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Thursday, 24 May 2012

Items with an underlying monetary nature

Items with an underlying monetary nature


Utility, scarcity and exchangeability are the three basic attributes of an economic item which, in combination, give it economic value. All economic items are exchangeable and money is generally the generally accepted medium of exchange. All economic items thus have monetary values in an economy using money as the monetary unit of account. Both monetary items and non–monetary items are expressed in monetary terms; i.e., in terms of the monetary unit of account. The monetary unit is used as the unstable medium of exchange, unstable unit of account and unstable store of value. Variable real value non–monetary items, constant real value non–monetary items and monetary items are all expressed in terms of money and have monetary values.



There is, however, a difference between having a monetary value and being a monetary item. All economic items have monetary values, but, only money and items with an underlying monetary nature which are substitutes for money held are monetary items. Non–monetary items have monetary values: they have their economic values expressed in terms of money, but they are not monetary items.



Houses, cars, mobile phones, raw material, etc. have monetary values, but they are not monetary items. They are variable real value non–monetary items whose real values are expressed in terms of depreciating or appreciating money depending on whether the economy is in a state of inflation or deflation.



Likewise salaries, wages, rentals, pensions, interest, taxes, retained earnings, issued share capital, capital reserves, all other shareholder equity items, trade debtors, trade creditors, deferred tax assets and liabilities, taxes payable and receivable, etc. have depreciating or appreciating monetary values, but they are not monetary items. They are constant real value non–monetary items whose constant real non–monetary values are expressed in terms of depreciating or appreciating money. Constant real value non–monetary items´ real values are maintained constant with financial capital maintenance in units of purchasing power during inflation and deflation, i.e., with Constant Item Purchasing Power Accounting or with measurement in units of constant purchasing power.



Examples of items with an underlying monetary nature



Money loans

Mortgage bonds

Government Bonds

Commercial Bonds

Treasury Bills

Consumer loans

Bank loans

Car loans

Student loans

Credit card loans



They are monetary items lent or borrowed, normally payable or receivable in money.   Variable and constant items to be paid or received in money remain variable and constant items. Money is simply the monetary medium of exchange used to transfer the ownership of a variable item or constant item from one entity to another.



Items with an underlying monetary nature have exactly the same attributes as money held with the exception that they are not bank notes and coins.


Nicolaas Smith

Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.