Tuesday, 12 January 2010

Three economic items

Science is simply common sense at its best - that is, rigidly accurate in observation, and merciless to fallacy in logic. Thomas Huxley

The economy consists of economic items and economic entities. Economic items have economic value. Accountants value economic items when they account them. Utility, scarcity and exchangeability are the three basic attributes of an economic item which, in combination, give it economic value. The three fundamentally different basic economic items in the economy are

a) monetary items

b) variable real value non-monetary items

c) constant real value non-monetary items

The SA economy consequently consists of three parts:

1. Monetary economy

The SA monetary economy consists of the Rand money supply and other Rand monetary items, i.e. Rand money loans: e.g. bank loans, savings, credit card loans, car loans, home loans, student loans, consumer loans, etc.

2. Variable item non-monetary economy

Non-monetary items with variable real values over time; for example, cars, groceries, houses, factories, property, plant, equipment, inventory, mobile phones, quoted and unquoted shares, foreign exchange, finished goods products, etc. Variable items are all economic items you generally see around you except monetary and constant items.

3. Constant item non-monetary economy

Constant items are non-monetary items with constant real values over time: income statement items like salaries, wages, rentals, etc and balance sheet constant items like issued share capital, reported retained profits, all other items in shareholders´ equity, provisions, trade debtors, trade creditors, taxes payable, taxes receivable, all other non-monetary payables and receivables, etc.

The variable and constant item non-monetary economies in combination make up the non-monetary or real economy which together with the monetary economy constitute the SA economy.

Kindest regards,

Nicolaas Smith