. That is why the economy becomes vivid. There is a saying that while hardships can be shared, glory and disgrace cannot. When producing or procuring goods, people who help and cooperate with each other start to quarrel as soon as it comes to sharing. The root of human foolish and ugly disputes lies in distribution.
Distribution is the process of breaking down production and reconstituting it as expenditure. It is the phase that connects production and consumption. In other words, distribution is a process. The means of distribution is “money.” Money is distributed to the people according to some criteria, and within the allocated range, people spend to purchase the resources necessary for living from the market. The process from earning income to obtaining the necessary resources from the market is the process of distribution.
Production is centered on goods, distribution is centered on money, and consumption is centered on people. Money is the means of distribution, and the market is the place of distribution.
Humans are living beings. To live, they need to eat, wear clothes to protect against cold and heat, and live in a house where they can sleep and eat. These activities form the basis of the economy. Therefore, distribution is crucial in the economy. In fact, a large part of the economic system is dedicated to realizing distribution.
Distribution is established in two stages: the organized allocation of money and the purchase of goods from the market. As society develops and the division of labor evolves, distribution shifts from directly distributing production goods to distributing them through the market. This is the market economy, and the market economy is primarily a means of distribution. In a market economy, money is allocated according to some work, and distribution is achieved by exchanging money for goods from the market.
The key to making distribution work properly in a market economy is how to distribute money fairly and evenly. The requirements for distributing money fairly and evenly are: first, the unit of distribution; second, the purpose; third, the means; fourth, the amount (total and per unit); fifth, the range of distribution; sixth, the target of distribution; seventh, the basis of distribution; eighth, the criteria; ninth, the disparity; and tenth, the bias and uneven distribution.
The economy is an activity for living, and the essence of the economic system lies in distribution. Distribution is carried out in two stages: the distribution of money and the purchase of goods. The allocation of money is done systematically, and the purchase of goods is done through the market. Economic transactions are established between two economic entities. Basically, economic transactions involve a counterpart. Even in transactions involving more than two entities, they are broken down into one-to-one relationships in accounting. The unit transaction in accounting is reduced to one-to-one. Transactions mean the exchange of goods and money, or rights and money. The exchange of rights and money generates equal amounts of claims and debts. Transactions are based on the premise of equivalence. Therefore, the total transaction volume is set to zero-sum. The exchange of goods and money forms profit and loss, flow, and the exchange of rights and money constitutes loan and capital transactions, stock. Profit and loss transactions are realized through sales, and loan transactions are established through lending and borrowing. Capital transactions are an extension of loan transactions and are fundamentally homogeneous. From the perspective of the function of money, transactions appear as deposits and withdrawals to economic entities. In other words, the deposit of one economic entity presupposes the withdrawal of the same amount by another economic entity. One’s income is another’s expenditure, and one’s profit is another’s cost. Without considering the interaction between production and distribution, the consistency between parts and the whole cannot be maintained. Therefore, the transaction volume of one transaction is in a one-to-two ratio with the transaction volume of the entity and the total transaction volume.
The market economy is based on the premise that everyone purchases the goods necessary for living from the market. For this, money must be continuously supplied to people to purchase the necessary goods from the market. In other words, the economy does not end with production alone or merely making a profit. The economy does not complete until the produced goods are delivered to consumers. That is why employment issues and unemployment rates have been central issues in the economy. However, the importance of money distribution is not understood.
The problem is how to distribute the money necessary to obtain the goods needed for living to everyone.
We must note that many economic problems arise during the first stage of money distribution. The requirements for making distribution work properly are: first, the unit of distribution (individual, household, family, company, institution, etc., economic entity); second, the purpose of acquiring money; third, the means of acquiring money; fourth, the amount of money circulating in the market (total and per unit); fifth, the range of distribution (the spatial and institutional range where money circulates or is accepted); sixth, the target of distribution (the target to which money is allocated); seventh, the basis of distribution; eighth, the criteria (what is the basis and what criteria); ninth, the disparity (the degree of disparity in assets and income); tenth, the bias and uneven distribution (the uneven distribution of wealth).
There is a thought that income distribution and production should be considered separately. However, that would break the economic system. The economic system is controlled by the bidirectional work of the entities constituting the economy and the work based on private property rights. Because individuals are both production and consumption entities, the balance between production and consumption can be maintained. Rather, the economic system does not work properly because the work as a production entity and the work as a consumption entity are separated. Economic entities build their spending and savings based on the income they earn. The work to balance this income, spending, and savings controls the economic system.
We must not forget that money is a means of distribution. Making money is just making money. It is just a process, a means. When making money becomes the goal, the original role of money, that is, the function of distribution, is lost. And money starts to hinder distribution. If the nature of money is not well understood, the market economy will not function properly.
Money symbolizes exchange value, so it does not function properly when separated from the act of exchange. Money is a means to achieve distribution through exchange.
Consumers acquire money by providing some means of production. Consumers purchase goods from producers through spending. The core of the market economy is to maintain the consistency between production and consumption through this series of processes. If the relationship between income and spending is cut off, the function of adjusting supply and demand will not work properly.
The allocation of money prepares for payment. Part of the reserves forms stock. Stock becomes capital.
In a market economy, money has the nature of forming capital.
Total assets mean the total amount of stock in a country. Total output means the total amount of transactions, the total amount of flow. Total production means total income, total spending, and the added value of a country. And employee compensation means the income of a country’s citizens. The total amount of stock in a country continues to expand relative to the flow after the end of high growth, and the proportion of flow to stock fell to the 10% range due to the bubble after the Plaza Accord and has remained flat since then. The proportion of added value to flow rises, but the income of employees as a proportion of added value has remained flat since the oil shock. The rise in stock seems to push up the ratio of added value and pressure the flow.
What causes the economy to decline is the misallocation of resources. Especially, how to circulate money from the generation that has achieved some results and has surplus money to the generation that is in their prime and needs money. The economy is driven by how to lend from surplus entities to deficit entities.
Finance is a matter of distribution. Increasing public investment increases the debt of the general government, resulting in an increase in the allocation to the general government.
In the economy, production, profitability, growth, supply and demand, prices, and consumption are often considered problems, while the function of distribution tends to be neglected. However, many economic problems are caused by distribution. Growth and profit have become goals rather than results.
The original role of the economy is to procure or produce the resources necessary for all people to live and distribute them to those who need them, the consumers. The economy does not function unless it not only procures and produces the necessary resources but also distributes enough resources to all people to live. Necessity is consumption. The biggest problem for the economy is distribution.
If we forget this point and pursue only production efficiency, proper distribution becomes impossible, and the economy cannot function. The fact that employment and unemployment issues develop into serious social problems beyond economic problems is evidence that the economy depends on distribution. The higher the production efficiency, the more production increases. However, the efficiency of distribution temporarily decreases. This is because distribution is based on human work. In a market economy, the criterion for distribution is not necessity but work and the result of work. This is because distribution is closely related to production. What is meant by work here? The first is work by human labor. The second is work by rights such as ownership. This includes dividends and interest. The third is public work such as subsidies and grants. The fourth is work by finance such as deposits and loans. The fifth is work by transactions such as sales. Also, prices in a market economy are created by demand. What creates that demand? It is created by necessity and income. Demand is not created only by necessity (desire). It is not created without financial backing. That is the biggest problem.
Distribution arose in the process of separating production and consumption. In the past, the places of production and consumption were integrated. As social division of labor progressed, production and consumption separated. And in the form of connecting them, workplaces and markets were formed, and families as places of consumption were established. The places of production and consumption are borne by the community. The community is an organization. Each has its own code of conduct.
The algorithm of distribution is fundamentally different from other algorithms. The algorithm of distribution is ideological. In other words, the algorithm of distribution embodies the ideology of the economy. What criteria, what system, and what mechanism to distribute production goods are extremely ideological. Some argue that added value must be increased along with improving productivity. This leads to demanding high skills, knowledge, and abilities from all citizens and workers. However, each person’s abilities and skills have individuality, suitability, and limits. It is impossible to demand skills, knowledge, and abilities like those of system engineers, airplane pilots, or mathematicians from all citizens. Some people are suited for simple labor. Those with a so-called progressive mindset sometimes have an ability supremacist attitude and tend not to recognize those with inferior abilities.
Creating jobs that are rewarding, a sense of purpose in life, and workplaces where even people who are clumsy, serious, and honest but have no special skills can take pride is an important role of the economic system. Most people are not geniuses, nor can they become star athletes. Clumsy, shabby, ugly, and full of flaws, but everyone has the right to live humanely and the right to work with pride. Indeed, I may be one of the many, but I was born as a human. The economic system must be useful for ordinary, average people. Otherwise, the economic system would not function from the beginning. This is because the economy is an activity for living, and the economy is a system to keep everyone alive.
The market is a place of distribution, established in the process of separating the places of production and consumption. Therefore, the market has a bridging character between production and consumption, combining the characteristics of production and consumption, or gradually changing from production to consumption.
The process of distribution starts from the place of production and gradually turns to the place of consumption. Intermediate investment and intermediate consumption occur in the process of distribution. The roles of this intermediate investment and intermediate consumption are important.
Individuals provide their labor as a means of production to the production entity, earn income, and spend on consumption. Spending is returned to the revenue of the means of production. This creates the circulation of money. If money does not circulate smoothly, the economic system does not function properly. In other words, if the results of labor, income, and living expenses are not balanced, the economic system does not function. The most destabilizing factors for the economic system are bias and imbalance. Correcting this is the role of the general government and finance.
If production efficiency is measured solely by price, the efficiency of distribution may be impaired. As the market matures and goods become commoditized, the economy rapidly slows down, and economic vitality is lost because the market is forgotten as a place of distribution, and proper revenue cannot be maintained due to price competition.
The flow of money is like a great river flowing into the market. The flow itself enriches the market. If this flow dries up, the market becomes like a desert.
From the perspective of distribution, the development of the internet may fundamentally change the way distribution is done. The development of the internet directly connects producers and consumers. The internet brings producers and consumers closer together, eliminating intermediate processes.
Another important point is that spending on the internet is not a reward for labor but a payment for tangible and intangible facilities such as communication networks and systems. Especially, spending on systems, which are intangible assets, in other words, costs. In other words, it is not a reward for labor but a payment for assets, stock. Therefore, it does not reflect income, that is, flow. This weakens the function of distribution.
A typical example is a subscription. A subscription is a method of paying a fee for a certain period of use rather than paying for the product each time. Such a fee system fixes spending and acts like a kind of tax. In other words, it becomes a factor that pressures disposable income. Also, since it is a fee like a usage fee for facilities rather than a reward for labor or goods, it is not reflected in income.
For example, corporate value is measured not by revenue or profit and loss but by market capitalization and systems, which are intangible assets, stock. As a result, there is a tendency for funds that are not reflected in the flow to proliferate. This is related to the fact that the bubble was caused not by income gain but by capital gain. If we think centered on capital gain, the price itself becomes meaningless. This means that the market economy has become dysfunctional.
Even if the intermediate process is eliminated and prices are lowered, the fundamentals of production entities, distribution entities, and consumption entities have not changed. Only the intermediate process is eliminated, and the market is compressed. Because the market is compressed, added value does not increase. In other words, it does not contribute to economic growth. This also applies to discount stores that eliminate SPA, wholesalers, and intermediaries. There is a danger that wealth will be unevenly distributed to specific vested interests.
When the function of distribution does not work, problems such as the uneven distribution of wealth and the widening of disparities are likely to occur. The internet creates new classes of haves and have-nots, creating a class gap between those who have and those who do not. How to bridge this gap becomes a new challenge for the market economy.
How production entities are involved in distribution and how consumption is communicated to production entities becomes important. One of the means for this is the market, money, and price. When proper prices cannot be maintained, the market collapses.
In recent years, many people mistakenly believe that the market is a place to make a profit. Profit is just an indicator for distribution. Also, it changes depending on the definition and relationship between revenue and cost. It is relative and not absolute. The purpose of the market is distribution, and it is to exchange goods and money through market transactions and distribute them. For this, it is necessary to allocate money as payment preparation in advance. The problem is how to allocate money and by what criteria. If we forget this, we may fall into mere money-making or be trapped by sales supremacy and profit supremacy.
The problem is the proper price where revenue and cost balance. Costs converge to labor costs. In other words, it is ultimately reflected in income.
We must not forget that the market is a place of distribution. And we must not forget that distribution requires allocating funds as payment preparation before procuring goods in the market. Fairness is not in the market but in the stage of acquiring money, that is, in the stage of earning income.
The Purpose and Role of Distribution
If production is about manufacturing or procuring the resources necessary for living, then the purpose of distribution is to allocate these necessary resources to all citizens. Once the allocation of necessary resources for living is achieved, the secondary purpose becomes supplying the goods that people desire. In an organization like the military, where the purpose is clear and organizational efficiency is pursued to the extreme, the clothing worn is standardized to uniforms. The minimum necessary clothing for the military is the uniform. In contrast, people’s preferences are diverse, and clothing always follows trends. In other words, the core part is required by function, but people’s desires are based on individual preferences. Preferences for clothing reflect a person’s ideology. Clothing is a means of self-expression.
The ultimate goal of the economy is self-realization. Simply fulfilling needs does not complete it. Once needs are satisfied, people seek to realize their preferences.
The resources necessary for one person to live are limited and almost constant. The total amount of resources needed for people to live is finite and is calculated by the product of per capita consumption and population. If both consumption and population are finite, there is a limit to quantitative expansion. This is the basic premise. In other words, the physical market size is finite. Therefore, economic phenomena after the physical market matures are mainly caused by the circulation of money. The main purpose of economic policy is how to circulate money evenly in the market.
Distribution, in other words, is about shares. That is why it is difficult. Moreover, shares must be allocated according to the work of each department. The nature and work of departments are different, making it difficult. Shares and portions are the roots of disputes. There is no distribution standard that can satisfy all people. Rather, it is better to think that no matter what standard is followed for distribution, not everyone will be satisfied. Therefore, objectivity is required in the distribution standard.
What is important in the economy is how to distribute the produced or procured goods to the people who need them, at the necessary time, in the necessary amount, and evenly to all citizens.
For this, money must be distributed to every corner of society. Also, fresh funds need to be continuously supplied. The system for this is the distribution system, and the foundation for it is the algorithm of distribution.
From this perspective, the algorithm for production and the algorithm for distribution are clearly different. First, the basics are different. The premises are different, and the purposes are different. Therefore, the fundamental indicators are different.
The indicators emphasized for distribution include the unemployment rate, average wage, dispersion, minimum wage, prices, labor distribution rate, labor population, working-age population rate, population composition, and fundamentally, labor conditions, income, evaluation methods, fairness, and market environment.
It is wrong to view production and distribution as mutually exclusive or opposing. This is because production and distribution are two sides of the same coin. If the produced goods do not sell, the production entity cannot sustain itself, and if income increases but goods are insufficient, it only leads to price inflation. The economy is sustained by the interaction between production and distribution. It is not about cost or profit. It is important to determine how much revenue to generate to balance both and how to set prices for that purpose. However, it should be noted that the standards for production and distribution are independent, and if balance is not maintained, the entire system will not function properly.
Actual distribution is carried out by revenue and cost, not profit. Profit is an indicator to measure the balance between revenue and cost. Distribution is carried out based on the revenue from selling the produced goods and the cost.
The key to the economy is distribution.
The current economy is not functioning well because the profitability of private companies has declined. The market economy is an economy centered on revenue. In other words, money is circulated in the market by the power of revenue and cost. The reason private companies have lost profitability is that price destruction has deprived them of price-setting authority. If profitability declines, companies must thoroughly reduce expenses. Consequently, labor costs have been driven out of the production department, and this is extending to the distribution department.
Cost is the key to the economy.
The weakening of the manufacturing industry is partly due to the production department losing price-setting authority. If prices cannot be maintained, the only way to secure profit is to reduce costs and mass-produce and mass-sell. Among cost reductions, fixed costs are particularly important. The most targeted for fixed cost reduction is labor costs because depreciation costs from capital investment are fixed at the time of investment. In the past, the production department was given means to maintain prices through fixed-price sales. However, price destruction occurred under the guise of deregulation and free competition, and the production department lost price-setting authority. Consequently, price destruction occurred, and thorough cost reduction was required to maintain profit. In this process, the personal part of rewards was cut off, and automation was pushed forward. As a result, humans were eliminated from the production department, and this is extending to the distribution department. Modern experts equate customerism with low prices and cheap sales. For them, cost is nothing but evil. Consequently, the system for distributing money has become dysfunctional. In the past, when the market was devastated by price wars, the market was nurtured through business alliances and recession cartels.
Distribution is the key to the economy. Cost plays an important role in distribution. Modern people see cost as an enemy, but excessive cost reduction hinders the function of distribution. Whether the cost is appropriate or not is determined by its relationship with revenue. The indicator is profit. Cost is reflected in price. Price is reflected in revenue. If appropriate prices are not maintained, appropriate costs cannot be maintained. Therefore, revenue (sales) holds the key. Whether the price is appropriate or not is determined by the relationship between revenue and cost. This is because revenue is sales, and sales are the aggregation of unit prices. Unit price refers to unit price. Simply being cheap ignores the utility of the economy.
From the perspective of distribution, a company that generates 100 million yen in profit with 100 people is more efficient than a company that generates 100 million yen in profit with 10,000 people. Therefore, economic efficiency cannot be measured simply by profit margin.
Many people misunderstand that the economy is about generating revenue and making a profit. The economy is about producing the goods necessary for living and distributing them to consumers. If the purpose of the economy is profit, then it would mean reducing costs as much as possible. However, most of the cost is labor costs. If the purpose is to reduce labor costs to the extreme, individual income will inevitably shrink. This means a reduction in total income for society as a whole.
We must not forget that the economy is not just about producing goods. The economy does not function unless human income is established in opposition. Human income needs to balance with expenditure. If expenditure exceeds income, loans, that is, stock, become excessive. Loans generate surplus money and hinder the normal circulation of money. Prices and employment are the two wheels of the economy. We must not misunderstand that the majority of people in the world are ordinary people. Some have physical disabilities. They are not geniuses, nor do they have special skills or exceptional talents. They are rather incompetent and full of flaws. The role of the economic system is to ensure that such people can earn an income that allows them to live without difficulty. If future technological innovations take jobs away from ordinary and incompetent people, the economy will surely decline. That is how the system is structured. If simple labor is neglected, the economy will not function. Work and labor are not drudgery. They are a means of self-realization. Living a life of leisure is empty because it lacks purpose and does not benefit others.
Even if work is mechanized and production can be done with half the effort, it does not mean double the income. Rather, the reduced cost is often used to lower prices. If income does not increase, added value does not increase. If added value does not increase, the market does not expand, and growth does not occur. So, should we not improve productivity? That would not achieve material wealth. Even if production increases, if income does not change, economic growth will not be realized. The issue is how to balance production and distribution. The media praises discount retailers as allies of consumers, but consumers are also producers. If consumers’ real income decreases, no matter how much they are offered discounts, their standard of living will not improve.
The systems for production and distribution are different. Their purposes are different. However, because they are linked, unity is required. The distribution system assumes a country with 70 million citizens, of which 20 million are under 20 years old and 10 million are over 60 years old. Assuming an equal gender ratio, the resources needed to produce the resources necessary for citizens to live can be produced by 10 million people. However, the labor results required for consumption are excluded. In a market economy, all produced goods are converted into money, and citizens earn income and procure necessary goods from the market by paying money. In other words, if 10 million people produce the resources necessary for 70 million people to live, the issue is how to distribute them. The working population is 40 million, excluding minors and those over 60 years old. In the past, a group of about seven blood relatives formed an economic unit called a household, and one man worked to support the other seven. This basic structure raised the relative status of working men, and in the household, everyone else was subordinate to the master. 20 million women were deprived of the opportunity to earn income. Furthermore, since only 10 million people could earn income, 10 million men were also left without work. Therefore, 10 million new jobs had to be created. Many of these jobs were created by power. The core of power is public security and national defense. The modern problem is that increased productivity has reduced the population needed to produce the resources necessary for living. The higher the productivity, the more unemployed people there are. The biggest challenge is how to distribute money to the unemployed. In contrast, the production department is focused on how to streamline and reduce costs. In the past, the challenge was a shortage of labor to maintain the population. The modern problem is the lack of jobs due to improved productivity. The nature of economic problems has changed. The biggest economic issue is how to align and maintain the structure of production and distribution.
The fact that the economy is a distribution system can be seen from this point. The difficulty of distribution lies in the fact that it cannot be simply equated to compensation for labor. Distribution has few objective grounds like market transactions. Much of it is arbitrary. Distribution involves functions such as rewards, compensation, evaluation, and sources of living expenses. Rewards mean income and regular income, compensation means costs for goods, evaluation means self-realization and motivation, and serves as the basis for motivation and incentives. Additionally, there are parts based on personal attributes as living expenses. Living expenses include the preconditions of each region. These functions form the basis of the salary system and salary structure. Rewards constitute the basic part of the salary, compensation is reflected as additional costs such as overtime and allowances, evaluation is reflected in bonuses and salary increases, and living expenses are paid as personal allowances. Rewards constitute the period of the salary. Costs are measured by their relationship with revenue. Evaluation is based on results and achievements. However, distribution should not be measured only by results, achievements, and time. This is because there are individual differences in preconditions, and the original purpose of distribution is to provide the necessary resources to the people who need them at the necessary time. Income disparity hinders the purpose of distribution. Therefore, income redistribution by state power is necessary.
The biggest obstacle to aligning the systems of production and distribution is the inconsistency between the logic of production and the logic of distribution. From the production side, labor costs are merely costs, from the consumption side, they are living expenses, and from the distribution side, they are income. The economic entity is established by the mutual restraint of these three functions. The logic of production is the pursuit of profit, while the logic of distribution is about living. Therefore, the evaluation of work combines the evaluation of contribution and performance with the evaluation of personal parts such as age and family composition. If the evaluation criteria are not agreed upon by the members of the organization, it becomes difficult to control the organization, and in the worst case, the organization may disintegrate.
The biggest problem in distribution is that rewards are organized. However, for some reason, this point is neglected, and the market is the only focus. The problem is not generating revenue but the lack of proper distribution. And this is an evaluation issue. In other words, the biggest problem in the economy is evaluation and treatment. If the method and criteria of evaluation are wrong, extreme disparities arise. This can be seen in the world of professional sports. Professional sports have always struggled with evaluation and reward issues. The biggest challenge in the economy is how to link results, economic effects, and individual evaluations.
The Premises and Initial Settings of Distribution
Distribution occurs in two stages. In the first stage, money, or income, is distributed according to work. In the second stage, goods are purchased from the market, completing the distribution of goods. In the first stage, the consumer entity earns income, and in the second stage, they purchase goods through expenditure.
The economy is influenced by purchasing power, which reflects the state of the economy. Purchasing power is determined by the relationship between income and prices. In other words, the state of the economy is defined by the levels of income and prices. These levels are not uniform and vary by market. Multiple markets overlap and combine to form the overall market. Each constituent market operates according to its unique structure and rules. The international market is formed by the combination of national and regional markets, each with its own income and price levels. Exchange rates also fluctuate, affecting the value between currencies. Emerging countries have relatively lower income and price levels compared to developed countries, which promotes economic growth. However, as economic growth progresses, the income and price levels in these countries approach those of developed countries, leading to a slowdown in their economic growth. It is impossible to predict economic trends without considering the relationship between income and prices.
The initial setting for monetary distribution assumes zero possession of money. Therefore, distribution begins with earning or procuring money.
Without money, nothing can be obtained, and in the worst case, one may starve to death. In a free economy, nothing can be done without money, not even living. Thus, possessing money as payment preparation is a fundamental premise for distribution. Without money, one must either borrow, receive, or sell assets. Since one cannot live without money, it becomes the primary cause of crime in modern society.
When the market is saturated, no matter how much surplus capital exists, substantial growth cannot be expected. If the market is saturated and only money is in excess, the real value and nominal value diverge, making it difficult to control the value of money. The housing market is a prime example. Housing prices deviate from actual demand and become speculative targets, leading to bubbles. The problem is that capital becomes an outlet for surplus funds, increasing value in areas unrelated to actual demand. This prevents capital from fulfilling its original role of building production means. How surplus money is managed affects economic stability. Additionally, when the market is saturated, private capital demand inevitably decreases, increasing the fiscal burden as money no longer flows into the real market. The decline in actual demand leads to reduced employment, severing the relationship between work and income. Increasing public investment to create jobs results in a fiscal burden. Public investment does not generate added value unless it leads to expanded reproduction. Aging further weakens the relationship between work and income, increasing the fiscal burden. The flow of money without productivity does not generate added value. Surplus money accumulates in stock, pressuring added value and leading to low interest rates.
In a market economy, distribution begins with the allocation of money, which is then used to purchase necessary goods from the market. The essence of distribution lies in how money is allocated. The actual distribution is carried out by mechanisms and systems that distribute money, with the market serving as the place where distribution is realized. Therefore, the economy hinges on the relationship between income and prices, which are determined by supply and demand. The essence of distribution is based on the criteria and methods of allocating money, which form the core of the economic system.
The economic system is defined not by production methods but by distribution methods. In a market economy, the method of distributing money plays a decisive role in the economic system. For example, there are methods of distributing money according to certain standards, regardless of work, commonly seen in socialist countries. There are also systems that distribute production without using money, as seen in communal living. These systems are typically on a small scale rather than at the national level. Some societies operate on barter systems. In any case, the method of distribution shapes the economy of that society. If income cannot cover living expenses, public institutions may take on the role of distribution through subsidies. In countries with well-established social welfare systems, income redistribution occurs through subsidies and pensions. The issue is whether income can cover living expenses. As Japan faces an aging population, pensioners may become the majority, raising questions about the sustainability of the current free-market economy.
Distribution is directed at consumption units, which are typically families or households. Each consumption unit must have at least one income earner. Consumption units form households.
The premise of distribution is that all consumption units have the minimum payment preparation necessary for living. Consumption follows cycles, and sufficient funds must be continuously supplied to match these cycles.
There are organizational and market-based means of distribution, both mediated by money. Therefore, the prerequisites for a market economy are the existence of organizations, markets, and money.
Organizational and market-based means of distribution differ in standards and methods. Organizational distribution is arbitrary, based on evaluation, while market-based distribution is selective, based on transactions. Organizational distribution is arbitrary, based on the evaluation of contributions to production.
Market-based distribution is realized through transactions between two entities. In the market, distribution cannot occur without buyers and sellers. The relationship between buyers and sellers forms external transactions and is symmetrical.
For money to function as a transaction tool, monetary and credit systems must be in place. This is a necessary condition.
Transactions require supply and demand.
In a market economy, the distribution of money is primarily handled by production entities, including private companies, government agencies, and individual business owners. Production entities produce goods, sell them to earn revenue, and pay costs from this revenue to achieve distribution. Thus, distribution is managed by revenue and costs, with profit as the indicator of balance. Production is measured by income, costs, and profit, while distribution is measured by employment, income levels and ranges, dispersion, price levels, supply and demand, and market conditions. The source of income is costs, which are derived from revenue. Excessive pursuit of profit pressures costs, reducing income.
Distribution is realized by maintaining appropriate revenue and costs. The essence of costs is labor costs and income. The economic reality is reflected in income and prices, with purchasing power determined by their relationship.
The modern issue is the relentless cost reduction driven by profit supremacy. Profit is an indicator, not a goal. The function of distribution lies in the relationship between revenue and costs, with profit as the indicator. The key is maintaining appropriate revenue and costs.
Extreme cost reduction leads to automation, weakening the relationship between production and income. Insufficient income from work makes it difficult to sustain livelihoods, leading to reliance on government subsidies and social security. If livelihoods cannot be sustained by work, the distribution of a fixed amount of money, regardless of work, must be considered.
Costs are not unnecessary expenditures. They represent revenue, income, living expenses, and income sources. Forgetting this undermines the economy. The source of people’s livelihoods is income, which translates to costs.
Automation risks creating extreme disparities, leading to class stratification. Extreme disparities distort the function of distribution, which relies on dispersion and range. Income must be distributed within a certain range for distribution to function. Widening disparities disrupt this range, reducing the efficiency of money. Extreme wealth coexists with extreme poverty, as seen in the poorest countries. This disrupts the normal functioning of the economy. Wealth is relative and achieved through sharing.
Separating production and distribution leads to socialism and potentially the end of the market economy.
Distribution begins with earning money. Without income, livelihoods cannot be sustained. People tend to forget this while pursuing efficiency, automation, and unmanned systems, without considering how to compensate for lost jobs. The primary goal of the economy is to sustain people’s livelihoods. To achieve this, money must be distributed to all citizens, ensuring a minimum standard of living for everyone. Continued automation in production will sever the relationship between production and distribution, leading to the end of the market economy and a shift towards socialism. Money will have to be distributed regardless of work.
Even if money is distributed equally, individual differences in spending will create disparities over time. The idea of setting expiration dates on money may arise. However, the relationship between income and labor is complex, intertwined with production, consumption, supply and demand, labor and distribution, evaluation, and income. Equal distribution of money is not a simple solution. Equal distribution does not guarantee equality due to varying conditions, such as costs for clothing and housing in different climates.
The pitfall of the internet society is the weakening of the distribution function by directly connecting production and consumption. Some envision a rosy society where humans are excluded from production, but how will they distribute money to people? The mistaken belief that labor is suffering underlies this. While freeing humans from drudgery is correct, denying work itself leaves no place for humans. Unemployed people surrounding automated shopping streets is not a desirable economic system. Many IT companies aim for IPOs and M&As, earning high capital gains despite operating losses and low wages with poor retention rates. This risks reviving the capitalist-worker divide.
The economy balances labor and distribution, evaluation and income (rewards), production and consumption, supply and demand, income and expenditure, revenue and costs, flow and stock. Labor and distribution are balanced by evaluation and income. Distribution is sustained by reflecting labor evaluation in income. Income forms household revenue and consumption, with production behind consumption. Consumption and production form supply and demand. Disrupting the labor-distribution relationship destabilizes income and related relationships. Thus, labor and distribution have been the economic foundation, converging in income and prices. Prices are determined by supply-demand dynamics, with demand affecting consumption and supply affecting production. Income constrains dispersion and range. Without a stable income range, people struggle to sustain livelihoods. Severing labor-distribution and evaluation-reward relationships risks collapsing the economic structure.
A society without distribution functions is inhumane. People have sustained livelihoods through income. Losing income from work disrupts livelihoods, making the economy inhumane. The economic process is crucial. Flowing rivers nourish surrounding areas, while their absence leads to desertification. An economy without processes dries up. Modern society risks desertification by denying distribution processes.
The economy consists of opposing functions: selling and buying, lending and borrowing, income and expenditure, receiving and giving. Distribution is determined by evaluation criteria. Whether the basis is living wages, labor costs, age, ability, experience, knowledge, skills, or family attributes, labor costs are mere expenses. Pursuing profit and viewing rewards as costs means measuring rewards by cost-effectiveness. In times of rapid technological innovation, cost-effectiveness favors the young. Considering rewards as living wages burdens child-rearing generations. Prioritizing seniority raises income, increasing average age and cumulative labor costs. Growth periods offset rising costs with revenue, but stagnation prevents this, necessitating changes in employment forms. Japan’s end of high growth saw the collapse of lifetime employment and seniority-based systems, leading to reliance on irregular employment. As markets mature, employment forms and distribution methods change. Misreading this change leads to significant errors by states and companies, as distribution functions transform.
People’s lives are day-to-day. Farmers work as long as they can, as do skilled craftsmen. However, salaried workers restricted by retirement lose distribution means. Technological innovation reduces the need for skilled workers. Previously, losing a job allowed starting a business, but today’s market dominance by companies limits this.
The economy has reduced human relationships and human-object relationships to money relationships.
Distribution standards are ideological. The saying “hardships can be shared, but glory and disgrace cannot” reflects this. Distribution of results reveals one’s ideology and humanity. Ideology determines shares. Ideology sets the significance and purpose of distribution. Whether to distribute equally, the same items, or the same amount of money for individual use involves ideology. The basis, whether work, contribution, sales, status, authority, or education, is ideological. This must be clarified at the founding stage, which is constitutionalism.
Socialism and communism involve public power controlling distribution entities, limiting freedom in setting distribution standards and systems. In socialist or communist systems, production entities cannot freely distribute their products. Distribution in a free economy is contract-based. Free-market economies are contract-based, with taxes as the foundation of social contracts. Taxation is both a duty and a right.
Free-market systems require declaration, securing national consensus and guaranteeing rights and duties. Free-market systems assume economically independent entities, meaning management without reliance on public power, independent of state power, and based on private institutions. Free-market systems allow any organization, provided they raise their own capital, emphasizing the importance of foundational ideology. Whether meritocracy, seniority, or communalism, free-market systems allow constructing distribution bases and systems within constitutional limits. Capitalism integrates production and distribution entities, with corporate enterprises as self-capitalized entities independent of public power.
Free-market economies are contract-based. Nation-states are contract societies, making documents, contracts, and certificates crucial in market economies. Nation-states are based on the rule of law, with laws established through procedures. Thus, procedures are paramount in free-market economies. Market economies require law, procedures, and certificates. Currency and stock certificates are representative, with currency as an extension of promissory notes, reflecting their nature and generating debts and credits. Currency is based on trust.
Market economies require distributing money and goods to ensure minimum living standards for all citizens, a national responsibility. Not everyone earns income, with some outside production entities. Thus, consumption units are households, with heads responsible for household members’ livelihoods. Children, the elderly, the sick, and those unable to earn income independently require designated guardians. Governments must support households unable to secure necessary funds, providing subsidies funded by taxes.
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Distribution Entities
In a market economy, the entities responsible for distribution are integrated with the entities responsible for production. Production entities must be evaluated not only for their production efficiency but also for their distribution efficiency. For example, a production entity that generates 100 million yen in profit with 100 people is more efficient in production than one that generates the same profit with 10,000 people, but it is less efficient in distribution. In a market economy, combining production and distribution within a single economic entity prevents imbalances between production and distribution. Misunderstanding this and focusing solely on production efficiency can lead to imbalances in the entire economic system.
For the overall market, moderate dispersion is important. Extreme concentration causes imbalances.
In a free-market economy, production entities also serve as distribution entities, systematically distributing money according to work. In the future, there may be a system where distribution entities are separated from production entities and handled by public institutions like the government. However, currently, the system integrates production and distribution entities. In such a system, at least one member of the consumer entity must belong to the production entity in some form. In a market economy, distribution occurs in two stages: systematically distributing money and using the distributed money to purchase necessary goods from the market. Converting to money standardizes monetary value, and purchasing from the market maintains diversity. Additionally, the market allows for production adjustments based on supply and demand, ensuring appropriate economic value.
The integration of production and distribution entities means that income and costs are two sides of the same coin. From the production entity’s perspective, income is a cost, while from the distribution entity’s perspective, income is a reward. From the household’s perspective, income is a living expense. Thus, income functions differently in each context. Without such income, nothing can be obtained in modern society, and one cannot even live without money.
The distribution of money is systematically conducted according to work, requiring a functional evaluation system.
The exchange of goods occurs in the market, where distribution is based on market prices.
Generally, people think the market controls everything in a market economy, but the market is only part of the economic system. Distribution is primarily managed by economic entities, i.e., organizations. Overemphasizing the market’s role obscures the reality of the market economy. The foundation of the distribution system lies in how money is distributed. The idea of separating the distribution system from the production system always exists in opposition to the modern economic system. This is the basis of communism and a controlled economy, aiming to eliminate economic fluctuations caused by inconsistencies between production and distribution by separating them. However, separating the production and distribution systems prevents linking production and consumption. Additionally, separating the systems raises the issue of distribution criteria. Without work-based criteria, maintaining motivation and ethics in work becomes difficult, leading to a significant decline in productivity, as demonstrated in communist systems. Separating the systems also disrupts the circulation of money in the market.
The key is maintaining the consistency between the production and distribution systems, which involves constructing an appropriate revenue structure and maintaining cost-effectiveness. The issue is the conflicting relationship between production efficiency and distribution efficiency. Distribution constitutes expenditure and costs. Increasing productivity involves reducing costs, but this lowers distribution efficiency. Consequently, increasing production efficiency lowers distribution efficiency. Labor costs, the most significant expense, have fixed and increasing characteristics over time. Therefore, reducing labor costs is the most effective way to increase profit margins.
If production entities, such as companies, pursue profit alone, they will endlessly reduce labor costs, which are essentially income. Reducing labor costs decreases total income, resulting in fewer jobs and lower income. Companies’ pursuit of profit reduces jobs and total income, leading to decreased consumption, economic downturns, and pressure on company profits, creating a vicious cycle.
Thus, it is crucial to establish and maintain a market environment that ensures appropriate prices. This is why antitrust laws prohibit not only monopolies but also unfair low prices.
The logic of production and distribution operates on different dimensions, yet they share the same organizational structure. The solution lies in maintaining the consistency between the distribution and production systems and linking them to the consumption structure.
Economic entities have multiple functions, including production, distribution, consumption, and savings, each functioning differently in various contexts. The smallest unit of an economic entity is the individual, who collectively forms households as consumption units. The functions of production, distribution, consumption, and savings are realized through individual efforts.
Individuals provide labor as a means of production to production entities and earn income. They use the earned funds to procure resources from the market, sustaining their livelihoods. Thus, individuals are both workers and consumers, unifying these opposing roles. This is the essence of capitalism and the market economy.
Rewards are earned according to function, but work varies among individuals, influenced by factors like ability and age. Labor, representing work, is not uniform. The organizations that distribute money, i.e., income, and those for production are integrated. Sharing the organization maintains the consistency of the economic system by linking production and distribution. The issue is that production efficiency and distribution efficiency are not unified. Ignoring this and solely pursuing production efficiency disrupts distribution.
Labor unions have monitored the nature of economic entities from the distribution side, playing a significant role. However, if they simply oppose production and management, the consistency between production and distribution is lost, leading to extreme suggestions of separating the systems.
Separating the systems prevents distribution from bridging production and consumption. Excessive bias towards either production or consumption disrupts balance and control.
At such times, the framework of accounting becomes crucial. It is essential to remember that accounting is an artificial system centered on a profit structure based on revenue. Maintaining appropriate profits involves determining and maintaining appropriate revenue and costs, realized in the market.
Revenue handles nominal distribution, while costs handle actual distribution.
The Function of Distribution
Distribution is the key to the economy because the very purpose of the economy lies in distribution.
Integrating production and distribution entities allows direct linkage between distribution and consumption, balancing production and consumption through the relationship between revenue and costs. The balance between prices and income is achieved. Necessary produced goods become revenue. Output includes investment. Total production refers to the economic value produced in a unit period. Revenue is the market-recognized value of produced goods, which is converted into costs. Costs include necessary production expenses. Income decomposed by costs is further divided into disposable income by distribution entities. Disposable income is categorized into necessary consumption expenditure and consumption investment expenditure. Consumption expenditure is allocated to stock through fixed capital formation. Capturing the movement of long-term funds in stock is key to understanding the function of distribution. Long-term funds are only reflected in balances.
The economy does not function solely on production. No matter how much is produced, it is wasted if not distributed to consumers. The economic system only functions when produced goods are distributed to all consumers and citizens.
The principles of production and distribution differ, arising from their different purposes. Production seeks maximum utility with minimal resources, while distribution concerns the range, dispersion, and average of income. Income must meet necessary expenditure.
Costs are production expenses but also play roles in distribution and consumption. Excessive cost reduction under the guise of increasing production efficiency shrinks income and reduces consumption. Constructing a market structure that realizes revenue capable of maintaining appropriate costs is essential, with profit as the indicator. Assuming continuous income growth leads to endless growth. Without learning to contract, the market economy must repeatedly face collapse and recovery. Income, as a cost, cannot rise without production expansion. Profit is the difference between revenue and costs. Forgetting this relationship undermines the current market economy.
Even typical individual businesses like cafes and bars are becoming corporatized and standardized, losing their individuality and diversity. Coffee in Tokyo, New York, and Shizuoka is standardized and uniform. If this is called a mature economy, I can only call it regression. The economy is inherently diverse, reflecting diverse consumers, markets, environments, and premises. Losing diversity makes the economy totalitarian and dictatorial.
Why are cafes, bars, and small restaurants becoming corporatized and uniform? The economic system is structured to homogenize the market. Markets focused solely on price and cost inevitably lose diversity, prioritizing quantity over quality. Mass production and consumption bias naturally neglect quality. Even small businesses like bars and cafes struggle with rising labor costs, losing competitiveness over time. Emerging countries lose competitiveness due to rising labor costs, and developed countries cannot compete with emerging countries for the same reason. As markets and economies mature, income inevitably rises relatively.
Minimum wages, labor conditions, and working hours are constrained by distribution considerations, varying by country, leading to market disparities and unfair competition. Thus, maintaining a fair market environment requires differentiating between countries through negotiations. Unprincipled, retaliatory, or targeted differentiation hinders healthy market development. A system based on mutual cooperation and international division of labor is necessary. Tariffs alone allow imbalanced and biased markets. Agreements must prevent exporting poverty and worsening labor conditions. Economic development or decline depends on policies adopted by each country.
In distribution, the range is crucial. Setting the minimum necessary income for living restricts the lower limit.
Assuming continuous income growth leads to endless growth. Without learning to contract, the market economy must repeatedly face collapse and recovery. The market circulates money through cycles of expansion and contraction. Income, as a cost, cannot rise without production expansion. Profit is the difference between revenue and costs. Forgetting this relationship undermines the current market economy. Viewing costs and debt as evil and seeking to eliminate them overlooks their essential roles. Costs and debt are crucial, serving as production means and distribution keys. Costs and income are two sides of the same coin.
Economic entities were once living communities, with undifferentiated production and consumption, and distribution was primarily organizational. Money was unnecessary within the community, and the monetary economy was underdeveloped. Organizational distribution was predominant within the community, a legacy seen in seniority-based and lifetime employment systems. The external community was an immoral space with distribution through transactions, while the internal community was a moral space with organizational standards. In companies, this is the evaluation system. Seniority-based pay systems increase salaries with age, but the highest financial needs occur during child-rearing. Seniority-based systems fail to reflect financial needs accurately, providing high income even after child-rearing. They also struggle to reflect achievements and accomplishments in salaries. Thus, as markets mature, these systems’ drawbacks become apparent, and they decline with the end of high growth.
A mature monetary economy demands balanced income and expenditure, i.e., necessary income when needed. The issue arises when one cannot work due to age or illness, and an aging society increases the number of non-working individuals.
When economic entities were living communities, the community cared for those who could no longer work. As the market economy permeated society, market rules invaded the community, leading to its collapse. Family and community bonds are weakening, with financial contracts even applied to marital relationships. The collapse of living communities raises the question of who will care for those who can no longer work. Public institutions and systems outside the community now take on this role, such as caregiving systems and facilities, which are inherently unethical. The ethics of filial piety are lost in this process.
The Mechanism of Distribution
Distribution must act as an intermediary between production and consumption, adjusting the two. The mechanism of distribution is formed with this purpose in mind. In a market economy, distribution occurs in two stages. First, money is distributed according to certain criteria, and then the distributed money is used to purchase the necessary goods from the market. Therefore, distribution consists of the mechanism that allocates money and the market where goods are obtained.
Primarily, the mechanism that leads distribution is the one that distributes money. The resources necessary for living must be distributed to all citizens. This is the fundamental premise. The mechanism responsible for this role is the one that distributes money. The workplace mainly handles the mechanism for distributing money, meaning money is allocated according to work. However, there are people who cannot work due to being too young, old age, or some disability. These people must also be allocated the necessary amount of money. In a market economy, one cannot live without money. This may create the illusion that money is everything, but money is a means, not an end. People do not live because of money; money is a means to live. Nevertheless, one cannot live without money. Therefore, even those who cannot work must be allocated the money necessary to obtain the minimum required resources.
In a nation-state, it is the state’s duty to ensure that citizens can maintain a minimum standard of living. This is because it is a nation-state and is stipulated in the constitution. Forgetting this means not understanding the significance of the constitution or the meaning of a nation-state.
The value of money lies in work, not in its physical value.
Distribution begins with the allocation to departments, followed by sorting into investments and regular expenditures. Allocation to individual departments is based on revenue, while allocation to regular expenditures is based on costs.
The entry point of distribution is the allocation of added value to each department, and the exit point is the market. The starting point is the distribution of added value among departments. Departments are formed by the periods during which money is distributed. Departments are formed by work. The ultimate goal of distribution in terms of added value is income. Income and costs are two sides of the same coin. In national economic accounts, added value includes operating surplus (profit), mixed income, employee compensation (costs), taxes on production and imports (indirect taxes), subsidies (deductions), and property income. This means distribution among departments.
Employee compensation, mixed income, and property income are allocated to households, operating surplus is allocated to non-financial corporate enterprises, and taxes on production and imports are allocated to the general government. Employee compensation, mixed income, and property income are allocated to households and further divided into consumption expenditure and savings. Operating surplus becomes capital movement and stock.
Next, expenditures are divided into investments, which function as long-term funds in the form of fixed assets, and regular expenditures, which function as costs. Expenditures from investments become capital transfers.
Operating surplus is derived from the relationship between revenue and costs. Mixed income and employee compensation are reflected in income. Revenue means nominal distribution, while costs mean actual distribution.
Revenue consists of the necessary goods produced, forming output. Total production refers to the economic utility created within a unit period. Economic utility is allocated to each department and ultimately consumed by the household and general government departments. Distribution is the process between production and consumption. Production involves manufacturing the goods necessary for national life, while consumption involves utilizing the produced goods in life. The process of distribution is necessary because producers and consumers are not the same entities. However, producers and consumers refer to work, meaning workers are both producers and consumers. Consumers have a broader meaning than producers, referring to the entire population, while workers refer to the labor population. Distribution is also the process of ensuring that production goods reach the entire population from production workers. Therefore, money is utilized. Money changes form according to stages and flows to every corner of the market. Hence, liquidity is emphasized for money. If liquidity is lost and money stops flowing, economic entities will cease to function.
Production entities are allocated money as revenue according to the economic utility they produce. Production entities distribute money as costs in the process of producing goods. Costs are paid based on the revenue earned. The surplus part is accumulated as net assets and forms fixed capital. Essentially, the market economy measures economic conditions by profit and loss within a unit period. However, profit does not have a physical entity. Profit is a differential account, with the entity in costs and the nominal in revenue.
The market economy is maintained by balancing revenue and costs within a unit period. The idea is that economic balance within a unit period leads to long-term balance. This means that if the balance within a unit period is not maintained, the economy cannot be sustained. Revenue and costs within a unit period refer to production and consumption, and balancing production and consumption within a unit period stabilizes the economy. The issue is goods that exert utility beyond a unit period. Depreciation was devised for such goods, representing the act of dividing the utility of goods over the depreciation period and converting it into costs. This made it possible to measure the economic effect within a unit period but also resulted in a divergence between the flow and function of money.
Investment is the idea of recovering invested funds over a certain period. Forgetting this diminishes the meaning of profit. Depreciation is a numerical process, and profit can be manipulated depending on how it is handled. This can lead to situations where profit is secured despite delayed fund recovery. Overdoing it disrupts the balance between flow and stock.
The reason for the increase in consumption tax (indirect tax) is the decline in corporate profitability, leading to decreased and unstable corporate revenue and income. Therefore, the weight of consumption tax, which does not rely on corporate profit or income, has increased. This is also reflected in the distribution phase. Indirect taxes are recorded in the distribution phase, income tax in the consumption phase, and inheritance tax as asset transfers.
The starting point of distribution is the criteria and mechanism by which money is distributed. In a monetary economy, the method and mechanism of distribution define the economic system. The market economy is inseparable from the monetary economy, but it is not the only system that follows the monetary economy. Communism and socialism also generally follow the monetary system. There have been systems that tried to deny the monetary system itself, but they all failed and reverted to the monetary economy. The monetary economy hinges on how money is distributed.
The economic system can be maintained by circulating money. However, circulating money is not the sole purpose of the economic system. Circulating money is a means, not an end. The question is how to maintain appropriate revenue. Maintaining appropriate revenue requires realizing appropriate prices.
Pursuing price competitiveness, production efficiency, deregulation, and low prices to please consumers does not maintain appropriate revenue. Economic downturns result from neglecting the functions of costs and prices.
Focusing solely on profit and pursuing production efficiency disrupts the balance between production, distribution, and consumption. When the economy matures and the market becomes saturated, it should shift from a quantity-based economy to a quality-based economy. Both production and consumption entities must remember that they are also distribution entities.
When production and income distribution are within the same organization, increasing production efficiency can sometimes lead to decreased distribution efficiency. Without mechanisms and regulations to maintain the consistency between production and distribution efficiency, the overall balance of the economic system is at risk.
The logic of production and distribution operates on different dimensions, yet they share the same organizational structure. The solution lies in maintaining the consistency between the distribution and production systems and linking them to the consumption structure.
Economic entities have multiple functions, including production, distribution, consumption, and savings, each functioning differently in various contexts.
The economic system consists of the whole and its parts. The economy is made up of several components. If the consistency between the whole and its parts is lost, the economy will not function properly. This applies not only to organizations but also to markets.
Markets are not made up of a single entity. Multiple markets combine or overlap to form a whole. Markets are not uniform spaces but have purposeful structures, with individual markets having independent functions and structures that combine to form the overall function. Economic policy must identify the functions, roles, trends, and conditions of individual markets and implement appropriate measures for each market.
Distribution is carried out by circulating money in the market. The market is a mechanism that distributes goods through the flow of money. The flow of money realizes the distribution of goods. The flow of money creates the flow of goods. Production goods flow in the opposite direction of money. In other words, if money flows, goods flow in the opposite direction. The market can be seen as a device for circulating money. The mechanism of the market economy hinges on how money is circulated. Therefore, the transfer of funds plays an important role.
The act of circulating money involves buying, selling, and transferring. Transfers include loans and gifts. Money circulates, and goods flow linearly.
Distribution is realized through market transactions. Market transactions are conducted through buying and selling, meaning the exchange of money and goods. Therefore, for market transactions to be realized, funds must be supplied to consumption units in advance. In other words, distribution is prepared by the allocation of money, i.e., income. Transfers are payment preparations. Money is supplied to the market through transactions, circulates, and exerts its effect. External transactions are based on the premise of equivalent exchange, and profit arises from internal transactions. Generally, transactions focus on the movement of money, often overlooking the flow of goods. This results in a lack of recognition of the bidirectional function.
The issue is the criteria, means, and executors of money distribution. Money is generally paid and distributed to consumption units as rewards.
The function of the distribution algorithm is to distribute income to all citizens within a certain range per capita. This range means the ability to purchase the necessary resources for living from the market. Therefore, the economy converges on the relationship between prices, the average and dispersion of personal income, and minimum income. Distribution is generally organized. It fundamentally differs from production, which is based on the market. Distribution is generally organized because it is based on the division of labor. Distribution cannot be uniform and equal because the environments and conditions of consumers, the targets of distribution, differ. Even if the same amount of income is distributed, disparities arise due to different premises. The living conditions of those in cold regions differ from those in warm regions. Additionally, people have different abilities and aptitudes. Ignoring these differences in distribution results in inequality. The issue is the extent of the differences. The economy operates on differences. Whether the differences are based on rational criteria determines equality. Differences themselves do not create inequality.
Distribution targets departments. Distribution to households includes employee compensation, distribution to corporate enterprises includes operating surplus and mixed income, and distribution to the general government includes taxes. Imbalances in the allocation of income and expenditure create surpluses or shortages of funds between departments. These surpluses or shortages accumulate in stock and influence the direction of flow.
It is important to note that operating surplus and mixed income are excluded from final consumption expenditure as intermediate consumption items.
The mechanism of distribution aims to achieve fair distribution while linking to the production process. Fair distribution is sought through fulfilling consumption, meaning achieving a certain standard of living while ensuring a minimum standard of living.
Means of Distribution
Money is the means of distribution. Distribution is realized through the flow of money. The flow, or movement, of money involves two functions: transfer and settlement. Transfer forms stock, while settlement constitutes flow. Stock functions as payment preparation, and settlement completes distribution.
The principle is to distribute according to work. If there are no workplaces, the means of distribution naturally become limited. Work is crucial in the economy.
There are flows of distribution for individuals, between economic entities, and between departments. The flow for individuals means the flow from income to consumption. The flow between economic entities is from producers to customers, and the flow of distribution between departments is the flow of loans and borrowings.
The basic principle of distribution is to allocate money as income according to work and purchase necessary goods from the market as needed. If that is the principle, then working is the means. Work is represented by labor, but labor is not everything. It applies to all means of production.
In a market economy system, the means of distribution include organizations and the market. In a market economy, distribution is realized in two stages: first, income is distributed, and then necessary goods are obtained from the market as needed.
Income is mainly distributed systematically by economic entities.
There are internal and external means of distribution. Internal distribution means systematic distribution, while external distribution means market transactions.
Many people tend to think that the means of distribution in a market economy are limited to the market. However, distribution occurs in two stages: the distribution of income and the purchase of goods. Income distribution is often systematic. In a capitalist system, it is common to formally disguise systematic means as salary income for tax purposes.
Generally, people mistakenly believe that market transactions are everything in a market economy, but in reality, much of the income is distributed systematically. The principle is that income distribution is systematic, and goods distribution is conducted through the market. Income distribution is systematic because it involves evaluation. In other words, differences are made in income distribution.
Economic entities are living communities. Living communities are non-monetary, moral spaces. The market exists outside the living community. It is a monetary, non-ethical space. The monetary, non-ethical space is also a free space. The community is an unfree space but also a place of comfort, home, and family. In a market economy, only the market is considered a problem. However, even under a market economy, income distribution is systematic and arbitrary. Therefore, the algorithm of distribution is ideological.
Economic entities are fundamentally communities and organizations. Families, companies, and governments are all organizational entities.
The functions of an organization include operational and management parts. The operational part involves production, sales, purchasing, inventory, and other direct business activities. In contrast, the management part involves indirect and ancillary activities such as cash handling, organizational control, planning, and equipment maintenance. These activities constitute costs.
Income is payment preparation. To realize distribution, money as payment preparation must be distributed in advance. Distribution is conducted in two stages: income is allocated, and necessary goods are obtained from the market within the range of the acquired income. Therefore, it is important to first distribute income evenly to consumption units.
First, preparing the means to earn income is a prerequisite for distribution.
The most effective means of earning income is providing labor as a means of production. In other words, getting a job.
The means by which households procure money is mainly income as compensation for labor. The National Tax Agency classifies income into ten types: salary income, interest income, dividend income, real estate income, business income, retirement income, forest income, capital gains, occasional income, and miscellaneous income. Salary income refers to compensation paid for labor. Since salary income is considered stable and fixed income, basic expenditures generally depend on it. Therefore, the core of distribution depends on salary income.
Once income is earned, necessary goods are purchased from the market.
Currently, even typical individual businesses like cafes and bars are becoming corporatized and standardized. Unique and diverse cafes, bars, and small restaurants have become standardized and uniform. Coffee in Tokyo, New York, and Shizuoka is standardized and uniform. If this is called a mature economy, I can only call it regression. The economy is inherently diverse because consumers, markets, environments, and premises are diverse. An economy that loses diversity becomes totalitarian and dictatorial. Why are cafes, bars, and small restaurants becoming corporatized and uniform? It is because the economic system is structured to homogenize the market. Markets focused solely on price and cost inevitably lose diversity, prioritizing quantity over quality. Mass production and consumption bias naturally neglect quality. Even small businesses like bars and cafes struggle with rising labor costs, losing competitiveness over time. Emerging countries lose competitiveness due to rising labor costs, and developed countries cannot compete with emerging countries for the same reason. As markets and economies mature, income inevitably rises relatively.
Even in businesses like cafes, increasing individual income requires expanding the number of stores. Stagnation or contraction is not allowed. However, there is a limit to expansion and growth because the actual market size is determined by people and goods, which are finite. Therefore, there are physical limits. Since people and goods are limited, the economy cannot grow indefinitely. Similarly, income cannot be expanded indefinitely. There are times when policies based on market contraction are necessary. When the market becomes saturated, a shift from quantity to quality is required. However, in today’s Japanese market, discounting is encouraged, and policies that promote competition are adopted. This makes it impossible to maintain appropriate revenue. The biggest cause of deflation is the inability to maintain appropriate revenue.
The problem is that advances in information and communication technology are changing the quality of labor, and this change in labor quality is altering the quality of systematic distribution. Previously, production was mainly organized by division of labor, but now network-based work centered on individuals is increasing. The progress of the internet is accelerating changes in the distribution mechanism. The internet is transforming workplace environments from closed, self-contained, vertical, hierarchical, and centralized organizations to open, connected, horizontal networks, and decentralized processing. These changes are altering the way income distribution is organized. Traditional organizations often operated on economies of scale, integrating production and distribution, but production and distribution mechanisms are now separating. Consequently, unemployment rates are rising, and labor-intensive industries are becoming unsustainable. Simple repetitive labor is declining, and more specialized skills and knowledge are increasingly required. High-value-added jobs are in demand. On the other hand, the development of AI is also displacing people from intellectual labor. Relying on private companies for income distribution is becoming unsustainable due to management rationalization.
These changes are altering the role of private companies, which were the main actors in systematic distribution. They are also forcing changes in the way individuals, who provided labor as a means of production and received compensation, operate. Additionally, as computer-based jobs increase, requiring less physical strength, women’s participation in society has advanced. These changes are inevitably altering the social environment and the relationships between individuals and companies, individuals and households, and individuals and the state. They are fundamentally changing the very nature of the distribution mechanism.
First Stage: Earning Income
Production focuses on goods, distribution centers on money, and consumption revolves around people.
The most primitive concept of distribution is the share. Initially, it was done directly without involving money. However, this was possible in an undifferentiated society where life was confined to a single family. In today’s highly socially divided world, this method is not realistic. Nowadays, money is generally used as a means of distribution.
First, money is distributed evenly to everyone as needed for living, and distribution is established by using the distributed money to procure necessary resources from the market. It is important to note that this is not a direct allocation of goods.
Money is the means of distribution, and the market is the place of distribution. The main actor in distribution is money. The first stage of distribution is to ensure that money is distributed evenly. Labor is an effective means of distributing money evenly. Therefore, it is believed that everyone should be given a job, even if it means creating some work. However, not all jobs are paid; some are unpaid, which is a challenge.
The first stage of distribution is the distribution of money.
Many people misunderstand the market economy, thinking that distribution is entirely based on market transactions. However, distribution is more often done systematically rather than solely through the market. Distribution begins with the allocation of money in the first stage. The distribution of money is more often done systematically than through the market. Many economic problems are related to the distribution of money.
Whether the market economy functions or not depends on how fairly and evenly money, which can obtain the necessary goods for living, is distributed. It is important to note that many economic problems arise during the distribution of money. The requirements for making distribution work properly include the unit of distribution (individual, household, family, company, institution, etc.), the purpose of acquiring money, the means of acquiring money, the amount of money circulating in the market (total and per unit), the range of distribution (spatial and institutional range where money circulates or is accepted), the target of distribution (what money is allocated to), the basis of distribution (what it is based on and for what), the criteria (what standards are used), the disparity (the degree of asset and income disparity), and the bias and uneven distribution (the uneven distribution of wealth).
In distribution, the unit is important. Units can be an individual, a household, a company, a country, or all of humanity. The economic system’s perspective changes depending on whether the unit is an individual, a group, an institution, or a whole. The liberal system is an economic system that mixes individuals as the basic unit with economic entities such as companies, governments, households, and the state as a whole. Therefore, the unit changes according to work. The units of economic entities can be broadly divided into units from the income side and units from the expenditure side. Units as economic entities include individual units, company units, department units, and national units.
Money is a means of distribution and a standard/measure. Therefore, some unit is necessary. However, the unit of money is different from physical units. The unit of money is a relative unit, influenced by the quantity of goods and people, and the relationships between countries, and is not constant.
The purpose of distribution is based on underlying ideology. Purposes include living expenses, rewards, costs (providing means of production), and income distribution. What is emphasized reflects the ideology towards the economy and influences the social system. Income distribution is essentially a requirement of the economic system. The market cannot function without income distribution. Income redistribution is an extension of income distribution. When analyzing the structure of distribution, it is necessary to clarify what, how, and based on what ideology income is earned. The economic system is constrained by the means of earning income. The purpose is the key to determining the means of income.
The purpose of acquiring money is to prepare for payment. The value of money is its exchange value, and its function is payment preparation. The purpose of preparing for payment is to purchase goods from the market, which means realizing distribution from a societal perspective. Therefore, the purpose of acquiring money, i.e., income, is to procure goods from the market. For individuals, the purpose of procuring goods from the market is to live and to receive compensation for labor, i.e., rewards. The purpose of companies is to earn revenue. The purpose of earning revenue is to obtain the funds to pay costs. Costs ultimately become income. In other words, costs ultimately hide the income that constitutes them. Labor costs represent income itself, while utility costs represent the costs incurred to produce utilities. Breaking down costs leads to someone’s income. In other words, costs are lumps of income. Revenue lies behind costs, and reversing revenue becomes costs. Whether something is considered a cost or revenue depends on the perspective. Revenue and costs are two sides of the same coin.
The primary purpose of purchasing goods from the market is to obtain the resources necessary for living. The secondary purpose is to receive compensation for providing means of production, which means exercising rights. Rewards are also a means of self-realization.
The role of companies is to sell production goods in the market to earn revenue and convert revenue into costs, i.e., income. Companies act as rectifiers in the economy, converting uncertain income into stable income. In other words, private companies smooth out the waves of cash flow. Therefore, cash flow is emphasized.
Private companies can continue operating as long as cash is circulating. In other words, companies are mechanisms that operate on money.
The means by which private companies increase cash include raising revenue, reducing costs, reducing non-cash assets, increasing capital, and increasing liabilities. Raising revenue and reducing costs mean increasing profit. These five means are actions to increase cash. Conversely, if these actions are reversed, cash decreases, and in the worst case, becomes insufficient, requiring some means of procurement. This applies not only to private companies but also to other economic entities, the general government, financial institutions, and households. This is considered the basic principle of economic activity.
The means of obtaining money include working to earn money as compensation, selling goods to earn money as compensation, lending some means of production to earn money as rent, and receiving money as rent for some rights. Means of production include people, goods, and money. People refer to labor, goods refer to land, equipment, and raw materials, and money refers to capital and financial assets. Other means include receiving money as taxes, grants, interest, borrowing money, and receiving money as gifts. Illegal means include looting and robbery, but these are not considered legitimate means and are not discussed here. Means are constrained by purpose.
The main means of distribution include systematic distribution as compensation for labor and distribution through the market. The problem is that many economic theories are biased towards one of these means.
In systematic distribution, the criteria and evaluation of distribution are important. Economic theories often ignore the impact of evaluation criteria on the economy, making existing economic theories unrealistic. The economy is a vivid reality. Evaluation is the criterion for making differences, reflecting the values of the time and society.
The balance of quantity, total and per unit, and per person is important because the market is the place of distribution, and price is the standard for distribution. The standard for distribution is based on ratios, assuming that goods, money, and people are finite. Goods and people are physically constrained, so there is no problem. The problem is money. The value of money is open-ended, requiring some constraints to prevent it from becoming limitless. In the past, gold was used as collateral, but now constraints are set by government bonds, currency issuance, and exchange rates. This is the managed currency system. The value of money (price) is a relative quantity determined by production volume, currency flow, and population. Supply and demand are determined by the quantity of people, goods, and money. Prices are indicators based on value, and inflation or deflation occurs when the balance of people, goods, and money is disrupted.
The range of distribution is finite. The range of distribution is the range where currency is accepted, both physically and institutionally.
The target of distribution is what money is paid for. The target of distribution is also connected to the basis of distribution. The targets of money payments include people, goods, and money. People refer to labor, and distribution targeting labor is wages or rewards. Goods refer to rights (ownership, etc.), and distribution targeting rights is rent, lease, or usage fees. Money refers to capital, and distribution targeting capital is interest. Distribution targeting goods or money is considered unearned income.
The basis of distribution includes time, necessity, utility, products, and added value (ability, experience, knowledge, qualifications).
The target of distributing money as rewards is workers. The target of receiving benefits is those who meet the qualifications for benefits. If it is rent for some rights, the target is the owner of the rights. The concept of ownership is a premise here.
Those who receive income hold absolute power, so they must be given fair rights. In the past, women had limited places to work for wages, and there was discrimination based on race or origin. Such discrimination distorts the structure of distribution. It is necessary to prevent discrimination based on gender, family background, religion, race, etc.
Wage distribution is systematic, so wage systems, evaluation criteria, and ideology are important. The wage system is a structural system.
The amount of wages is determined relatively, not just by the absolute amount.
The wage system is a historical product, reflecting family systems, values (gender discrimination, racial discrimination, class, etc.), political systems, employment systems, education, ideology, social conditions, religion (including Confucianism), and economic conditions of the time. The wage system does not exist independently but changes with the times.
The wage system also reflects ideas, perceptions, and ideologies about rewards. Ideas about rewards include compensation for work (evaluation), compensation for results, living expenses, allowances for personal attributes (family composition, age, etc.), evaluation of job roles, skills, knowledge, experience, working hours, risk, rarity (supply and demand for jobs, etc.), past achievements (retirement benefits, etc.), and blood relations.
It is said that Japan is currently transitioning from a seniority-based wage system to a job-based wage system. This transition is attributed to changes in the family system from extended families to nuclear families, changes in market environments from growth to maturity, women’s social advancement, declining birthrates and aging populations (changes in population composition), changes in employment systems, and changes in lifestyle and living standards. Underlying these changes is the accumulation of stock. Ignoring this point leads to misunderstanding the economic reality.
However, it is important to remember that the basic structure of income hides the necessities for living and the necessities for forming society.
It is said that the seniority-based, lifetime employment wage system was formed during the high-growth period. Although it is believed that the seniority-based, lifetime employment wage system is unique to Japan, it is not inherently Japanese and is a relatively new wage system formed after World War II. The background is a family-oriented, communal ideology. It is a male-centered, patriarchal, living wage, and personal wage system. The seniority-based wage system tends to emphasize past achievements, contributions, and human relationships, with elements of favoritism.
The concept of hourly wages was established in Japan with the enactment of the Labor Standards Act in the same year as the new Civil Code (“Salary Crisis” by Yasuhiro Hirayasu, Nikkei Premium Series).
The premise of seniority-based wages.
First, a Male-Centered Society.
There are no places for women to work. Politics is considered men’s work, and women are not granted the right to vote. Even today, the core parts are handled by men, and women tend to do auxiliary work.
Second, a World of Male Supremacy.
Men work outside, and women protect the home. The merit of domestic help. Housework (cleaning, laundry, cooking), childbirth and childcare, caregiving, and housekeeping, which were considered women’s work, have been despised and undervalued.
Third, the Patriarchal System.
Men become the head of the household, earn money, and support their wives, children, and grandparents. Women are not allowed economic independence and are placed in a situation where they cannot make a living without marriage, leading to social discrimination.
Fourth, the Basic Life Cycle of Being Single, Marriage, Childbirth, and Childcare.
The wage system is designed based on age. The wage design emphasizes the life cycle of marriage, childbirth, and childcare, and seniority status rather than work and achievements.
Fifth, the Concept of Living Wage as the Basis.
This is rooted in the fact that the entire country fell into a shortage of goods due to the defeat in the war, prioritizing living above all else. During the high-growth period, a middle-class consciousness existed, and there was a trend of not recognizing extreme disparities. The horizontal alignment consciousness. The dismantling of the zaibatsu and landlord class after the war also influenced this.
The background includes the transition from a rural-centered society to a corporate-centered society.
Seniority-based systems are collapsing. The causes include, first, the improvement of women’s status and social advancement. Third, the rationalization of housework, the decrease of full-time housewives, and the increase of dual-income households. Fourth, the increase of non-regular employees. Fifth, the shift from extended families to nuclear families. Sixth, the reduction in household size due to declining birthrates. The total fertility rate, which was 4 in the years after the war, settled at 2 in the 1970s (“Salary Crisis” by Yasuhiro Hirayasu, Nikkei Premium Series). Seventh, the increase of unmarried individuals. Eighth, the loss of seniority due to technological innovation. The decline in the importance of skill levels is significant. Ninth, the increase in the burden of retirement benefits. The incentive of seniority based on years of service and experience has weakened. Tenth, the innovation of information technology. The emergence of the network society. The standards of working styles have changed. Eleventh, changes in information technology have brought qualitative changes in labor. Simple repetitive labor has been mechanized. Twelfth, the enhancement of social security systems such as pensions and unemployment insurance. These have reduced the burden of housework.
The reason why the seniority-based wage system was established is that it suited the lifestyle of the high-growth period, where women got married, had children, and raised them, while men worked to earn living expenses. It also matched the price increases of the high-growth period. The wages of this era had a strong character as living wages and personal wages, and the generation raising children, who needed money the most, was designed to receive generous funds. However, as the high-growth period ended and the low-growth period began, disparities emerged, and gender discrimination became apparent. When age and years of service become evaluation criteria, disparities accumulate. Therefore, the burden of retirement benefits also became an issue. As a result, the number of regular employees was reduced, and temporary hires were increased.
Thus, the distribution structure changes significantly depending on the historical background and values.
In a seniority-based system, when the economy is growing, it can absorb the annually increasing labor costs. In a low-growth period, it gradually becomes unable to absorb labor costs, and the burden of retirement benefits increases.
Working after retirement is because there are no savings to match the repayment of debts.
When money is insufficient, people cannot purchase the goods necessary for living from the market. When money is insufficient, it is necessary to procure the shortfall in some way, and the main means is borrowing.
The background of increasing debt includes the decline in consumption (expenditure) and market contraction. The causes of declining consumption include population decline, changes in population composition, and changes in consumption structure. Furthermore, the transformation of the distribution mechanism and structure. The distribution structure includes evaluation systems and transaction mechanisms. The decisive factor is the change from a pyramid shape to an hourglass shape due to declining birthrates and aging populations.
When classifying the shape of the population pyramid, it can be divided into five types: pyramid shape (Mt. Fuji shape), bell shape, vase shape (spindle shape), star shape (urban shape), and hourglass shape (rural shape).
For distribution to function properly, the ratio of flow to stock is important.
In a cash-based system, the flow of loans and borrowings is visible. Debt repayment is clearly recognized as an expenditure. Therefore, if debt repayment exceeds income, it is felt as a real-life issue that life cannot be sustained. However, in a profit and loss-based system, interest is recognized, but debt repayment is not. As long as money is circulating, it is safe. However, sometimes the circulation of money worsens, leading to a shortage of funds.
When land prices are soaring, even if income and expenditure do not match, selling land can recover the cost. High profits can be obtained from rising land prices. However, once land prices fall, only debt remains. Selling land results in a loss, making it unsellable. Only debt remains. Moreover, the repayment of the principal of the debt is not visible. If repayment funds cannot be generated from profits, debt continues to expand. Understanding cannot be achieved by looking only at visible profits and losses. Debt repayment hinders capital investment.
Factors that hinder distribution include disparities and the uneven distribution of wealth. Disparities drive the economy, but when extreme, they worsen economic movement. Balance is crucial.
Second Stage
Distribution is completed by procuring goods from the market. Income is earned in advance as payment preparation for purchasing goods. If the payment amount exceeds income, savings are used or debts are incurred. In terms of supplementing income shortages, savings and debts function similarly. This is crucial. Savings and debts mean loans and borrowings.
The second stage of distribution is purchasing the necessary goods from the market. It is necessary to clarify and define what the market is, its role, and its functions. People think they understand the market, but they do not. Misunderstandings arise, such as competition being the principle of the market, because the role of the market is not understood. Competition is just one function of the market. If competition is viewed as absolute, the functions of the market become invisible. The market’s functions are not all about competition. Moreover, competition is not simple. The meaning of competition changes depending on what is considered competition and what is being competed for.
First, the market is a place of transactions. Second, the market is a place of distribution, a place of exchange. Third, the market is a place to adjust supply and demand, which means it is also a place to adjust production and consumption. Fourth, the market is a place to earn money, a place to make a profit.
Many market fundamentalists claim that the market economy is absolute, yet they do not clarify anything about the market and argue that it is fine to leave everything to the market. However, when the economy does not function well, they blame everything on the market. To control the market, it is necessary to clarify the market’s mechanisms.
There is no panacea for market problems. The measures depend on the symptoms the market presents, the conditions and premises, the causes, and the location of the issues. Surface phenomena alone cannot provide a prescription.
Market transactions consist of goods, buyers, sellers, people, and money. The market structure is similar to a casino. First, consumers need to prepare money as a means of payment. Buyers negotiate with sellers to determine the price. Once a transaction is established, the method of exchanging money and goods is decided. In this case, the exchange of money and goods is determined through separate negotiations. It is crucial to prepare money as payment in advance.
The principle of the market economy is quite simple. The market economy is driven by income and expenditure. Economic entities are driven by deposits and withdrawals. By observing deposits and withdrawals, the movements of economic entities can be understood.
Market transactions are established through pairs of buying and selling. Selling forms the basis of sales, and buying forms the basis of costs. Sales are revenue. Buying and selling are established as pairs.
Buying and selling are symmetrical, and this symmetry is the basis of double-entry bookkeeping.
Buying and selling mean the exchange of goods and money. Buying and selling are established by transferring goods from the seller to the buyer and money from the buyer to the seller. Market transactions consist of the transfer of goods, cash flow, i.e., receiving and giving, deposits, and withdrawals.
From the perspective of companies, buying and selling transactions constitute revenue and costs, and from the perspective of households, they constitute income and expenditure.
Income and earnings prepare for payment. The portion of income and earnings minus expenditure forms surplus funds, which become stock. Stock is converted into financial assets. Financial assets form financial liabilities on the other side. As financial assets increase, liabilities also increase.
In the second stage of distribution, goods are purchased from the market. To purchase goods, it is necessary to prepare the money required for payment. In other words, earning money in the market has a dual meaning: procuring necessary goods and obtaining money for payment preparation. This dual meaning makes the market’s functions difficult to understand. Moreover, when time is involved in market transactions, it further complicates understanding the market’s functions.
The problem is that the receipt of goods and payment are not always simultaneous. Market transactions are established by the nature of goods and payment methods. The nature of goods and payment methods regulate the market’s nature and functions.
Basically, market transactions are completed by the exchange of money. The act of completing a transaction is called settlement. Prices are set through market transactions. The market controls production and consumption by adjusting supply and demand. The market is also a place that connects production and consumption.
The market functions when the quantity of goods needed, the population, and the appropriate amount of money are present. The driving force of the market mechanism is money. The market is maintained by the circulation of money. If money stops circulating in the market, the market’s vitality declines.
The key factors are the circulation volume of money, the turnover rate, the circulation speed, the direction of flow, and the balance.
The pillar of the market economy is revenue. Before looking at the flow of funds, it should be noted that the market economy is a system based on revenue and costs. Revenue and costs are the only means to realize distribution. Therefore, economic trends are reduced to the relationship between revenue and costs. Market transactions consist of sellers, buyers, money, and goods.
After the bubble burst, the concept of three excesses emerged. However, the meaning of the three excesses is not correctly understood. The three excesses are excessive debt, excessive equipment, and excessive employment. The crucial point is what standard is used to determine excess. Excessive debt means excessive liabilities, excessive equipment means excessive assets, and excessive employment means excessive costs. The elements that constitute financial statements are assets, liabilities, capital, revenue, and costs. Among these, assets, liabilities, and costs are said to be excessive. What remains are revenue and capital (profit). In other words, assets, liabilities, and costs are excessive relative to revenue and capital (profit). Conversely, revenue and capital (profit) are insufficient. Assets, liabilities, capital, revenue, and costs are relative values, not absolute values. Reducing only liabilities, costs, and assets does not provide a fundamental solution if revenue and capital decrease accordingly. The excess of debt, equipment, and employment is due to insufficient revenue. Debt, equipment, and employment are relative to revenue.
The market is also a place to balance revenue and costs, income and expenditure. Companies’ income consists of revenue and loans. Households’ income consists of earnings, debts, and savings. Economic activities can continue as long as cash balances are maintained. If cash balances cannot be maintained, bankruptcy occurs.
The provider of goods earns compensation as sales. The purchaser of goods obtains goods by paying compensation. The problem is that the receipt of goods and payment do not always proceed simultaneously. The payment for goods varies significantly depending on the nature of the goods. Few people pay for buildings like houses in cash. It is customary to pay in installments over a long period. In contrast, few people pay for fresh food in installments. Most people pay in cash. Thus, payment methods vary depending on the nature of the goods.
The market is also a place to align production and consumption. The market controls production based on the relationship between supply and demand. The function that controls production is price. Price is determined by the relationship between supply and demand. It is important to note that production is represented by the relationship between revenue and costs, and consumption is represented by the relationship between income and expenditure. Income is formed in the production process. Furthermore, consumption is reduced to expenditure, and expenditure is converted into revenue. This relationship links production and consumption. As a result, total production, total income, and total expenditure match. If the function of revenue is replaced by loans, the relationship between production and consumption is lost. This is the problem. Therefore, the relationship between revenue and income cannot be severed. If income is distributed regardless of work, the relationship between revenue and income is damaged. The market’s adjustment function works because work is converted into income.
The force that drives the market arises from the relationship between production and consumption. All citizens consume, meaning they are consumers. However, not all citizens produce. Therefore, the foundation of the national economy lies in consumption. The economy is the activity of people living. People must continue to consume the resources necessary for living.
The market is ultimately the place where the distribution of goods is executed. Therefore, the market is influenced by the nature of goods. The market is generally formed around goods. The market is not singular or uniform. It is extremely dangerous to discuss the market as a single mechanism. Industries and markets are formed around goods.
Many advocates of deregulation tend to view the market as a single entity. However, discussing the pros and cons of regulation without considering the environment, conditions, historical background, and functions of individual markets is not possible.
The core goods of the market differ in nature and production processes. The nature and production processes of goods are central to forming the market. The nature of goods includes whether they are tangible or intangible, shape, size, weight, whether they are liquid, solid, or gas, whether they are rigid or soft, the degree of influence of taste and design, production processes, production forms, cost, rarity, use, whether they can be preserved, the degree of deterioration, decay, obsolescence, durability, and the life cycle and commoditization of goods. The market conditions change accordingly.
The market’s state is influenced by whether it is in a state of shortage, saturation, or oversaturation. It is also affected by exchange rate trends, technological innovation, and changes in business models. Additionally, goods have trends. The market also changes based on geographical requirements and transportation markets. Such markets cannot be discussed uniformly. Regulations must be constantly adjusted according to changes in industries and conditions. However, this does not mean unilateral deregulation.
In Japan’s market, which is transitioning from the growth and development stage to maturity, goods are becoming standardized, averaged, and commoditized. In such a market, a shift from mass production to multi-product small-lot production and from quantity to quality is necessary. However, only efficiency from the producer’s side is pursued, resulting in the inability to maintain appropriate prices. As the market matures, the focus needs to shift to the consumption side. This means a shift from quantity to quality. If left unchecked, entropy increases in the market. If price competition occurs during the maturity stage, goods become commoditized, and the market shrinks, making it difficult to maintain employment.
What is necessary for distribution is the consistency between revenue and income. This is because revenue is the source of costs, and costs ultimately convert to income. Therefore, appropriate profit settings are required, and cost-effectiveness needs to be verified. Pursuing only sales or profit does not necessarily realize social distribution. Revenue and costs are relative.
The market economy is concerned with profit and loss. The market economy is driven by market transactions. Individual transactions converge on prices, and prices form the cost of living.
What is pursued in the market is the appropriate price. The appropriate price is one where revenue and costs balance, and a certain profit is maintained. Prices are created by the balance of supply and demand and have the role of adjusting production and consumption. Appropriate prices and low prices do not mean the same thing.
The purpose of profit is to measure appropriate revenue and costs. Appropriate prices are the basis and premise for forming appropriate revenue and costs.
Some scholars mistakenly believe that the market is simply a place where the principle of competition operates. As mentioned earlier, competition is just one function of the market. First, if the prerequisites for competition are not clarified, competition itself cannot be established. Rules are regulations. Without regulations, there are no rules. A struggle without rules is not competition but conflict. The meaning of competition and conflict differs.
Generally, without clarifying what competition is… Competition is not conflict. Competition is established by rules. Competition exists because there are rules (regulations). The market is not a battlefield. If market functions are based on competition, rules (regulations) should be established to enable competition in the market. Without rules, it is conflict, not competition.
Many scholars praise market supremacy and competition fundamentalism, but competition is a relative means and cannot be an end or absolute. The nature of competition also changes with the environment and premises and cannot be discussed uniformly.
If competition is mentioned, it is necessary to clarify who competes with whom, what is competed for, how, and for what purpose. To do this, it is necessary to clarify what constitutes the market and its components.
There are various elements to compete on. First, price. Second, quality. Third, design. Fourth, performance (including taste). Fifth, reliability. Sixth, maintenance, etc. When products become difficult to differentiate, competition converges on price. When competition converges on price, it becomes difficult to maintain appropriate costs. The principle of competition ceases to function.
The meaning of competition is not to standardize and normalize performance, design, and productivity through competition. Generally, in the early stages of the market, market expansion through mass production is primarily sought. As the market matures, diversity is sought, and the market shifts to multi-product small-lot production. Shifting from mass production and consumption to multi-product small-lot production prevents income decline due to market contraction. If the market is mature but cannot escape mass production industries, competition will be based solely on price, leading to market devastation and industrial decline. This is because it becomes difficult to maintain appropriate income for those working in the market.
The purpose of the market is distribution, not competition. Pursuing only competition risks damaging the market’s primary role of distribution. As the market matures, it becomes important to compete on factors other than price. The publishing and food and beverage industries are typical examples.
Market
Distribution in the market is carried out in two stages: first, money is distributed in advance, and then the distributed money is used to purchase goods. The distribution of money is realized through expenditures from production entities to consumption entities. The distribution of goods is realized through expenditures from consumption entities to production entities. The money distributed by production entities is procured through revenue paid by consumption entities to production entities. If the money procured through revenue is insufficient, funds are borrowed from other economic entities such as financial institutions or procured from investors.
The economy is fundamentally a struggle for survival. The economy harbors the seeds of conflict. Therefore, discipline and order are required in the market. Without any rules, the market would become a battleground. In the past, war was also a form of economic activity. When their survival was threatened, countries invaded others. This has not changed. International relations are deterred by power. Therefore, the world needs laws. Sports without rules are merely fights. Competition is based on rules. Rules are laws. Laws are regulations. The inability to build smooth relationships is not due to bad regulations but the way regulations are implemented. Therefore, regulations are based on contracts. To maintain peace, we should consider how to form agreements.
A world without laws is fundamentally a place of conflict. The market is based on laws derived from contracts. This is democracy. Those who advocate for unprincipled deregulation are lawless. Before the establishment of nation-states, neither states nor citizens existed. People had to protect their lives, families, and property by themselves. People fought to survive. Therefore, the economy before the establishment of nation-states meant conflict. Losers were deprived of everything and enslaved. During that time, slavery was also part of the economy. The economy before the establishment of the market economy was dominated by power. Any contract was trampled by those in power. Modern states began with tax reforms. The motivation for issuing government bonds was often to fund wars. Paper money originates from government bonds.
In the past, the place of production (workplace) and the place of living were integrated. As social division of labor deepened, the place of production and the place of living separated. The market was established in the process of separating the place of production and the place of living, i.e., the place of consumption. Therefore, the market is a place of distribution.
The development of the market was promoted by laws, contracts, and money. The development of the market brought peace to the economy. Therefore, the market values freedom. If discipline and order are lost in the market, freedom cannot be maintained.
The market, in terms of sports, is the field. The field is an artificially created space. The field is established by rules that apply only within the field. The market has its own rules, and the market is established by these rules. Rules are regulations. The free market is protected by regulations.
The components of the market are sellers, buyers, goods, and money.
The functions of the market are, first, to provide a place for consumers to purchase necessary goods, a place to exchange goods and money, and a place for transactions. Second, it is a place to adjust supply and demand. Third, it is a place to determine the monetary value of goods, i.e., prices. Fourth, it is a place to collect and distribute goods.
The market is established by the existence of multiple entities. This is because the market is established by the function of mutual restraint. Mutual restraint works through competition and rivalry among multiple entities. The reasons for mutual restraint include adjusting supply and demand, improving production efficiency, suppressing fraud, and promoting technological innovation. The main challenge is to provide consumers with choices, ensuring the alignment of production and consumption. At the same time, it ensures diversity in production goods.
The characteristic of the market economy is that it cannot start without money. The movement of money, i.e., the flow of money, is created by deposits and withdrawals by economic entities. The market economy is supported by cash income and expenditure.
Cash income prepares for payment, and payment realizes distribution.
Economic entities first procure money from the market. In other words, economic entities procure money through market transactions and prepare for payment.
The market economy is driven by the movement and flow of money. In the process of money flowing, necessary goods are produced, distributed, and distribution is realized. If money stops flowing, the market economy stops functioning and falls into dysfunction. Therefore, the problems arising in the market economy are primarily money problems. The market economy is a system that distributes the resources necessary for national life through market transactions. The means of moving money include buying and selling, lending and borrowing, and transferring. Transfers are basically categorized into buying and selling or lending and borrowing. Therefore, market transactions are summarized as either buying and selling or lending and borrowing.
The act of procuring the resources necessary for living from the market and the act of acquiring funds create a state of surplus or shortage of funds, generating the flow of funds. This flow of funds drives the economy.
Goods are produced for the purpose of consumption. Considering these facts, the foundation of the economy lies in consumption.
In a market economy, people must continuously procure the resources necessary for living by paying for them.
People must continuously consume to live. To continue consuming, they must continue spending. Money disappears when used. In other words, economic entities are always structured to lack money. People must continuously procure money to live.
Revenue and income are paid as compensation for the economic utility produced by production entities and individuals.
In a market economy, where people must procure the necessary resources for living by paying money, they cannot live without money. Not all citizens earn the necessary funds for living by themselves. In principle, in our country, individuals are under the protection of guardians as dependents from birth until the end of compulsory education. If not everyone can procure funds by themselves, it is necessary to form groups centered around those who can procure funds. This constitutes the economic entities in consumption. Economic entities in consumption become the economic units on the consumption side.
Basically, the central unit of consumption is the household.
Market transactions are not established solely by the buyer’s side. They cannot be established without sellers on the opposite side. Sellers earn revenue through market transactions and distribute costs, i.e., income, from that revenue. Sellers constitute intermediate consumption.
The units of intermediate consumption include corporate enterprises, financial institutions, and the general government. Corporate enterprises earn revenue as compensation for the produced goods. In contrast, the general government collects taxes as compensation for public utility. Public utility includes the construction of social capital, national defense, disaster prevention, public security, education, and administrative services. Revenue is the basis of income.
Revenue is output and means sales. It does not mean production. Sales are the product of sales volume and unit price. Unsold products are either discarded or become inventory. Intermediate input, total production, total income, and total expenditure represent cost, production, distribution, and expenditure. Intermediate input, total production, total income, and total expenditure are connected by the circulation of money and functionally represent the cross-section of money flow. Therefore, the three-sided equivalence holds. The functions of intermediate input, total production, total income, and total expenditure control the entire market. By sequentially converting input, production, income, and expenditure, the economic system becomes structurally integrated. If input, production, income, and expenditure are separated, the economic system cannot be controlled integrally. The three-sided equivalence is not a result but a structural factor and foundation.
Debt (liabilities, borrowing) drives growth but also causes decline during maturity. After the bubble burst, the relative increase in debt compared to revenue is considered a cause of long-term stagnation. The background of increasing debt includes the decline in consumption (expenditure) and market contraction. To stably control the market, it is important to balance flow and stock. The causes of declining consumption include population decline, changes in population composition, and changes in consumption structure. Furthermore, the transformation of the distribution mechanism and structure. The distribution structure includes evaluation systems and transaction mechanisms. The decisive factor is the change from a pyramid shape to an hourglass shape due to declining birthrates and aging populations.
The market is not singular. Countless markets form parts of a whole. The number of markets is formed along the flow of goods and money. Markets are established at each stage for each type of goods. The markets that form parts have their own structures and means. The structure and functions of the market differ depending on the characteristics of goods (industrial products, fresh food, tangible or intangible, historical background, etc.).
The market is like the body of a living organism, with countless independent markets like cells forming the whole. The market is not singular but a collection of countless markets. The market has an organic structure like a living organism. The market has temporal and spatial structures. Individual markets change while interconnecting with each other.
Generally, the market is a historical product, and independence arises depending on individual countries and regions. Differences also arise depending on the nature and structure of the underlying industries. For example, infrastructure industries requiring huge investments like railways, electricity, and gas differ in structure and nature from markets for durable consumer goods like home appliances and automobiles or small-capital food and beverage industries.
The market is not constant. It is constantly changing. Moreover, the markets that form parts are not homogeneous and differ in development stages and structures. Multiple markets are interrelated. Some markets are competitive, while others are cooperative. The market is diverse. The structure of the raw materials market differs from the retail market. The pricing system differs between the energy market and the home appliance market. The market mechanisms differ between the new car market and the used car market. The transaction methods differ between the real estate market and the food market. Even within the oil industry, the crude oil market, refining market, wholesale market, and retail market have different forms. This involves logistics, storage, and financial markets. Logistics, storage, and financial markets have entirely different characteristics. Such markets cannot be treated uniformly, and to reform the market, it is necessary to investigate the functions, roles, conditions, environment, geopolitics, national strategies, development stages, and historical aspects of the market. The impact of exchange rate fluctuations, soaring crude oil prices, and interest rates cannot be generalized.
Just as living organisms grow, the market also grows and changes its structure accordingly. In the generation stage, small-scale production entities compete while consolidating their positions. In the early growth stage, excessive competition leads to elimination. In the growth stage, mergers and reorganizations are repeated, leading to competition among entities of a certain scale, resulting in a stable state. As the market saturates, repeated mergers lead to oligopoly and monopoly. In an oligopoly or monopoly state, mutual restraint ceases to function, and vitality is lost. The goal of economic policy is to stabilize the market and maintain a good state, considering such market changes. During excessive competition, the large number of entities is problematic, while in oligopoly and monopoly, the small number of entities is problematic.
The world changes its mechanisms according to the environment, conditions, and growth stages. If the mechanisms cannot be changed, they cannot adapt to the environment, conditions, and growth stages, leading to ruin. The same applies to the market. If the mechanisms cannot be changed according to the environment, conditions, and growth stages, they cannot keep up with the changes of the times. For example, when Tokugawa Ieyasu controlled the chaotic Warring States period and the Edo period began, feudal lords could no longer seize territories by force. Inevitably, the nature of the economy also changed. The same applies to the market. During the growth and development period, the market expands through mutual attacks and conflicts, but if the market is in a downward state and shrinking, continuing to fight as in the expansion period will not lead to economic development. The basic environment and conditions of the market in the early stage and the mature stage are different. Stubbornly maintaining the same conditions, premises, and mechanisms will lead to the collapse of the market itself. The laws and mechanisms of the market are not absolute but relative, changing according to the environment and conditions.
Countries and societies are collections of economic entities. Economic entities are collections of individuals, groups, and organizations. Economic entities are living communities. Such economic entities have internal and external aspects. Internal economies have evolved within economic entities, while external economies have developed outside. The market is formed on the boundary between the internal and external worlds.
The basics of the economy are economic entities, which mean communities. Living communities, i.e., groups. The economy was established by groups sharing life. Living communities have internal and external aspects. Early economic entities were self-sufficient systems, relying solely on trust relationships. Barter arose in relationships with the outside of the community. Originally, there was no barter within the community. What existed within the community was distribution, not barter. In other words, the root of the economy is distribution, not barter. The pure economic issue is who distributes the catch and by what standards. Internal economies were non-monetary, moral, and organizational groups. The family is an extension of this. The family is a non-monetary space, a moral space, a subjective, normative space, an organizational space, and an authoritarian space. In contrast, external economies are monetary spaces, immoral spaces, objective, and free spaces. Internal spaces are maintained by trust, while external spaces are maintained by law. Therefore, external economies require contracts and laws. The market is an external space, i.e., a space outside the boundary of the community. Modern society is being invaded by the market into internal spaces. Freedom is fundamentally immoral. In an immoral space, personal values become important. It is freedom. The market is encroaching on internal economies, monetizing values, and dismantling families. The economy for the elderly becomes an issue of facilities and caregiving systems, discarding family and moral issues. Considering this as the economy is a serious mistake. It is an issue of external economies, a different dimension. The economic space is not solely based on money.
The market is established on the boundary of economic entities. Markets are formed at the milestones of the production, distribution, and consumption processes. The market changes its appearance and form according to its functions and roles. The financial market arises at the stage of money procurement, the raw materials market is formed at the stage of raw materials procurement, and markets such as logistics, wholesale, and retail arise at the sales stage. Moreover, the structure and conditions of each market are not constant. Some industries have divergent structures, while others have convergent structures. Through such processes, money and goods are distributed. Not only goods but also money is distributed. Prices have market faults, indicating the economic algorithm.
Internal spaces are non-monetary spaces. Non-monetary spaces mean that relationships between individuals in internal spaces are not based on money. Indeed, employees are hired with money, but this is in the context of external relationships. Within production entities, actions are based on organizational norms. Money is paid based on organizational evaluation or contracts. Actions within production entities follow internal norms, not the laws of external economies like market transactions. Organizational evaluation is fundamentally different from buying and selling or lending and borrowing in external economies. Strictly speaking, there are examples where external transactions are mixed in internal economies, but these are exceptions. In principle, internal economies are spaces based on internal norms, not spaces based on market transactions. Moreover, the conversion of money through internal transactions is merely a bookkeeping transaction, not an actual exchange of money.
Morality is an internal norm shared by the group. Morality is a behavioral norm shared within the community.
In times when internal economies were strong, wasting money outside was considered uneconomical.
In the past, the boundary between internal and external economies was clearly delineated. Internal economies were not the world of money. When asking someone within the household to cook, clean, do laundry, care for others, or raise children, money was not exchanged. However, when divorcing, money was paid because it involved going outside. No one pays money to drink alcohol at home, but money is charged when drinking outside. Sometimes, exorbitant fees are charged. Despite this, people drink outside because it is immoral and free. It is considered uncouth to preach while drinking outside. It was considered immoral to solve family problems with money. Money is only valid in the market. Companies, in terms of employment, belong to the external space from the family’s perspective, but in terms of being within economic entities, they constitute internal economies. Therefore, companies do not operate solely on money within. They are governed by organizational logic. Relationships are based on people. Courtesy is valued. Leaders are expected to have virtues and humanity as leaders. This is not a transaction but an issue of evaluation and distribution. It is a virtue as a person. This is the principle of internal society. The boundary is becoming increasingly blurred, and external economies are taking over, with morality being replaced by monetary relationships. Relationships between parents and children, and siblings are becoming market-based, external. The internal world is being lost. Housework is outsourced, and the household is no longer the household. Internal economies are based on trust relationships. Hierarchy is valued, and the master is the master. The market is equal and governed by money. If the household is governed by market logic, relationships between parents and siblings lose their strength. Housework, like domestic labor, is outsourced, and family bonds are replaced by monetary relationships. If the household is governed by market logic, the internal (household) ceases to exist, and people are thrown outside.
The external world, in its primitive stage, was lawless and governed by violence. The external space was a lawless zone, a battlefield. To ensure free trade, contracts and laws were created. Law is a norm opposite to morality. Law is protected by penal provisions. The market was established as an extension of the battlefield. The market replaced the battlefield with a place of transactions through law and contracts, maintaining peace. However, the market cannot maintain order without laws and regulations. In other words, the market is governed by laws and regulations.
In a controlled, planned economy, it is difficult to capture actual consumer demand. By using the market, the relationship between supply and demand is made visible, and supply and demand are adjusted. This is the primary function of the market. Additionally, mutual restraint and price competition maintain appropriate cost levels. Without competitors, costs tend to expand unilaterally. The goal is to establish economic democracy by making production entities economically independent. The fundamental principle of democracy is that individuals are politically and economically independent. This premise includes private property rights. This is the decisive difference between liberal countries and totalitarian or dictatorial countries. Therefore, democratic countries dislike monopolies and oligopolies not only for economic reasons but also for political reasons. At first glance, controlled economies may seem economically rational, but considering the foundation of national life, laws that establish individual human rights are considered economically rational in the long run. Economic democracy is based on individual lives rather than overall benefits. In this sense, the development of liberal countries is merely a result. For example, the United States, one of the birthplaces of democracy, dislikes monopolies and sometimes breaks up companies, even if it seems economically disadvantageous. However, this often revitalizes the market as a result. Competition is necessary to protect democracy. The original meaning of competition is to prevent monopolizing profits and raising prices by making entities compete. Allowing market monopolies enables monopolistic companies to unilaterally set prices. The goal is to restrain the tyranny of producers. However, it is not only producers who can be tyrannical. Consumers can also be tyrannical. Therefore, regulations are necessary in the market. Competition is one means of protecting democracy. Competition is motivated not only by economic but also by political motives and
Price
Price should not be evaluated based on whether it is high or low. The criterion for evaluation is whether it is appropriate. The standard for measuring appropriateness is profit. However, profit is derived from a certain equation, and there is no absolute equation; it is influenced by politics, economic conditions, situations, and ideologies at the time. Price is something that is created and made. It is not just about being cheap.
Since price is a relative value, if left unchecked, upward pressure cannot be suppressed, so mutual restraint is applied through competition. If the price is determined unilaterally, the goods will become uniform and homogeneous. Costs will lose restraint and proliferate to seek the upper limit. Although the budget is based on predictions, once it is set, it acts as if it is a fixed value. Similarly, those who monopolize the market tend to set the upper limit of costs as the price. Therefore, it is essential to promote competition in the market. However, promoting competition and deregulating are not the same. Unprincipled deregulation often hinders proper competition.
The market is sustained by competition. The essence of the market economy is choice. The market has vitality because various choices are guaranteed. If choices are narrowed or lost, the market economy will lose its vitality. No matter how much money there is, if only predetermined products can be chosen, it is meaningless. Therefore, the market economy dislikes monopolies.
The right to determine prices does not belong solely to consumers. Producers also have the right to determine prices. If producers lose the right to determine prices, they will not be able to make a profit, and production planning will become impossible. This is because the most important factor in determining prices is cost. Prices are determined by consumers and producers in the market. The relationship between supply and demand determines prices.
Competition alone does not keep the market healthy. If excessive competition occurs, prices will collapse, and profits cannot be secured. To maintain profits, it is necessary to regulate the market. If the market cannot be regulated, it will move towards monopoly and oligopoly. That is the market economy. It is not just about being cheap. It is essential to consider what the price means. Some people complain if the price is even slightly high, but there are reasons for high prices.
The function of price is to determine the monetary value of goods. Prices are basically determined by market transactions.
Prices are not determined solely by supply and demand. Prices are based on cost-effectiveness. Prices are the basis of sales.
Sales are the product of price and sales volume. If the price is high, the sales volume will drop, and if the price is low, the sales volume will increase. The challenge for sellers was whether to focus on sales volume or profit margin. When fixed-price sales are prohibited and prices depend solely on the market, prices are determined by supply and demand. This makes market share the biggest issue, leading to price competition. In the era of mass production, huge amounts of money are invested in equipment. To recover the invested funds, mass sales are necessary. Sometimes, goods are sold at prices below cost. This is based on the break-even point. If a certain volume is sold, fixed costs are suppressed. This leads to the logic of capital prevailing, resulting in excess equipment and overproduction. Surplus goods put downward pressure on prices. Small businesses have no way to survive. Even so, modern mass media promotes the idea that cheap is good. If there is a discount, they push for even lower prices, making it a standard of good and evil. Trying to sell at a slightly higher price makes one a villain. This burden falls on subcontractors and workers. The sense of justice of the mass media oppresses subcontractors and workers. The idea of producing only what is necessary has disappeared, and now it is about making as much as possible and discarding the surplus. Disposable culture is considered virtuous. Efforts are made to eliminate waste only in the production phase, but waste is waste even in consumption. Continuing to produce unnecessary items in large quantities is wasteful in the long run, no matter how efficient production is. Goods should be made because they are needed, not just to sell. The spirit of the Antimonopoly Act is not only against monopolies and oligopolies but also against unfair low prices. Prices should seek appropriateness, not cheapness.
If caught in price competition, income is reduced to mere costs and labor costs, and personal elements are eliminated. They become targets for reduction and are lowered to the minimum level. Human elements are lost from both people and the market.
Prices have an asymmetry of information. Prices are just numbers. If low prices are demanded without understanding the work behind the costs, human elements are stripped from the costs. Judgments are made based on numbers alone. Numbers have no personality, only value. If human elements are not considered, everything is measured by time and goods alone.
Prices should not just be low. Maintaining appropriate prices is important. Prices also have a distribution function. If competition is based solely on prices, quality becomes homogeneous, design becomes uniform due to the emphasis on manufacturing processes, and performance becomes standardized, losing individuality. The former Chinese people’s clothing is a good example. The pursuit of production efficiency alone led to uniformity. Choices disappear, and prices become singular. Prices should seek diversity. Both producers and consumers have the right to determine prices. Ensuring choices is the foundation of democracy. Therefore, the market economy dislikes monopolies. What must be protected are the discipline and order of the market.
The biggest problem is that the production sector has lost the right to determine prices. In the past, producers set fixed prices. Fixed prices were determined by manufacturing costs and estimated sales volume. Prices are not determined unilaterally by consumers or producers. It is a matter of finding a balance between consumers’ purchasing power and producers’ profits.
The issue is what to compete on and for what purpose.
If competition is based solely on prices, labor costs become mere costs and are reduced to the limit.
Prices are a comprehensive economic evaluation.
Prices are influenced by the relationship between goods and money. During inflation, the focus is on goods rather than money. During deflation, the focus is on money rather than goods. This power relationship accelerates inflation or deflation. Therefore, during inflation, hoarding and withholding sales are regulated.
Disposable Income and Expenditure
Distribution to households is based on disposable income and ends with expenditure.
Households earn income in some form. They purchase necessary goods with their income and save the surplus. When money accumulates to a certain extent, it is deposited in financial institutions. Deposits are loans from households to finance, and from the financial side, they are borrowings from households. Financial institutions lend funds to production entities and earn revenue from the interest rate difference between deposit and loan interest rates.
The source of income is employee compensation, and expenditure is private final consumption. Since 1997, when Yamaichi Securities voluntarily closed and Hokkaido Takushoku Bank went bankrupt, private final consumption expenditure has exceeded employee compensation. Employee compensation has been declining since the financial crisis.
National Economic Accounts
The framework of income is created by the tax system. The tax system is determined by how the government recognizes income. Today’s market economy thinking is to consolidate income into salary income. By consolidating income into salary income, the aim is to stabilize income and smooth out economic fluctuations caused by revenue swings.
When income stabilizes, borrowing becomes easier. This is because borrowing is secured by the latent gains of owned assets and future income. If monthly income can be stabilized, it becomes possible to secure future revenue and plan monthly repayments.
Stable employment and income are the foundation of the credit system. Employment issues cannot be discussed without this point. Consumer-first principles without considering labor conditions do not work because consumers are also workers.
Income issues cannot progress without addressing employment issues. Employment forms have a significant impact on the economy.
National Economic Accounts (2005 Standard, 1993 SNA)
The source of government final expenditure includes not only taxes on production and imports but also taxes on income and wealth, and taxes associated with capital transfers. Therefore, increasing indirect taxes pressures operating surplus, mixed income, interest, fixed asset depreciation, and savings. It also leads to a decrease in real disposable income. If total income is expanding and there is a balance with direct taxes, the shift to indirect taxes is not an issue, but if total income is stagnant, fund movements between sectors occur. The premise is crucial.
Distribution Flow in National Economic Accounts
The decline of the economy is caused by misallocating resources. Especially, it is about how to circulate money from the generation with surplus money to the generation that needs money and is in their prime. The economy is driven by how to lend surplus funds to those in need.
The distribution flow in the national economic accounts refers to the distribution of primary income, secondary income, redistribution of in-kind income, and the use of income. It refers to the flow from allocation, transfer, final consumption, to savings.
Distribution is the process of systematically distributing income in the production process and then withdrawing the necessary money from the income to purchase goods. Distribution is based on output.
The distribution of primary income shows how primary income is allocated to institutional sectors.
Primary income refers to income generated as a result of utilizing production means in the production phase. Production means include necessary means for production (labor, etc.) and necessary assets for production (equipment, etc.). Specifically, it includes employee compensation, operating surplus, mixed income, taxes on production and imports (less subsidies), and property income. National income is the sum of these elements, excluding property income. Net national income excludes fixed asset depreciation, while gross national income includes it.
Employee compensation is allocated to households, operating surplus to corporate enterprises and households, mixed income to households, and taxes on production and imports (less subsidies) to the general government.
Employee compensation is received exclusively by households, which use it as a source of funds for consumption expenditure. Employee compensation is paid by sectors other than households and received by households.
Secondary income refers to the redistribution of income excluding in-kind social transfers. The transfer of funds in the secondary distribution of income is established by current taxes on income and wealth, social contributions and benefits, and other current transfers. The secondary distribution account of income is the process from the primary income balance to disposable income.
In the national economic accounts, distribution refers to the process from the distribution of production results to consumption. In this process, added value is formed, which becomes final consumption expenditure through disposable income.
Distribution can be said to be the process from income to final consumption. Final consumption generates savings (stock). This process forms the basis of the distribution algorithm.
The entities of distribution are production entities and consumption entities, with organizations and markets intervening between them. Organizations and markets have different standards and mechanisms for distribution. There is an illusion that everything in the market economy is done by the market. However, the essence of distribution lies in the preceding organizational distribution.
Who conducts organizational distribution and based on what standards is a fundamental issue of the economic system. The market operates on the premise that money is distributed in advance.
Distribution Algorithm
The flow of distribution moves from disposable income to expenditure. The process from income to expenditure is divided by sector. Income includes operating surplus, mixed income, employee compensation, taxes on production and imports, and income from abroad. Expenditure is divided into government final consumption expenditure, private final consumption expenditure, and savings. Operating surplus and mixed income are intermediate consumption and are not reflected in final consumption expenditure. Savings are reflected as stock balances, showing the surplus or shortage of funds between sectors.
What are the prerequisites for distribution? The issue is what, where, based on what standards and grounds, how much, and by what mechanism to distribute. This determines the initial settings.
That is the premise.
The idea that the government should employ all citizens is also valid, but in that case, the autonomy of economic entities is lost. If the autonomy of economic entities is lost, it becomes difficult to measure the economic utility that economic entities provide. Ultimately, the function of producing and distributing the necessary goods as needed will not work, leading to the separation of production and consumption.
Assuming a liberal system, the distribution algorithm starts from where income is earned. Earning money means having a job or owning production means such as apartments, patents, copyrights, or securities like stocks. In other words, the premise is that one can earn income and money by their own efforts.
Today’s market economy is established by setting unit periods. By setting unit periods, the starting and ending points of economic units are determined.
By using money from revenue as a source of funds, a circulation of money is created between production entities and consumption entities. This forms the profit and loss within the unit period. Income and expenditure are two sides of the same coin. In external transactions, sellers and buyers are in a symmetrical relationship, and the total transaction volume is set to zero. It is the balance of buying and selling, lending, and borrowing.
Production entities consist of non-financial corporate enterprises, the general government, and foreign sectors. Consumption entities consist of households, the general government, and foreign sectors. Financial institutions do not belong to either production or consumption entities and take a neutral stance. The money needed for financial institutions to function economically, the revenue of financial institutions, comes from the services required to mediate financial transactions. The compensation for mediating financial transactions is established by the interest rate difference. Non-profit institutions serving households are treated similarly to the general government.
Expenditure includes investment expenditure and consumption expenditure. The difference between investment and consumption expenditure arises from the difference in investment targets. Investment targets mean setting production means, referring to things whose utility of money exceeds the unit period. Fund procurement is treated as capital transfer based on lending and borrowing transactions or capital transactions. Investment generates claims and debts.
Expenditure on investment generates claims and debts. Claims and debts create long-term fund flows. Investment is established by lending and borrowing transactions and capital transactions and is fundamentally considered capital transfer. Capital transfer means that the utility of money is not produced by preparing for payment and remains in the market. In other words, long-term funds keep the utility of money in the market and prepare for payment.
Investment is not only for production but also for distribution and consumption. Distribution also has investment activities and regular activities. Investment for distribution means investment to receive distribution. A typical example is stock investment. Financial investment is also a type of investment for distribution. It is an investment to receive distribution such as dividends and interest. Such investments are not necessarily productive investments. Housing investment includes investment for distribution and investment for consumption. In any case, there is also investment for distribution.
In the market economy, the distribution algorithm within the unit period is carried out in two stages: the distribution of money and the allocation of goods. Expenditure for distribution arises as costs for production entities. The balance of the economy is measured by the relationship between revenue and costs. Profit is the indicator for that. Profit is the difference between revenue and costs, with revenue being the nominal account and costs being the real account. Therefore, the real aspect of the economy lies in costs. Hence, profit is not the goal. The issue is the function and breakdown of costs.
In the national economic accounts, economic utility is expressed as added value. The function of added value varies depending on the sector to which it is paid by production entities. In the national economic accounts, the distribution of income is understood in two stages. The distribution of primary income appears as employee compensation, part of mixed income, and property income for households, as taxes on production and imports for the general government, and as operating surplus and part of mixed income for non-financial corporate enterprises. In the secondary distribution, it is classified into economic transfers and disposable income, and as current transfers, it includes current taxes on income and wealth, net social contributions, social benefits other than social transfers in kind, and other current transfers. The exit of distribution converges on disposable income. Therefore, the relationship between added value and disposable income is fundamental.
Corporate Statistics
The distribution algorithm of the market economy starts with obtaining money. The starting point is where and how much money is obtained and by what means. The source of money is the starting point.
From the perspective of the money provider, expenditure is the starting point. From the perspective of the production entity, which is the money provider, expenditure is the starting point of money distribution. From the perspective of the money receiver, the means of obtaining money in the market economy are providing labor, selling one’s possessions, or borrowing. Stealing or robbing is not allowed. For buying and selling and lending and borrowing to be established, private property rights must be formally recognized. Private property rights are a premise in the market economy. Private property rights are the source of value. Without recognizing private property rights, private possessions do not exist. Private property rights define the boundaries of economic value. Private possessions include one’s labor, rights, goods, land, and time.
The issue in the distribution algorithm is what means to use for income distribution, how much income is necessary for living, how to maintain regular income, and how to correct income disparities.
Income is a cost called labor costs, living expenses, and rewards. Income as a cost is paid from revenue. This is the principle. In other words, the exit of funds is the function of costs. Therefore, cost-effectiveness is fundamental.
Income is also the source of living expenses. Therefore, living and income construct a symmetrical relationship. Consumption is also a mirror of the industry. The consumption structure determines the industrial structure. In other words, income needs to be linked to consumption expenditure. Consumption is diverse. Therefore, production also becomes diverse. The more diverse consumption is, the more diverse the market and industry become.
The issue in the distribution algorithm is the route and means by which money and goods are distributed. The route and means by which money and goods are distributed form the basis of the economic system.
The function of distribution varies by sector. In the national economic accounts, the final consumption expenditure sectors are households and the general government. Non-financial corporate enterprises and financial corporations do not make final consumption expenditures. The consumption of non-financial and financial corporations is considered intermediate consumption. The function of fiscal distribution (general government) is mainly the redistribution of income through taxes and benefits.
The function of financial institutions in distribution is to supplement the surplus and shortage of funds and to facilitate the flow of funds.
Ultimately, distribution is completed by consumption. The part that is not consumed is turned into savings and invested. Consumers form the market. Production is controlled by consumption. In modern society, the relationship between production and consumption is reversed. It is mistakenly believed that production comes first and then consumption. Therefore, only productivity is excessively pursued. As a result, the concepts of saving and waste in consumption have faded.
Savings are recorded as stock, representing the surplus or shortage of funds between sectors. The surplus or shortage of funds between sectors indicates the direction of money flow between sectors.
The ultimate goal of distribution is the balance of production, income, and expenditure. Therefore, GDP, i.e., total production, total income, and total expenditure, is emphasized.
The causes of economic stagnation are the lack of jobs, stagnant income, or a declining labor force. If there are no jobs, jobs should be created. That is the solution to unemployment. However, if public works are carried out as economic or unemployment measures, they will only have a temporary effect unless they are permanent. If used for unproductive purposes or those that do not lead to expanded reproduction, it will worsen the fiscal situation. Ultimately, it will be compensated by taxes, increasing the burden. The reason income does not rise is that revenue does not improve. Focusing only on surface phenomena and looking for culprits will not lead to a fundamental solution. Population is a base number. There is no short-term solution.
In the market economy, balancing supply and demand is crucial.
Factors That Disrupt the Distribution Algorithm
The distribution mechanism is designed to supply necessary goods to those who need them, in the required amount, and at the necessary time. To achieve this, it is essential to allocate the necessary money in advance according to work. This is the distribution algorithm. If any of the fundamental elements required to establish this distribution are missing, the distribution algorithm will not function. Distribution is carried out by people, and the target of distribution is also people. Therefore, the core of the distribution algorithm is people.
What disrupts the distribution algorithm is desire, and the monopolies and disparities created by desire. Extreme income and wealth disparities also hinder the circulation of money. The premise of the distribution algorithm is to continuously and universally advance the necessary money for distribution to all citizens. Extreme disparities skew distribution through the very function of disparity.
The economy is built on relationships between people. If these relationships are denied, the economy cannot function. The essence of economic activity is how to build relationships between people, and if this is simplified to a mere issue of money, the economy loses its original function.
The essence of communication is not merely in establishing communication facilities but in how to connect people. If communication is specialized solely as an issue of communication facilities or technology, it loses its original purpose. Information becomes detached from the user and becomes a means for specific individuals to control others. This also symbolizes the function of the economy. Both information and the economy must pursue the interests of all users. If they serve the interests of specific individuals, both the economy and communication become weapons.
The reason the distribution algorithm fails to function properly is that the organizations, markets, and distribution entities that constitute the distribution mechanism fail to adapt to changes in the environment and circumstances. The key to maintaining the distribution algorithm is how well it can incorporate changes.
Factors that disrupt the distribution algorithm include human factors, material factors, and monetary factors. When changes in the environment overlap with human, material, and monetary factors, the distribution algorithm becomes distorted.
The economic environment and circumstances are constantly changing. The economy is driven by mechanisms, and these mechanisms change their function based on the environment and premises. Firstly, economic value itself is not absolute but relative. For example, the demand for goods is not constant. If the balance of supply and demand changes, prices change. The life cycle of automobiles and food is not the same. The means of production for industrial products and agricultural products differ, leading to differences in supply capacity. They are also affected by exchange rate fluctuations. Secondly, the economy changes its structure over time. The environment surrounding the market changes with time, including population, labor conditions, equipment status, fund flow, creditor-debtor relationships, and supply-demand. The premises that establish the market are constantly changing. Thirdly, external factors surrounding the market and economy are not driven solely by human will. The economic mechanism is influenced by weather, climate changes, disasters, accidents, wars, and other uncontrollable factors. The rice price is influenced by the annual rice harvest, which is affected by the weather. Fish are even more complex. Earthquakes and wars also change the market premises. Fourthly, the environment changes due to the state of the market and internal factors. The premises differ between a market with a shortage of goods and an oversaturated market. The conditions differ between a monopolistic or oligopolistic market and an excessively competitive market. The circumstances differ between a growing market and a mature market. The competition method changes between regulated and unregulated markets. The direction of forces acting on the market differs between expanding and contracting markets. Fifthly, the economic environment and circumstances change due to labor conditions, employment, and income. Changes in employment and income decisively affect the market environment. Under a seniority-based wage system, it is impossible to prevent annual increases in labor costs. The adverse effects of declining birthrates and aging populations also become prominent. However, if personal elements are stripped from the wage system, life becomes unsustainable. Income functions not only as an evaluation (reward) for work but also as a source of living expenses (income) and compensation for labor (labor costs).
The economic environment and circumstances are not constant or unchanging. Many factors constituting the market are unpredictable. Things have constants, variables, and simplicities. Understanding what does not change, what changes, and the relationships from which these changes arise is crucial to prevent the distribution algorithm from collapsing.
If one is fixated only on surface phenomena, appropriate measures cannot be taken when problems arise. Even if ad hoc, symptomatic measures are taken, fundamental solutions cannot be implemented.
If one cannot adapt to environmental changes, the distribution algorithm will fail. The reason for the inability to adapt to environmental changes is the divergence between predictions and actual results. If the expected revenue is not achieved, the promised rewards cannot be given. The factors that sustain the economy are constantly changing. Recognizing these changes correctly and altering the distribution method accordingly is essential to adapt to changes and prevent distribution biases. The causes of distribution biases include biases in the distribution of money and material factors.
Production and distribution are based on predictions and actual results. Distribution is based on the results of production. Production results are based on predictions, but distribution is based on actual results. If predictions and actual results diverge significantly, the premises of distribution will inevitably be disrupted, and in some cases, distribution may not be feasible. In this context, predictions relate to the extent of consumption. In other words, distribution is based on the relationship between production and consumption. Production is supply and is based on revenue. Consumption is expenditure and is based on income. Therefore, distribution is established by linking production and consumption. Production, distribution, and consumption do not exist independently. The relationship between production, distribution, and consumption is everything.
The decisive difference between the production algorithm and the distribution algorithm is that the production algorithm is based on predictions, while the distribution algorithm starts from results. Production is based on plans, while distribution is based on actual results. The premises of production and distribution differ.
The economy is sustained by predicting uncertain things based on certain things. Determining what is certain and what is uncertain is crucial to the success of the distribution algorithm.
Human factors that disrupt the distribution algorithm involve a person’s life. A person’s work changes with age. Age-related changes are the biggest factor that disrupts the distribution algorithm. The distribution mechanism is fundamentally based on people. Understanding this point correctly is essential. How to link a person’s work, role, and rewards determines the success of the distribution algorithm.
People grow and age over time. A person’s work changes with age. Moreover, a person’s abilities do not continue to improve indefinitely. They peak at a certain age and then decline. Furthermore, the changes in what people need and the changes in their abilities do not match. What is needed when young and what is needed when old differ in quantity and quality. It also varies depending on the family environment. Organizations for distribution, like companies, have a fate where their initial purpose fades and their function changes over time. Such distribution mechanisms need constant updating. The principle of distributing income according to work, achievements, and abilities fades over time and becomes unsuitable. Aging is cruel. Parental financial power creates disparities from birth. When those without work, achievements, or abilities try to protect their interests, the distribution algorithm collapses. The collapse of the distribution algorithm prompts societal transformation, leading to conflict.
There are constant efforts to separate income and assets and construct a distribution mechanism based solely on income. This is also reflected in the form of salary income. The focus is increasingly on what standards to use for income distribution. However, disparities continue to widen. The issue is how to construct a rational distribution mechanism. Should it be based on actual results or should personal elements be valued?
Other human factors that disrupt the distribution algorithm include insufficient employment and changes in population composition.
Material factors that disrupt the distribution algorithm include prices. Hyperinflation and deflation undermine the distribution algorithm from its foundation.
One material factor that disrupts the distribution algorithm is a shortage of goods. A shortage of goods means that supply cannot keep up with demand. A shortage of goods also causes inflation. The causes of a shortage of goods include a lack of production means, a lack of raw materials, a lack of inventory, and a lack of production goods.
From the perspective of money, the first factor is the interruption of money distribution, leading to a shortage of funds and delayed payments. The second factor is the lack of minimum necessary money for living. The third factor is the concentration of income among a few individuals, leading to uneven distribution of money. The fourth factor is the widening disparity, causing societal division. The fifth factor is the imbalance between work and income. The sixth factor is the imbalance between flow and stock, leading to a one-sided increase in debt.
Underlying these factors is the issue of maintaining the consistency of production, income, and expenditure per unit. It is also a matter of averages and dispersion.
If money does not circulate sufficiently among people, the market cannot function. A lack of money prevents the distribution algorithm from functioning from the start. The basic principle of the distribution algorithm is how to distribute the necessary amount of money evenly to everyone. The flow of money is like a great river, with its function hidden in the process of flowing.
A new factor currently disrupting the distribution algorithm is the denial of the very function of distribution. Distribution is a process that lies between production and consumption. There is a movement to directly link production and consumption by omitting this intermediate process. Behind this movement is the ideology that the costs arising from distribution are wasteful. Distribution is not simply viewed as a cost. There is an ideology that costs are unnecessary. This is due to a lack of proper recognition of the meaning of the function of distribution. In the market economy, this ideology is self-destructive. They do not understand that the distribution algorithm is established with costs.
Those who seek change dislike regulations. Those who value order dislike lawlessness. The issue is not whether regulations are good or bad but what the market demands. Fundamentalists rigidly insist that competition is a principle or that everything should be regulated. The important thing is the situation.
People tend to see things only from their own convenience. However, the most important thing for the economy is the state. The first thing to discuss is what state it should be in.
Economic policy is similar to chess; neither a purely defensive nor a purely offensive approach will yield good results. A balance of offense and defense in response to changing situations is required.