ABSTRACT
Economic policy requires that lay people such as politicians understand the key concepts of economic theory. But economic reality is much too complex for that. Contemporary economic theories assume that the only economy that matters - indeed the only one that exists - is the national economy. To be sure, they recognize economic transactions across boundaries. But these are controlled by managing the internal economy of the national state. A functioning economic theory thus needs to integrate three spheres: the macro-economy of money, credit and interest rates; the micro-economic decisions on the velocity of the turnover of money and on the time period that is the 'now' of economic decisions; and entrepreneurship and innovation. The Japanese economic policy since the late 1950s has also focused on the climate, that is on creating and maintaining the right conditions for a strong and healthy economy.
