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Tuesday, 6 July 2010

It´s the real value, stupid!

Real value is the most important fundamental economic concept although it is the lesser studied and understood compared to the study of money. Money and real value are, unfortunately, not one and the same thing during inflation and deflation. Money and monetary items always have lower real values during inflation and higher real values during deflation under any accounting model.

Money is an invention. We can terminate its existence while real value is a fundamental economic concept, which exists, while we exist. Economies have already functioned without money. Barter economies operated without a medium of exchange. Cuba in the past bought oil from Venezuela and paid part in money and part by the provision of the services of sports coaches and medical doctors. Corn farmers in Argentina stored their corn in silos and paid for new pick-up trucks and other expensive mechanized farm implements with quantities of corn - the unit of real value Adam Smith described more than 230 years ago as a very stable unit of real value.

There will always be real value while the human race exists. The need for a medium of exchange, which is money’s first and basic function, is equally true. Money is one of the greatest human inventions of all time. It ranks on par with the invention of the wheel and the Gutenberg press in terms of importance to human development. Without money modern human development would have been very slow indeed.

Monetary items have the exact same attributes as money with the single exception that they are not actual bank notes and bank coins.

Non-monetary items are all items that are not monetary items.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith