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Friday, 30 December 2011

The monetary nature of monetary items that are not money held

Monetary items
Monetary items are money held and items with an underlying monetary nature.

An item with an underlying monetary nature is, in principle, a substitute for money held.

All items in the economy – monetary and non-monetary items – are normally received or paid in money. That does not mean they are all monetary items. Money is simply used as the generally accepted medium of exchange. Non-monetary items remain non-monetary items even when they are always paid or received in money.

Monetary items that are not money held have the exact same attributes as money held except that they are not actually bank notes and coins. A bank loan is a monetary item that is not always money held. It can be received or paid in actual bank notes and coins or as an electronic transfer into a bank account. A bank loan that is not money held is an item with an underlying monetary nature. An item with an underlying monetary nature is, in principle, a substitute for money held.

A building is a non-monetary item. It is not a substitute for money held. It is normally paid for in money. The owner normally receives money for selling it, and the buyer normally pays for it in money, but, that is simply the medium of exchange. The owner can also receive the payment for the building in diamonds. The building is a non-monetary item irrespective of how it is exchanged between two entities.

Commercial bonds, government bonds, money market items, debt items, notes payable, notes receivable, capital market items, bank loans, car loans, housing loans, student loans, consumer loans, etc. are all, in principle, substitutes for money held. They are all items with an underlying monetary nature.

Pensions, salaries, wages and rentals are generally paid and received in money, but, they are not monetary items. They are all constant real value non-monetary items. They are not, in principle, substitutes for money held. Money is simply the generally accepted medium of exchange in the settlement of these items.

A salary payable is an obligation to deliver compensation for the work done in terms of the employment contract by the salary earner in the form of payment in a mutually agreed medium of exchange. The generally accepted mutually agreed form of payment is money. Payment can be in any mutually agreed form. A salary is not, in principle, a substitute for money held. A salary is not an item with an underlying monetary nature. Money is simply the generally accepted medium of exchange.

Nicolaas Smith

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