Monday, 16 May 2011

Money illusion

Money illusion

This is the result of money illusion. People make the mistake of thinking that money is stable in real value over time in a low inflationary environment. Inflation always and everywhere erodes the real value of money and other monetary items over time. It is thus impossible for money to be stable in real value during inflation. On the other hand, inflation has no effect on the real value of non–monetary items over time.

The monetary unit of measure in accounting is the base money unit of the most relevant currency. Money is not stable in real value during inflation. This means that the monetary unit of measure in accounting is not a stable unit of measure during inflation and deflation. Money, i.e., the unstable monetary unit of measure or unstable monetary unit of account is the only generally accepted unit of measure that is not an absolute value. Money does not contain a fundamental constant. All other generally accepted units of measure of time, distance, velocity, mass, momentum, energy, weight, etc are absolute values, e.g. second, minute, hour, metre, yard, litre, kilogram, pound, mile, kilometre, inch, centimetre, gallon, ounce, etc.

Nicolaas Smith

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