Money makes the world go round
Money is the greatest economic invention of all time. Money did not exist and was not discovered. Money was invented over a long period of time.
Money is not perfectly stable in real value even though all historical cost accounting world-wide is done assuming that when the stable measuring unit assumption is implemented for the valuation of most – not all – constant real value non-monetary items during low inflation and deflation. It is assumed, in principle, that money is perfectly stable when all balance sheet constant real value non–monetary items, e.g. issued share capital, retained earnings, capital reserves, all other items in shareholders´ equity, provisions, trade debtors , trade creditors, all non–monetary payables, all non–monetary receivables and all income statement items (excluding constant real value non–monetary items like salaries, wages, rentals, transport fees, etc. which are correctly updated annually) are valued at their historical costs when financial capital maintenance in nominal monetary units (the Historical Cost Accounting model) is implemented during low inflation and deflation as authorized in IFRs in the original Framework (1989), Par 104 (a).
Money is not the same as constant real value during inflation and deflation. Money only has a constant real value over time during sustainable zero annual inflation which has never been achieved in the past and is not likely soon to be achieved in the future.
Bank notes and coins are physical tokens of money. Money is a monetary item which is used as a monetary medium of exchange and serves at the same time as a monetary store of value and as the monetary unit of account for the accounting of economic activity in a country or a monetary union. All three basic economic items – monetary items, variable real value non–monetary items and constant real value non–monetary items – are valued in terms of money. The European Monetary Union uses the Euro as its monetary unit. The US Dollar is the monetary unit most widely traded internationally. The Rand Common Monetary Area which includes South Africa, Namibia, Swaziland and Lesotho employs the Rand as the common monetary unit and monetary unit of account.
An earlier form of money was commodity money; e.g. gold, silver and copper coins. Today money is generally fiat money created by government fiat or decree.
Money is a medium of exchange which is its main function. Without that function it can never be money. The historical development of money led it also to be used as a store of value and as the unit of measure to account the values of economic items.
Money is the only unit of measure that is not a stable value under all circumstances. Money is only perfectly stable in real value at zero per cent annual inflation. This has never been achieved over a sustainable period of time. All other units of measure are fundamentally stable units of measure, e.g. inch, centimetre, ounce, gram, kilogram, pound, etc.
Nicolaas Smith
Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Showing posts with label Money makes the world go round. Show all posts
Showing posts with label Money makes the world go round. Show all posts
Wednesday 22 June 2011
Saturday 2 April 2011
Money makes the world go round
Money makes the world go round
Money is the greatest economic invention of all time. Money did not exist and was not discovered. Money was invented over a long period of time.
Money is not perfectly stable in real value even though all historical cost accountants assume that when they implement the stable measuring unit assumption during low inflation and deflation. They assume, in principle, that money is perfectly stable all the time when they measure all balance sheet constant real value non-monetary items, e.g. issued share capital, retained earnings, capital reserves, all other items in shareholders´ equity, provisions, trade debtors , trade creditors, all non-monetary payables, all non-monetary receivables, all income statement items (excluding constant real value non-monetary items like salaries, wages, rentals, transport fees, etc. which they correctly inflation-adjust annually) at their historical costs when they implement financial capital maintenance in nominal monetary units (the Historical Cost Accounting model) during low inflation and deflation as authorized in IFRs in the Framework (1989), Par 104 (a).
Money is not the same as constant real value during inflation and deflation. Money only has a constant real value over time during sustainable zero annual inflation which has never been achieved in the past and is not likely soon to be achieved in the future.
Bank notes and coins are physical token instances of money. Money is a monetary item which is used as a monetary medium of exchange and serves at the same time as a monetary store of value and as the monetary unit of account for the accounting of economic activity in a country or a monetary union. All three basic economic items - monetary items, variable real value non-monetary items and constant real value non-monetary items - are valued in terms of money. The European Monetary Union uses the Euro as its monetary unit. The US Dollar is the monetary unit most widely traded internationally. The Rand Common Monetary Area which includes South Africa, Namibia, Swaziland and Lesotho employs the Rand as the common monetary unit or monetary unit.
An earlier form of money was commodity money; e.g. gold, silver and copper coins. Today money is generally fiat money created by government fiat or decree.
Money is a medium of exchange which is its main function. Without that function it can never be money. The historical development of money led it also to be used as a store of value and as the unit of measure to account the values of economic items.
Money is the only unit of measure that is not a stable value under all circumstances. Money is only perfectly stable in real value at zero per cent annual inflation. This has never been achieved over a sustainable period of time. All other units of measure are fundamentally stable units of measure, e.g. inch, centimetre, ounce, gram, kilogram, pound, etc.
Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Money is the greatest economic invention of all time. Money did not exist and was not discovered. Money was invented over a long period of time.
Money is not perfectly stable in real value even though all historical cost accountants assume that when they implement the stable measuring unit assumption during low inflation and deflation. They assume, in principle, that money is perfectly stable all the time when they measure all balance sheet constant real value non-monetary items, e.g. issued share capital, retained earnings, capital reserves, all other items in shareholders´ equity, provisions, trade debtors , trade creditors, all non-monetary payables, all non-monetary receivables, all income statement items (excluding constant real value non-monetary items like salaries, wages, rentals, transport fees, etc. which they correctly inflation-adjust annually) at their historical costs when they implement financial capital maintenance in nominal monetary units (the Historical Cost Accounting model) during low inflation and deflation as authorized in IFRs in the Framework (1989), Par 104 (a).
Money is not the same as constant real value during inflation and deflation. Money only has a constant real value over time during sustainable zero annual inflation which has never been achieved in the past and is not likely soon to be achieved in the future.
Bank notes and coins are physical token instances of money. Money is a monetary item which is used as a monetary medium of exchange and serves at the same time as a monetary store of value and as the monetary unit of account for the accounting of economic activity in a country or a monetary union. All three basic economic items - monetary items, variable real value non-monetary items and constant real value non-monetary items - are valued in terms of money. The European Monetary Union uses the Euro as its monetary unit. The US Dollar is the monetary unit most widely traded internationally. The Rand Common Monetary Area which includes South Africa, Namibia, Swaziland and Lesotho employs the Rand as the common monetary unit or monetary unit.
An earlier form of money was commodity money; e.g. gold, silver and copper coins. Today money is generally fiat money created by government fiat or decree.
Money is a medium of exchange which is its main function. Without that function it can never be money. The historical development of money led it also to be used as a store of value and as the unit of measure to account the values of economic items.
Money is the only unit of measure that is not a stable value under all circumstances. Money is only perfectly stable in real value at zero per cent annual inflation. This has never been achieved over a sustainable period of time. All other units of measure are fundamentally stable units of measure, e.g. inch, centimetre, ounce, gram, kilogram, pound, etc.
Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Saturday 3 October 2009
Money makes the world go round
Hi,
Monetary items are money held and items with an underlying monetary nature.
Money is the greatest economic invention of all time. Money did not exist and was not discovered. It was invented over a long period of time. Money is a monetary item which is used as a medium of exchange and serves at the same time as a store of value and as the monetary unit of account for the accounting of economic activity in a country or a monetary region like the Rand Common Monetary Area which includes South Africa, Namibia, Swaziland and Lesotho.
Money is a medium of exchange which is its main function. Without that function it can never be money. Money is the functional currency in an economy, i.e. the currency of the primary economic environment in which an economic entity operates. The historical development of money led it also to be used as the fundamental unit of measure to account the value of economic items. Money is the only universal unit of measure that is not a stable value. All other universal units of measure are fundamentally stable units of measure, e.g. inch, centimetre, ounce, gram, kilogram, pound, etc.
Historically money developed on the mistaken belief by people in general that it is stable – as in fixed – in real economic value in the short to medium term in economies with low cash inflation. Stable in this instance was seen as meaning that money kept its real value intact over the short to medium term in low inflationary economies. Money illusion is still very evident today in most economies in money, monetary items and constant items that are mistakenly considered to be monetary items, for example, trade debtors and trade creditors. There is no money illusion in hyperinflationary economies. People know that hyperinflation destroys the real value of money very quickly.
It is not what it appears to be
When we discuss, write about, talk about or analyze this monetary item described above, we call it money and describe it using the term money with the implicit assumption that this money we are dealing with is stable - as in fixed - in real economic value in our low inflationary economies. We thus assume at the same time that prices are more or less stable in low inflationary economies.
The term stable is normally accepted by the public at large to indicate a permanently fixed situation or position or state or price or value. A stable – as in fixed - price over time would be drawn as a horizontal line on a chart. A slowly increasing price over time would be drawn as a slightly rising line on a chart. A slowly decreasing value over time would be drawn as a slightly declining line on a chart. When we say production of a commodity is stable we accept that the absolute number of items being produced is not fluctuating but is at the same level all the time.
The term stable as used by economists, however, does not mean a fixed price or level, even though that is what the public in general thinks it means. The term stable in economics these days means slowly increasing or slowly decreasing – depending on what it is being applied to. The term price stability as used by economists today does not mean that prices in general stay the same, but that prices in general are rising slowly – which is, as we are all taught, the popular definition of inflation.
The term stable money as used by economists equally does not mean that the real value of national monetary units they are talking about stays the same in the economy – even though that is what the public in general thinks it means. What they mean with stable money is that the real value of a national monetary unit is slowly decreasing over time – which is, as we shall see, a much better – but not yet the best – definition of inflation.
When a central bank governor says that the central bank’s primary task or objective is price stability what she or he means is that the central bank would be fulfilling its primary task, in an economy with low levels of inflation, when prices in general are slowly rising over time (that well known definition of inflation again). The flip side of that statement is that the real value of national monetary units is slowly being destroyed by inflation over time – the best definition of inflation.
A central bank’s primary task being price stability is the same as saying a central bank’s main responsibility is ensuring that inflation is maintained at a very low level. This low level is now generally accepted in first world economies to be up to 2 percent per annum. We know that inflation is always and everywhere the destruction of real value in money and other monetary items over time. We also know that inflation has no effect on the real value of non-monetary items.
The maintenance of price stability thus means that the primary task of a central bank is to limit the destruction of real value in money and other monetary items by inflation to a maximum of 2 percent per annum within an economy or common monetary area. Two percent continuous inflation destroys the following percentages of real value over the time periods indicated:
Years....%
5.......10
10......18
16......28
20......33
30......45
35......51
We also know that accountants unknowingly destroy the real value of constant items never or not fully updated during inflation when they implement the very destructive stable measuring unit assumption as part of the real value destroying traditional Historical Cost Accounting model. Historical Cost accountants thus unknowingly destroy the same percentages stated above in the real value of constant items never updated during continuous “price stability” of 2% inflation per annum in low inflation first world economies.
Kindest regards,
Nicolaas Smith
Monetary items are money held and items with an underlying monetary nature.
Money is the greatest economic invention of all time. Money did not exist and was not discovered. It was invented over a long period of time. Money is a monetary item which is used as a medium of exchange and serves at the same time as a store of value and as the monetary unit of account for the accounting of economic activity in a country or a monetary region like the Rand Common Monetary Area which includes South Africa, Namibia, Swaziland and Lesotho.
Money is a medium of exchange which is its main function. Without that function it can never be money. Money is the functional currency in an economy, i.e. the currency of the primary economic environment in which an economic entity operates. The historical development of money led it also to be used as the fundamental unit of measure to account the value of economic items. Money is the only universal unit of measure that is not a stable value. All other universal units of measure are fundamentally stable units of measure, e.g. inch, centimetre, ounce, gram, kilogram, pound, etc.
Historically money developed on the mistaken belief by people in general that it is stable – as in fixed – in real economic value in the short to medium term in economies with low cash inflation. Stable in this instance was seen as meaning that money kept its real value intact over the short to medium term in low inflationary economies. Money illusion is still very evident today in most economies in money, monetary items and constant items that are mistakenly considered to be monetary items, for example, trade debtors and trade creditors. There is no money illusion in hyperinflationary economies. People know that hyperinflation destroys the real value of money very quickly.
It is not what it appears to be
When we discuss, write about, talk about or analyze this monetary item described above, we call it money and describe it using the term money with the implicit assumption that this money we are dealing with is stable - as in fixed - in real economic value in our low inflationary economies. We thus assume at the same time that prices are more or less stable in low inflationary economies.
The term stable is normally accepted by the public at large to indicate a permanently fixed situation or position or state or price or value. A stable – as in fixed - price over time would be drawn as a horizontal line on a chart. A slowly increasing price over time would be drawn as a slightly rising line on a chart. A slowly decreasing value over time would be drawn as a slightly declining line on a chart. When we say production of a commodity is stable we accept that the absolute number of items being produced is not fluctuating but is at the same level all the time.
The term stable as used by economists, however, does not mean a fixed price or level, even though that is what the public in general thinks it means. The term stable in economics these days means slowly increasing or slowly decreasing – depending on what it is being applied to. The term price stability as used by economists today does not mean that prices in general stay the same, but that prices in general are rising slowly – which is, as we are all taught, the popular definition of inflation.
The term stable money as used by economists equally does not mean that the real value of national monetary units they are talking about stays the same in the economy – even though that is what the public in general thinks it means. What they mean with stable money is that the real value of a national monetary unit is slowly decreasing over time – which is, as we shall see, a much better – but not yet the best – definition of inflation.
When a central bank governor says that the central bank’s primary task or objective is price stability what she or he means is that the central bank would be fulfilling its primary task, in an economy with low levels of inflation, when prices in general are slowly rising over time (that well known definition of inflation again). The flip side of that statement is that the real value of national monetary units is slowly being destroyed by inflation over time – the best definition of inflation.
A central bank’s primary task being price stability is the same as saying a central bank’s main responsibility is ensuring that inflation is maintained at a very low level. This low level is now generally accepted in first world economies to be up to 2 percent per annum. We know that inflation is always and everywhere the destruction of real value in money and other monetary items over time. We also know that inflation has no effect on the real value of non-monetary items.
The maintenance of price stability thus means that the primary task of a central bank is to limit the destruction of real value in money and other monetary items by inflation to a maximum of 2 percent per annum within an economy or common monetary area. Two percent continuous inflation destroys the following percentages of real value over the time periods indicated:
Years....%
5.......10
10......18
16......28
20......33
30......45
35......51
We also know that accountants unknowingly destroy the real value of constant items never or not fully updated during inflation when they implement the very destructive stable measuring unit assumption as part of the real value destroying traditional Historical Cost Accounting model. Historical Cost accountants thus unknowingly destroy the same percentages stated above in the real value of constant items never updated during continuous “price stability” of 2% inflation per annum in low inflation first world economies.
Kindest regards,
Nicolaas Smith
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