The Law of Action and Reaction in Economics
The action and reaction of recognition are paired.
There are actions towards the outside and actions towards the inside, and they are balanced.
The act of naming, which is an action towards the outside, is paired with the act of identifying the object, which is an action towards the inside. Actions towards the outside have meaning inside.
All economic entities function through the “inflow” and “outflow” of “money” and “goods.”
Economic activities of economic entities always involve a counterpart. This is because the act of “inflowing money” presupposes the existence of a counterpart who “outflows money.” Conversely, the act of “outflowing money” presupposes a counterpart who “inflows money.”
This relationship is a factor in the action and reaction of economics. And this action is targeted.
Transactions are balanced in economic value. In other words, the economic effect of transactions is balanced at zero-sum.
Economic entities are connected through the “inflow” and “outflow” of “money” and “goods.”
“Money” symbolizes “exchange value.” “Goods” possess both “use value” and “exchange value.”
“Money” forms nominal value. “Goods” form substantial value.
Relationships between economic entities are formed through the “inflow” and “outflow” of “money.”
“Production,” “distribution,” and “consumption” need to be linked. This is because “production,” “distribution,” and “consumption” need to be integrated. In other words, life is sustained by “producing” goods, “distributing” them, and “consuming” the distributed goods.
Economic entities purchase necessary “goods” from other economic entities by paying “money.” To obtain “goods,” economic entities must hold “money” as “payment preparation.”
If there is no “money” on hand, they borrow “money” from other economic entities. Here, the relationship of “lending” and “borrowing” of “money” arises.
The relationship of “lending” and “borrowing” establishes “claims” and “debts.” “Money” for “payment preparation” needs to be distributed in advance to the “consumer.”
Therefore, the market economy fundamentally precedes “lending” and “borrowing.”
Due to these circumstances, financial institutions were established as entities to facilitate “money.”
Current paper money is based on “debt.” Therefore, “money” forms a “negative” space. In contrast, “goods” are based on physical objects. Therefore, “goods” form a “positive” space.
“Goods” flow in the opposite direction of the flow of “money.”
The “inflow” and “outflow” of “money” alone cannot grasp the flow of “money” or its utility. Therefore, modern accounting was established to measure the utility of “money” by dividing it into short-term and long-term effects. The utility of “money” is directly linked to transactions involving the exchange of “goods” and “money,” measured and aggregated as “profit and loss.” Long-term utility is linked to the relationship of “claims” and “debts,” measured and aggregated as “balance.”
However, it is important to note that both “profit and loss” and “balance” do not directly reflect the “inflow” and “outflow” of “money,” i.e., “income and expenditure.”
Even if a “sale” and “purchase” are established in an economic transaction, the “inflow” and “outflow” of “money” are not necessarily executed immediately. In such cases, “lending” and “borrowing” are mixed within the “sale” and “purchase.”
In the balance sheet, the utility of ‘money’ and the utility of ‘goods’ are distinguished. The utility of ‘money’ is recorded on the ‘credit’ side, and the utility of ‘goods’ is recorded on the ‘debit’ side. Additionally, the ‘debit’ side forms the ‘substantive accounts’ and the ‘credit’ side forms the ‘nominal accounts’. The ‘debit’ side includes ‘assets’ and ‘expenses’, while the ‘credit’ side includes ‘liabilities’, ‘capital’, and ‘income’. The ‘credit’ side means ‘outflow’, and the ‘debit’ side means ‘inflow’.
“Money” does not exert its utility unless it rotates and circulates. If it flows in one direction, the relationship of action and reaction cannot be maintained.
The circulation of “money” is promoted by the surplus or shortage of “money.” “Money” is lost when used. If “money” is lost, new “money” must be procured by working or other means. “Money” exerts its utility by being used. When “money” is used, the reserve for “payment preparation” decreases.
Balance calculation is fundamental.
“Interest” forms time value. Time value is the difference that arises over time.
“Interest” has the function of circulating “money” through the difference caused by time value.
To smoothly circulate “money” for “payment preparation,” a certain degree of leeway is necessary.
Therefore, a certain amount of surplus “funds” needs to be prepared. However, if the amount of “money” circulating in the market becomes excessive, it becomes difficult to control the value of money.
The value of money is artificial and different from natural things.
While “goods” such as people and objects are finite, the value of money has an open upper limit. “Money” is infinite compared to finite physical objects. “Money” is a means of distribution, so it must have a closed upper limit. However, since the value of money is a relative standard, the upper limit can only be set institutionally. This is a factor that causes economic anxiety.
The distribution entity has the role of adjusting the surplus or shortage of “money” and streamlining the flow of “money.”
For example, “sales” are not constant, but irregular, uncertain, unstable, and fluctuating. “Costs” are constant, fixed, and certain. The enterprise, as a distribution entity, has the function of streamlining the surplus or shortage of “money.”
The government also corrects the bias of distribution through income redistribution. Extreme disparities hinder the circulation of “money.”
The important thing is to correct the bias of “assets” and “income.”
Economics is fundamentally “inflow” and “outflow,” binary. Therefore, it is highly compatible with systems. The evolution of today’s AI technology holds the potential to bring revolutionary changes to the economy.