The Economic Utility of “Money” | Keiichirou Koyano's Website

To understand the workings of the economy, it is necessary to consider the utility of “money” from a practical perspective. We need to re-evaluate the role of money not from the perspective of its functions, but from the perspective of its utility. Without clarifying how “money” operates (mechanism) to drive the economic system, we cannot understand how to handle “money.”

The ultimate goal of the economy is to sustain human life. The biggest problem with the modern economy is that it is centered around goods and “money” rather than people. Humanity is being ignored. The economy fundamentally lacks the consideration of a person’s life and lifetime. The economy should be based on the lifetime of individuals. If it is centered around goods and “money,” people will be treated as objects. If humans are not treated as humans, the economy cannot achieve its ultimate goal.

In essence, the purpose of the economic system is to sustain the lives of all people. Goods and “money” are merely means and tools for that purpose. People’s lives are reflected in consumption. The pattern of consumption must be the foundation of the economy. To live, people must consume a certain amount of resources daily. Especially food is indispensable. There are also items like clothing and housing that are needed over a certain period. Thus, consumption is fixed and definite. On the other hand, among production goods, there are items like fresh food whose production is unstable and fluctuates. The economic system needs to smooth out and stabilize the production waves. First, clarify the patterns of daily life and a person’s lifetime, and what is needed at each moment. Economics begins with considering life, illness, aging, death, and ceremonial occasions.

The economy ultimately manifests in consumption and is realized through costs. Yet, consumption and costs are often neglected. In severe cases, costs are treated as nuisances. However, costs are crucial for distribution, and it can even be said that costs sustain the economy. If costs are reduced meaninglessly, it negatively impacts distribution. The core of costs is income. If costs are reduced, total income will naturally decrease.

One of the elements that sustain the economy is waste. The essence of the economy is often hidden in what appears to be waste.

The purpose of the economy is to sustain real life, and “money” is a backstage, auxiliary means. “Money” does not become the goal.

The primary reason for war is the fear that life will become unsustainable. The idea that war will disappear if we disarm is an illusion and will only invite invasion. To eliminate war, we must solve problems without resorting to war. For that, it is necessary to ensure that not only our own country but also the opposing country’s life is sustainable.

“Money” is not consumed. It is always reused without being consumed. This is because “money” is not consumed, allowing its value to specialize in exchange value. While “money” is not consumed, goods are intended and premised to be consumed.

Goods (things, services, rights) exert economic utility by being consumed. Therefore, goods do not fundamentally circulate. Over time, they are unilaterally consumed. In contrast, the nominal value of “money” does not rot, damage, deteriorate, break, disappear, burn, evaporate, melt, or become obsolete.

“Money” constitutes a negative space. “Money” forms nominal value and creates a negative space. In reality, positive (+), “money” is negative (-). In reality, it exists in the physical space. Over time, the real value and nominal value diverge. The temporal divergence between real value and nominal value lies behind economic phenomena.

“Money” is a means and tool for distribution. The function of “money” to fulfill its role is exchange value. The attributes of “money” are formed on the premise of distribution and exchange.

“Money” does not produce goods, process them, or drive cars. The actual work of producing goods and transporting things is done by machines, devices, and people. The role of “money” is the expenditure when purchasing raw materials or hiring people.

The economic system links people and goods to realize production, distribution, and consumption. “Money” functions as a medium that connects people and goods.

Distribution is established by pre-allocating “money” as a means of payment and using the allocated “money” to acquire the necessary goods from the market. The problem is that there are populations who cannot earn income by working themselves, meaning there are quite a few people who cannot acquire “money” by their own power.

The economic system consists of three phases: production, distribution, and consumption. It produces the goods necessary for life, distributes them to those in need, and consumes them. The role of “money” is to mediate this cycle.

Total production = total income (distribution) = total expenditure. This is called the three-sided equivalence. It should be noted that the three-sided equivalence holds on “money.” In the world of goods, that is, physical production and physical consumption are asymmetrical, forming the real world. The difference between nominal value and real value arises because the nominal value of “money” does not rot or break, while the real value of goods rots, deteriorates, or disappears.

The elements that constitute the economic system are production entities, distribution entities, markets, and consumption entities (mainly households). “Money” connects production and consumption through the distribution process.

To stabilize the economy, production, income, and expenditure must be balanced.

Generally, production entities and distribution entities are integrated to distribute production and “money.” “Money” prepares for payment.

The biggest fallacy of the modern economy is the illusion that distribution is done solely by the market. Distribution is completed by the distribution entities systematically distributing “money” as income according to work, and using the distributed income to purchase the necessary goods from the market. In other words, distribution is established in two stages: the allocation of “money” and the purchase of necessary goods from the market.

What drives the economic system and economic entities is “money.” The “money” system is extremely simple. Because it is simple, it allows for advanced processing.

The problem is that the population that can earn “money” by working and the population that consumes goods do not match. In other words, while everyone needs goods, only a limited number of people can produce goods and earn “money” by working. How to resolve this gap is the biggest problem in the economy, yet neither communism nor capitalism has noticed this point, or they are deliberately ignoring it.

The population consists of productive labor and non-productive labor. Non-productive labor refers to the population that cannot earn income by working themselves. Productive labor is deeply related to age in the current system. The productive age population is an important factor in the current economy.

Production and consumption are the two wheels of the economy, and if either is biased, the economy will not function. In short, if production and consumption are separated, the economy cannot be controlled. Therefore, the distribution system through “money” is interposed in the middle.

Consumption includes public consumption and private consumption. The consumption economy is based on the distinction between public and private and life planning. Public consumption is mainly consumption by public institutions such as government agencies, and public consumption generates income as it involves public labor. Public consumption includes education, national defense, security, disaster prevention, infrastructure development, and administration.

Labor includes consumption labor and production labor. Much of consumption labor is household labor and public labor. Household labor is non-income labor. In other words, those engaged in household labor cannot earn income on their own. To convert household labor into income labor, outsourcing of household labor and chores is progressing. However, if household labor and consumption labor are not properly understood, outsourcing household labor may lead to the collapse of consumption labor. The lack of proper evaluation of household chores tends to increase the burden on women who cannot escape childbirth and childcare. This is a factor in the declining birthrate and aging population and gender discrimination. It must be remembered that there are parts of the economy that cannot be monetized. And whether it can be monetized or not is based on values and philosophy. Therefore, the foundation of the economic system must be philosophy.

What drives economic entities is the inflow and outflow of “money,” that is, income and expenditure. The flow of “money” is created by income and expenditure. The economic system and economic entities are the inflow and outflow of “money.” IN-OUT. I-O. In other words, it is binary and compatible with the system.

What is important in the inflow and outflow is that “money” is the driving force of economic organizations. In other words, the current economy can be said to be a system that operates through “money.” The economic system operates by the circulation of “money.” “Money” exerts its utility by being used. “Money” must circulate continuously and evenly throughout society. If “money” stops flowing, society will collapse. Also, if there are places where “money” does not flow, those places will become economically unsustainable.

What creates the inflow and outflow of “money” is the surplus and shortage of “money.” The importance of surplus and shortage is that because there is a shortage, people work to supplement the shortage.

The surplus and shortage of “money” in one economic entity are linked to the surplus and shortage of “money” in other economic entities, causing “money” to flow. In one market, economic entities with a shortage of “money” and those with a surplus coexist. Not all entities are short of “money,” nor do all entities hold a surplus of “money.” There are always entities with a shortage of “money” and entities with a surplus of “money.” The total sum of the surplus and shortage of “money” in all economic entities balances to zero. Economic entities alternately repeat the surplus and shortage of “money” in a certain cycle. This cycle causes certain fluctuations in the economy.

Separating work and income disconnects production and consumption. If distribution is made homogeneous and equal, the connection between production and consumption will be lost, and mutual restraint between production and consumption will not work.

“Money” is also a necessity for living. It is a means and tool to obtain the resources necessary for life. In today’s world, without “money,” one cannot obtain the resources necessary for life. In other words, one cannot live. One cannot survive.

The economic system operates through the logistics created by the flow of “money.”

“Money” is pre-distributed as income in preparation for payment according to work. Consumers obtain the resources necessary for life by exchanging “money” in the market. “Money” can be owned, creating ownership rights. “Money” moves by changing or transferring ownership.

In the market, “money” exerts its utility through buying and selling. Buying enhances the utility and exchange value of “money.” Selling promotes production and prepares for payment. Borrowing prepares for payment and generates debt and interest. Lending also prepares for payment and generates claims and interest.

In lending and borrowing, the borrower incurs debt, and the lender incurs claims.

Lenders and borrowers, sellers and buyers are in a mirror-image, symmetrical relationship.

“Money” is also a means to build production means. “Money” forms capital.

“Money” exerts its utility by forming monetary value. Monetary value is exchange value. Monetary value is formed by multiplying quantity and monetary units. Therefore, monetary value is decomposed into quantity and monetary units.

From the above, the practical characteristics of “money” can be listed as follows:

“Money” is value.
“Money” is a nominal existence. “Money” forms nominal value.
The nominal value of “money” does not deteriorate.
“Money” has a negative function.
“Money” is a medium and acts like an adapter.
“Money” unifies value and enables calculation.
“Money” is a unit.
“Money” is a standard, a measure. “Money” is a relative measure.
“Money” symbolizes exchange value.
“Money” can be divided and used.
“Money” is fluid, meaning it can move.
“Money” is information.
“Money” anonymizes information.
“Money” preserves exchange value.
“Money” is a means of distribution.
“Money” is preparation for payment.
“Money” generates time value.
“Money” is not consumed but reused. It is recycled.
“Money” has anonymity.
Time value changes geometrically and compounding.
“Money” can be exchanged. It can be bought and sold.

“Money” is value. When we think of “money,” we imagine banknotes or coins, but the true nature of “money” is value, and “money” itself does not have a physical entity. Banknotes and coins conveniently use their physical attributes to represent the function of “money,” but they do not have intrinsic value. “Money” is a nominal existence and does not have a physical entity. The substance of monetary value lies in goods, usufruct, and rights. While goods, usufruct, and rights have positive functions (use value), “money” has a negative function. This negative function creates a flow of goods, usufruct, and rights in the opposite direction of the flow of “money.”

“Money” constitutes a negative space. Over time, real value and nominal value diverge.

The true nature of “money” is value. The current “money,” which is representative currency, does not inherently have physical attributes, but when it is given the function of “money” in physical forms like banknotes and coins, attributes such as destruction, loss, and possession are granted. By eliminating the physical attributes of “money,” it becomes possible to dematerialize, de-materialize, signalize, and symbolize “money.”

The mathematical system used in natural sciences differs from the mathematical system used in economics. “Money” is a natural number, a vector, and a discrete number. Also, calculations are based on the principle of balance. The principle of balance is the idea of basing calculations on the balance.

“Money” unifies value by quantifying it, enabling calculations. For example, it allows adding the value of a bottle and the value of juice or adding the value of labor time and transportation costs.

Physical units such as distance and weight are absolute units, but economic units are relative units, different from physical units. The unit of “money” is a relative unit determined by the relationship between the quantity of goods, the circulation of “money,” and the needs of consumers.

Monetary value is the value created by the necessity of that time, that person, and that thing, and it is not a universal value. Monetary value is a relative value determined by demand and supply and the total amount of currency. Demand is constrained by consumption power, and supply is constrained by production power. Since consumption and production are finite, the total amount of currency must be capped. Consumption and production power are not constant.

“Money” is a medium and cannot exert utility on its own. It exists because there is a target indicated by “money.”

“Money” symbolizes exchange value. The flow of “money” has a counterflow of goods, services, and rights.

Economic value is added value. Added value is the value added to given goods through labor, time, processing, assembly, etc. Economic value generally refers to added value.

One of the factors that generate or change economic value is time. Economic value is also time value. Time value refers to the difference or change in economic value that occurs over a certain period. It is a type of added value. “Money” generates time value. Time value also becomes the force that moves “money.”

Time value is expressed as a function of time.

Interest generates time value. Time value generates profit.

Profit is an indicator of the function of “money,” but it does not mean the surplus or shortage of “money.”

The function of “money” has long-term and short-term functions. The long-term function of “money” is that its utility works over a long period. The short-term function is that its utility works within a certain period (principally one year).

The economic value of goods is influenced by the time they are consumed. For example, the economic value of goods consumed in a short time, like food, differs from that of goods consumed over a long time, like houses and cars, or goods that are essentially semi-permanent, like land.

Based on these characteristics of “money,” the economic system and monetary system must be designed and controlled. The economic system is established by systematically distributing “money” according to work and using the “money” distributed as payment preparation to purchase goods produced by economic utility from the market. In other words, it is a system that realizes the functions of production, distribution, and consumption through the medium of “money.” Therefore, monetary value is not simply determined by supply and demand. It is determined by the interaction of income, expenditure, and savings. While supply and demand are influenced by the market, income and expenditure are determined systematically. This dual structure makes the economy appear complex.

The function and movement of “money” are regulated by bookkeeping. The function and movement of “money” in the production process are regulated by bookkeeping. The measurement points are occurrence, realization, and completion.

Currency is moved by time value. “Money” disappears when used. “Money” becomes insufficient when used. What moves “money” is the surplus and shortage of “money.” To circulate “money,” there must be surplus entities and deficit entities. There must always be surplus entities and deficit entities. “Money” converts labor into economic value through income.

What drives the economic system is the flow of “money.” The flow of “money” refers to the flow of cash, cash flow. Cash refers to the exchange value indicated by “money” at that point in time. Market transactions such as buying and selling, lending and borrowing create the flow of “money.” Behind the flow of “money” is the flow of goods in the opposite direction of the flow of “money.” The flow of goods establishes the real economy. The flow of “money” constitutes the nominal economy. If the function of goods is positive, the function of “money” is negative.

To smoothly operate the monetary system, “money” must circulate evenly throughout society. “Money” must circulate continuously. “Money” must be supplied as needed to those who need it. “Money” must be pre-distributed as payment preparation. “Money” must be linked to economic activities. Economic activities consist of production, distribution, and consumption.

Considering the above points, the following specifications are required:

The need to unify value.
A system to limit the total amount of “money.”
Guarantee the exchange value of “money.”
A device to produce “money.”
A system to supply “money.”
A device to distribute “money.”
A system to circulate “money.”
A system to control the amount of “money.”
A device to pre-distribute “money.”
Make economic value measurable by “money.”

To realize these specifications, the required functions of “money” are:

Settlement function: It is necessary to guarantee the exchange value. The function to guarantee the exchange of “money” with goods determined by market transactions at that point in time is required. The settlement function is the manifestation of exchange value.
Value storage: “Money” is not consumed. The fact that it cannot be consumed makes it possible to store and accumulate value.
Measure: “Money” determines economic units by multiplying the quantity of goods and time by the unit of “money” (price). The monetary unit is a relative unit determined by market transactions at that point in time.
Calculation function: “Money” unifies economic units and replaces them with numbers, enabling calculations.
Measurement function: It makes it possible to measure production and consumption. It allows automatic adjustment of production and consumption.

Also, make economic value measurable by “money.” To make measurement possible, it is quantified.

An economic zone can only have one monetary system.

The mechanism to produce “money”

The origin of “money” is debt. In other words, it is a loan. “Money” is generated by the issuing institution borrowing. “Money” is granted credit by securing some substantial object. In other words, it is generated in pairs with something of substantial value.

To produce “money,” it is necessary to separate nominal value from the substance.

By securing goods or rights provided by the general government, the central bank institution borrows. One of the rights secured by the general government is government bonds. Government bonds are both a debt and an asset of the government to the people. Banknotes (bills, “money”) are debts, that is, loans, to the issuing bank. The government borrows “money” from financial institutions by securing government bonds. The general government grants credit to the negative “money” by providing substantial goods. Financial institutions take on the negative part, that is, they borrow.

The device to supply “money”

First, how to supply “money” to the market. Next, how to circulate “money” in the market.

“Money” is supplied to the market through lending and borrowing and exerts its utility through buying and selling. By supplying through lending and borrowing, it is possible to control the circulation and flow of “money.” Also, it gives the function of credit to “money.” In other words, it backs “money” with credit.

The supply of “money” to the market is executed by the central bank or the government issuing it, lending it to financial institutions, and further lending it from financial institutions to other economic entities. When “money” flows from financial institutions to the market (other economic entities), claims and debts of the same amount as the flowed amount arise. When “money” flows back from the market to financial institutions, that is, when funds are collected, claims and debts of the same amount as the collected amount decrease.

If the institution supplying “money” supplies it without limit, the total amount of currency will have no limit. As long as production and consumption are finite, if there is no limit to “money,” it will not serve as a standard for distribution. Therefore, collateral is necessary for the supply of “money.” Under the gold standard, gold was used as collateral, but now, government bonds are used to set limits.

The device to collect “money”

To control the circulation of “money,” a mechanism or device to collect “money” is necessary. Once “money” is supplied, a device to collect “money” is needed, but collecting “money” is much more difficult than supplying it.

The place to circulate “money”

The place where “money” circulates and is exchanged for goods is the market. “Money” circulates, and goods flow in a certain direction.

What makes “money” circulate and function is the surplus and shortage of “money.” By repeating the replenishment, release, and saving of “money,” it circulates in the market.

The role of circulating the economy is borne by economic entities. Economic entities include production entities, distribution entities, and consumption entities.

Economic entities are required to smooth and level the flow of goods and “money.” In other words, by streamlining the flow of goods and “money,” the importance of savings and storage arises. At that time, savings and storage play an important role. Therefore, distribution entities are also required to have the function of storage and savings. The function of storage and savings includes preservation. There are short-term and long-term savings and storage.

Savings exist in both goods and “money,” but there are fundamental differences between goods and “money.” The difference between goods and “money.” Goods rot and deteriorate, but “money” does not.

When accumulated, “money” forms capital.

Goods (things, services, rights) exert economic utility by being consumed. Therefore, goods do not fundamentally circulate. Over time, they are unilaterally discarded. In contrast, the nominal value of “money” does not rot, damage, deteriorate, break, disappear, burn, evaporate, melt, or become obsolete.

Inflation, deflation, recession, panic, etc., are monetary phenomena. Famine, earthquakes, floods, wildfires, tsunamis, accidents, epidemics, global warming, etc., are physical phenomena. Unemployment, declining birthrate and aging population, population problems, urban problems, war, civil war, revolution, etc., are human phenomena.

It is said that during the great famine, there was a merchant who starved to death with a large amount of money in his pocket. This event symbolizes the relationship between goods and “money.”

In cases like hyperinflation where “money” ceases to function, a barter economy may emerge. In short, the main actor in the economy is not “money,” but the actual sustenance of life.

The total sum of market transactions balances to zero. The total sum of buying and selling balances to zero. The total sum of lending and borrowing balances to zero. The total sum of the surplus and shortage of economic entities balances to zero.

Transactions between economic entities are established with a counterpart, and transactions are mirror-image and symmetrical, so the total sum between economic entities balances to zero (zero-sum).

The fact that the surplus and shortage of “money” balance to zero means that the phenomena of “money” caused by surplus and shortage are fundamentally oscillations, and the amplitude is the problem. If the amplitude becomes too large, the economic structure cannot withstand it and may collapse.

The surplus from income minus expenditure becomes savings. The remainder from production minus consumption becomes inventory, but there are goods that can be stored and those that cannot. Even if they can be stored, generally, storage costs such as warehouse fees are incurred.

The market must have moderate competition. This is because the unit of “money,” monetary unit, unit price, and unit price are relative units, not absolute units, and cannot be established without mutual restraint through competition.

However, some people consider competition as a principle and a panacea for all economic phenomena, and some people are obsessed with reducing costs and profits at all costs. Costs are crucial for distribution, and profits are indicators of the function of economic entities. If costs are reduced indiscriminately, distribution will not function.

Without considering why competition is necessary, some people absolutize competition and advocate deregulation. Saying that all regulations should be eliminated is reckless. Generally, regulations exist to maintain fair competition.

Currently, competition tends to converge on price. However, competition is not limited to price. Rather, competition is inherently qualitative. If competition converges on price, those with capital power will overwhelmingly benefit, and the market will deteriorate.

Competition is merely a means to derive appropriate prices and costs, not an absolute principle. In a monopoly or oligopoly state, competition does not work, but excessive competition also prevents proper competition. Policies need to be changed according to changes in the environment and conditions.

“Device for Distributing Money”

Many people misunderstand that distribution is done in the market. However, distribution is not only done in the market. Distribution is organized in advance according to work, and money is distributed. It is realized by using the distributed money to purchase goods from the market.

The device that distributes money is the distribution entity. The distribution entity is mainly involved with money. The distribution entity generally controls production and distribution together with the production entity. The main institutions are corporate enterprises and public institutions.

Asymmetry between Production and Consumption

We know that in reality, production and consumption are asymmetric. Because of this asymmetry, phenomena such as famines and mass poverty occur. Not all produced goods are consumed. The three-sided equivalence only holds in the world of money.

We also know the asymmetry between the production population and the consumption population. Therefore, the problem of declining birthrates and aging populations arises. Those who have not reached adulthood and the elderly cannot earn income by working. The age at which one can work and earn a living is limited. The goods produced by those who can work must be shared among the entire population. The ratio of the amount of goods one person can produce to the amount of income they can earn is key. It is problematic to say that those who do not work should not eat.

The Economy Consists of Three Phases: Production, Distribution, and Consumption

That is, supplying the produced goods to those who need them, when they need them, and as much as they need. This is the role of the economic system, and the key is how to derive the necessary amount and adjust the consumption of production. There is storage (preservation, savings) as an auxiliary mechanism for this.

To achieve distribution in a market economy, it is necessary to distribute money in advance in an organized manner.

The distribution of money is done systematically by the distribution entity. In other words, distribution is also an organizational issue. Organizational issues include employment conditions such as minimum wage, regular employees, and temporary workers, working conditions such as working hours, personnel systems such as wages and evaluations, social insurance systems such as unemployment insurance, national health insurance, and pensions, and labor market issues.

Money is a preparation for payment, so an amount of money sufficient for all people to obtain the resources necessary for living must be distributed in advance. The distribution entity is responsible for distributing money. The distribution entity is required to regulate and level the flow of money.

A market economy is based on distributing money as income in advance as a preparation for payment, and completing distribution by using the pre-distributed money to purchase goods from the market. In contrast, a controlled economy is a system where a central institution oversees production and distribution and distributes goods in a planned manner. In other words, it essentially does not allow the market to function. All production is controlled in a planned manner.

Here, we assume a market economy. In a market economy, production and inventory are controlled by market supply and demand. Also, the distribution entity systematically distributes money in advance according to the work of production.

The important thing is whether the system for distribution and the distribution entity are aligned with people’s lives and livelihoods. The issue is whether the distribution structure is capable of supplying money as needed, when needed, and as much as needed.

There are productive labor populations and non-productive labor populations, and there are many people who cannot earn income by their own efforts. If money is not distributed to such people, the economy will not function.

There are consumption labor and production labor. Much of consumption labor is domestic labor. Domestic labor is non-income labor. In other words, domestic labor cannot earn money. Unless one is self-sufficient, one cannot be economically independent with only domestic labor. The current economic system is such that one cannot live without money. One aspect of this is the tax system.

Mechanism for Equalizing Income

Why is income redistribution necessary? In other words, why is it necessary to equalize income?

The fundamental premise is that all people must be provided with enough money in advance to obtain the resources necessary for a humane life from the market.

Income redistribution is necessary because, without it, the fundamental premise cannot be achieved. It is not about redistribution for the sake of redistribution, but understanding why redistribution is necessary.

When we say “that person is rich,” it can mean either that they have a lot of earnings (income) or that they are wealthy. When we talk about income redistribution, in a broad sense, it also includes wealth redistribution. Here, we consider redistribution in the broad sense, including wealth redistribution.

Before clarifying why income redistribution is necessary, we need to clarify the causes of income disparity. One cause is that there are people who cannot earn income by working. The ability to earn income by working is deeply related to age. Age cannot be changed by individual effort. Another cause is the existence of disparities. Many factors that create disparities are innate and cannot be corrected by individual effort. Another cause is the existence of poverty. There are people who cannot earn the income necessary for a humane life. Another cause is the inability to prevent temporary, extraordinary expenses due to disasters, accidents, or illnesses. Another cause is differences in environment and conditions such as cold regions, resources, transportation convenience, experience, knowledge, and qualifications. Another cause is differences in consumption units and conditions such as family composition and dependents. Many of these factors cannot be corrected by individual ability.

So, what kind of inconveniences do such income disparities cause in the economy? One is that extreme disparities hinder the fair distribution of goods. Another is that they cause class and discrimination. Class and discrimination create insurmountable walls between people and cause social division. Another is that they cause social unrest. Social unrest leads to deteriorating security and riots. Another is that they create imbalances and biases in capital. Such imbalances and biases create unfair and unjust distribution. Another is that the concentration of wealth creates unearned income earners. The existence of unearned income earners significantly reduces economic efficiency.

Non-productive labor refers to the population that cannot earn income by working.

The general government works to equalize distribution by redistributing income.

Money is a means of distribution, so it is necessary to ensure a minimum income without extreme bias. This is the necessity of income redistribution.

Device for Realizing Life by Utilizing Money

The ultimate users of money are the consumption entities, namely, the general government and households. The consumption entities are mainly those involved with people.

People’s lifestyles appear as consumption patterns. Consumption patterns are constrained by the period during which the utility of goods works. There are goods that are consumed daily, such as food and energy, goods that exhibit utility for a certain period, such as clothing, and goods that exhibit utility over a very long period, such as housing. The economic system needs to be constructed according to the consumption patterns of these goods.

Consumption is an individual issue and a community issue. There are public communities such as nations and private communities such as families. The way a nation and a family are structured regulates individual lives. Talking about freedom, equality, and welfare within these relationships has no substantive meaning.

Money, nations, and families all exist to make individuals happy.

Ideally, producing according to consumption would be efficient, but production takes time, and if production were to keep up with consumption, it would fall behind. Therefore, production is done by predicting consumption, but the problem is that production has waves and is unstable and uncertain.

Especially important are food and energy, which are consumed daily. The amount of food harvested is influenced by weather and seasons. Therefore, the important thing is whether it can be preserved.

There are public consumption and private consumption. Public consumption and private consumption have different entities. Public consumption is led by the general government, and private consumption is led by households.

Public consumption involves public investment and is accompanied by national ideals and urban planning. Unlike private production entities, it does not rely on the market economy.

The general government is both the entity of public consumption and the entity of distribution.

Private consumption realizes the substance of life. Consumption is the result of realizing a person’s life and livelihood. The way consumption is structured forms the foundation of the economy.

To stabilize private consumption, it is essential to ensure a stable income over a long period. The market economy is based on procuring the resources necessary for life from the market by paying money.

The purpose of the economy is to sustain real life, and money is a backstage, auxiliary means. Money is meant to sustain life and is not an end in itself. This point must not be misunderstood. Money is a negative and forms a negative space. The substance is primary, and the negative is secondary. In other words, the real is primary, and the nominal is secondary.

Private consumption entities earn money (income) by selling services and utilities such as labor, and use the earned money to purchase goods from the market and consume them to live. First, there is income, and then there is expenditure. The surplus funds after deducting expenditure from income are saved.

We must not forget that the ultimate goal in the economy is consumption. Consumption means life. Life is the activity of living. The economy is the activity of living.

The ultimate goal of the economy is consumption. In other words, consumers must be the main focus. The economic system exists to sustain consumers’ lives, not for production. Production must rely on consumers’ needs. The basis for this is supply and demand.

The economy is the activity of living. Consumers provide production entities with production means (labor, capital, land, etc.) and earn rewards (money) through reciprocal benefits. They use the money to obtain the resources necessary for life from the market.

In the modern economic system, life cannot be sustained without money.

The consumption unit includes all consumers, individuals, including non-productive age populations such as children and the elderly. However, if all individuals are considered as units for distributing money, those who cannot earn income by providing production means cannot be allocated money. Generally, the unit of distribution is set as a group that shares a livelihood. This is the household.

The household is crucial for balancing income and expenditure, that is, the income-expenditure structure. It is literally a household account book.

The important thing in consumption is the balance between production and consumption. The key is how to control production based on consumption and how to link consumption and production. The market is the place or mechanism that links consumption and production.

The key to linking consumption and production is necessity, demand, and supply.

The key to stabilizing the economy is how to balance the amount that the consumption unit can earn and the limit to which it can save.

Device for Producing Goods by Utilizing Money

The production entity is responsible for producing goods. The production entity is involved with things.

The representative production entity is a corporate enterprise.

The production entity is responsible for producing goods. The production entity procures raw materials and labor from the market and produces goods using devices and equipment. The production entity is driven by income and expenditure, that is, the inflow and outflow of money.

The production entity purchases labor and raw materials (expenditure), uses devices (investment) to produce goods, and sells them to earn money (income). The order is that expenditure comes first, followed by income. Therefore, it is necessary to procure funds initially.

The performance of the production entity is measured by profit.

The production entity is responsible for both production and distribution together with the distribution entity. It is a mechanism that links work and distribution.

While production and sales have waves, costs are fixed, especially income is fixed. The production entity is required to smooth out these fluctuations. In other words, while current income is unstable, current expenditure is always constant. Most of the expenditure is income. Income is the key to distribution, so it must be secured and leveled stably over the long term. This is the fate of the economic entity. To correct the imbalance between income and expenditure, it is necessary to control the flow of money through the function of money, not through income and expenditure. The system for this is accounting, and the mechanism is bookkeeping.

There are also differences in the functions of long-term capital flows such as investments and short-term capital flows such as working capital. The economic entity also has the function of smoothing these flows. This is a discrepancy arising from the difference between the functions related to production and those related to distribution. Adjusting this difference is also an important role of the production entity. The long-term and short-term functions of money must be analyzed separately to accurately measure and analyze the function of money.

The flow of money has a short-term cycle related to current operations and a long-term cycle related to investments. These two flows need to be considered separately because the nature of the function of money is different.

The function and flow of money need to be analyzed separately.

The function of money over a certain period is represented by profit and loss and balance sheet. The short-term function over a certain period is represented by profit and loss.

The long-term function of money related to investments needs to be measured and analyzed separately.

Why is it necessary to consider production entities and distribution entities separately? Because production and distribution have different purposes and mechanisms, and if they are combined, there is a risk of bias towards one purpose or function.

Device for Controlling the Circulation of Money

To establish a market economy, it is necessary to circulate money in the market. Moreover, the market economy will not function unless money is not only circulated but also cycled. There is a need for an institution that controls the flow of money. Financial institutions control the flow of money.

Financial institutions are responsible for the production, supply, circulation, and control of money.

Financial institutions are devices that circulate money by lending money from surplus entities to deficit entities.

Circulating money means making it rotate and cycle. For this, it is necessary to repeat surpluses and deficits at regular intervals and widths.

To circulate money smoothly and continuously throughout society, it is necessary to avoid:

Stagnation or stagnation of money.
Bias or distortion.
Blockage, clogging, or narrowing of the paths through which money flows.
Social stratification or market division.

To establish transactions, a place is necessary, and for this, markets are formed.

The necessary conditions for the establishment of a market are the existence of sellers, buyers, money, and goods.

Public institutions such as the state correct and control the imbalance of money by redistributing income through taxes.

The problem is that imbalances and biases in money arise between economic entities, and these imbalances and biases hinder the normal circulation of money.

The causes of imbalances and biases in money include:

Imbalance between production and consumption. Imbalance between supply and demand.
Stagnation or stagnation of money.
Waves of overproduction and underproduction.
Bias in distribution.
Bias in savings.
Imbalance in the volume of money circulation.

The economic system can be seen as a device that sustains people’s lives by producing goods using money, distributing money through distribution entities, and purchasing the necessary goods for life with the distributed money. These functions are realized by circulating money. To maintain the smooth flow of money, it is necessary to correct the imbalances and biases in money.

Costs are the key to the economy, and without costs, the economy will not function. Securing appropriate costs is the essence of the economy.

Costs build the distribution structure, revenue builds the production structure, and life forms the consumption structure.

The biggest problem is that the population engaged in production activities and the population involved in consumption activities do not match. Moreover, the relationship and ratio are not constant. The challenge of economics is how to bridge this gap and distribute production goods fairly and as needed to all people, consumers, when needed.

The challenge of economics is how to balance the total amount spent on production, the total amount of income, and the total amount spent on consumption. And the ultimate challenge is whether the amount of consumption was sufficient for living.

If money stops functioning, we will live without relying on money. We will return to the economy of goods. Essential goods such as food will be self-sufficient, and bartering will be used.