Nobody likes to lose money. That is the reason why whether it is the worst financial crisis “once in a hundred years,” or the “lost decade,” most people tend to focus on the value that disappeared because of declining asset prices.
So, it may sound contradictory that Eiichi Shibusawa, “the father of Japanese capitalism,” said “one must let go of your financial and material wealth, in addition to accumulating it, to become a true master of the wealth.”
Not using the money by being thrifty, and accumulating the wealth appears to be the sure road to riches. I personally “let go” a lot of wealth over the past year through investments in the stock market, venture businesses, as well as running my own company. I would have been a little less poor, if I had held my wealth as cash in the bank, instead of making these investments.
However, Eiichi understood what makes the economy tick. Though he was not an economist, he was a practitioner of business and had the knack for the trade even as a boy. He knew that one cannot get truly rich by being hoarding and counting his coins alone in an economy. Somebody has to spend the money in return for goods or services to warm the pockets of the provider. With warmer hands, the provider in turn can spend on money on others’ goods and services, and the wheels of the economy keeps on rolling.
Some so-called experts call for measures to prop up asset prices in order to re-start the economy. Others call for inflationary monetary policy that decreases the value of your money, thus relatively increasing asset prices. I too cannot proclaim to be an economist. But I believe the root of the problem is not so much the “stock” (asset prices), but rather the “flow.”
The economy can run just fine even though asset prices do not increase, as long as the flow persists. Declining asset prices hurt a lot. But, in fact, as long as your leverage is in check, it is not a life threatening event, and one can persevere, if the flow persists.
However, cut off the “flow,” and the economy has a sudden-death situation due to cardiac arrest.