Cycle observation | market, economy and cycle (on)

This is the first part of our internal sharing of X-Order's recent re-marketing.

In this sharing, we proceed from a more fundamental market interaction to dismantle the essence of a free market economy and to understand the cyclicality of the economy from a different perspective from Western economics.

In the following sections, we will share our analysis of the economic cycle and the fundamentals of the Bitcoin market.

Before discussing specific issues, discuss the correct way to study things.

The general way we study things is to first analyze the problem, find out the main contradictions, and then strip off the non-critical factors as much as possible to restore things to the most general state.

Starting from the study of the most basic things, gradually from simple to complex, from concrete to abstract, and constantly improve the understanding of things .

When we study things, we find that new laws do not mean that the laws we have known before should be abandoned . In fact, the new laws are our further understanding of the old laws.
The old law is an approximate description of things in our previous cognitive state. This approximation is sometimes useful when we have a new understanding.

For example, we now have quantum mechanics and relativity, but when we study the motion of cars, we don't need relativity and quantum mechanics. We only need simple Newtonian mechanics, because in this simple case. Our knowledge of Newtonian mechanics is sufficient.

First, the market economy

What we are going to talk about today is the economic cycle. To study the economic cycle, we must first study the economy itself.

The current economy is basically an economic model based on market economy. Then we must first study the market economy. There are many kinds of market economy, such as monopoly market, free market economy, and our unique socialist market economy.

These market economies have their own characteristics, but their essence stems from free exchange. To study the market economy, we must study the simplest free exchange.

What is the simplest free exchange? It is the original free market. To put it simply, both parties produce their own consumption, but because both parties produce different things and use them on both sides, the two sides can exchange their own unwanted products.
The exchange between the two does not require currency. In fact, if we have been to a remote rural area, we may still see similar property transactions. Both parties may just use eggs as a measure to buy what they need.

Social division of labor

To study the market economy, we have to track the source of the market.

The existence of the market is due to the evolution of human production patterns. The reason why people become the spirit of all things becomes an independent creature with independent creativity. The root cause lies in the ability of human beings to actively produce more products than they need.

In fact, this is something that every creature can do, otherwise the creature cannot progress, but only humans will actively and consciously produce more products.

Before the earlier society, humans may be single-handed, and everyone will produce the products he needs. But this situation is very difficult in the early days because the natural environment is very bad.

This creates a problem: one cannot guarantee his own survival.

Therefore, the small social group composed of primitive people consists of a group of people to improve the ability to resist risks. This formed the original tribe and produced a general social cooperative relationship. Since then, human beings have become social and have become real social people.
After becoming a social person, human beings found that the general cooperation efficiency is not high. If everyone can concentrate on what he is good at, the overall efficiency will be greatly improved. This also forms a social division of labor: each person only does a part of what he is good at, and then everyone combines, the final product production efficiency is the highest.

But the social division of labor has led to new problems: everyone's products must be exchanged with other people's products to meet the needs of everyone. This slowly makes the exchange the main purpose or even the sole purpose of producing the product.

At this time, human beings have entered the commodity society. The commodity society is characterized by its social production for the purpose of pure exchange.

Birth of money


Since the main purpose of commodity social production is to exchange, in order to improve exchange efficiency, humans have proposed general equivalents. The so-called general equivalent is a commodity that can be directly used to exchange any commodity.

A commodity that can be used to exchange any commodity, we call it currency . The currency used to be a shell on the sea. Because shells are very rare for people in the Central Plains.

After the shell, humans used a variety of currencies. The final currency is fixed as gold and silver. This is because gold and silver have stable chemical properties, and as time goes by, the cost of refining gold and silver currency remains basically unchanged.

Since ancient times, the production cost has remained basically the same. So far, the production cost of gold mines in Europe and America is about 1300 US dollars an ounce. Before the gold surge in July, all gold production was actually close to losing money.

After the currency was produced, the production model changed further, and the original exchange for the purpose of obtaining money for the purpose of production . Such a production model becomes a production and sales into a currency, and then purchases new production materials and re-produces them. Producers make profits through this process.

From this point of view, the starting point of capitalism and Western economics is the same. The initial discussion is about a balanced and effective free market under full competition: full competition, market effectiveness, and market freedom. The market itself is not good or bad.

Second, capitalism

Since then, we have entered the capitalist society, which has gained capital appreciation as the core of all production relations.
Capital cycle

In the capitalist market, capital has its own fixed cycle pattern.

The first step: using capital to purchase production materials and labor products;

The second step: selling the products produced. After the product is sold out. Will be converted into profit. This step is called a thrilling jump. Its thrill is that capitalists are responsible for the risk of not selling in the production process;

The third step: capital sells to obtain capital. Then continue to add value.

Bank: the core of society
The formation of banks is to solve the demand for financial lending. It is the center of cashiers and settlements, and all the money in the factory needs to be circulated through the bank. This also makes the bank naturally become the "faucet" of capital. Banks also have the right to choose the right to capital flow.

This is because there is a risk in the production model in capitalism. Especially when a single company faces the market, there are many risks, such as “thrilling jump” and risks in all aspects of the supply chain. But banks are different, and because they hold mainly cash (to simplify discussions, not distinguish between currency and credit currency), the risk is very small. Therefore, banks can provide capital support to other companies. As long as social production exists, capital can earn interest.

Since banks are the center of cashiers and settlements, and the risks inherent in capitalist production models, banks have a higher risk tolerance for interest-bearing capital and become the basis for controlling all production. Modern large-scale consortia, all of which are banks. For the core. All economic activities start from the bank to the end of the bank, which is the financial system of the entire modern society. Banks have become the core of society as a whole and have assumed responsibility for society.


We will go back to the market and we will find that the entire production process is a cycle:

In this cycle, the product must be sold and the purchase price recovered, so that the producer can have capital to invest in the next round of reproduction. This surplus value can be turned into profit.

To better illustrate this, we assume that in a simple market, workers produce 100 yuan of extra profit for capitalists. But the capitalist only pays workers 30 yuan, and the remaining 70 yuan is the capitalist.

This creates a problem: products are consumed by all groups in society and workers are required to purchase. If workers do not have enough money to buy, it will lead to a total output of the entire society greater than the total income available for consumption. Most of the money of the capitalists needs to be added, and not all of the money is spent on consumption.

Therefore, some products will never be converted into profits, products cannot be sold, and capitalists cannot recover capital for reproduction. According to the general production efficiency and capitalist profit rate, generally 20% (the average growth rate of all industries is about 20%).

Then in this case, after deducting the cost, the remaining product for one year is 10%. After all, the remaining products in 10 years are close to 100%, and almost all products cannot be sold. This is why the economic crisis has been basically a decade since the mid-19th century and the 1930s.

This is a process of dynamic accumulation, accumulated to a certain extent, the economic crisis will be exposed at once. This is because before the crisis emerged, everyone thought that the product could be sold.

After the economic crisis, there is a need to solve the economic crisis. This matter, we mainly handed over to economists to study and solve.

Third, the solution to the economic crisis

In history, economists have proposed these methods to solve the economic crisis:

Neoclassical economics

They used to think that everything that happened in the market economy was correct. Joseph Schumpeter once declared that "the depression cannot be simply regarded as a bad thing," but "a manifestation of something that must be done." They believe that the market can be restored to an effective state through spontaneous adjustment.

They do not recognize the existence of the economic crisis and believe that the economic "crisis" can be self-healing.

Keynesian Economics

Keynes advocates responding to unemployment during the recession with aggressive government intervention – printing more banknotes and, if necessary, investing heavily in public works.

To put it simply, the government expands its credit, releases liquidity, and disguised inflation to ease the economic crisis.

Marxist economics

Let the capitalist's surplus value be returned to the society, let everyone consume it together, and use it for the whole people. Once the production surplus value in a certain direction is found to be too much, the surplus value will be invested in the direction of innovation and will not be invested in excess.

In fact, since 1940, all countries have adopted Keynesian economics to resist the economic crisis.

When the economic cycle comes, the government expands its credit to release liquidity and then builds large-scale infrastructure projects. The government absorbed debt by changing inflation.


In the second part, we will combine Ray Dalio's analysis of the economic system and look at the strategy of cyclical response.

At the same time, we will further analyze the nature of Bitcoin and digital currency to reveal where the future of the digital currency market is.

Source: X-Order