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Monday, 27 December 2010

Monetary items

Money was then invented over a long period of time. Eventually money came to fulfil the following three functions during inflation and deflation:

a. Unstable medium of exchange
b. Unstable store of value
c. Unstable unit of account

Non-monetary items which are all items which are not monetary items were only defined in monetary terms after the invention of money. The economy came to be divided in the monetary economy and the non-monetary or real economy. There were only unstable monetary items and variable real value non-monetary items. There were no constant real value non-monetary items yet. The non-monetary or real economy consisted of only variable real value non-monetary items. Non-monetary items are all items that are not monetary items.

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

Examples of monetary items in today’s economy are bank notes and coins, bank loans, bank savings, other monetary savings, other monetary loans, bank account balances, treasury bills, commercial bonds, government bonds, mortgage bonds, student loans, car loans, consumer loans, credit card loans, notes payable, notes receivable, etc.

Unstable money and other unstable monetary items´ real values are continuously being eroded by inflation over time. Inflation only erodes the real value of unstable money and other unstable monetary items. Inflation has no effect on the real value of non-monetary items.

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

Non-monetary items in today’s economy are divided into two sub-groups:

a) Variable real value non-monetary items
b) Constant real value non-monetary items

There were still no units of constant purchasing power because there was still no CPI at that time. There was still no HCA model, no very destructive stable measuring unit assumption based on a fallacy and no financial capital maintenance in nominal monetary units fallacy during inflation and deflation. There was still no price-level accounting, no constant purchasing power (CPPA) inflation accounting model for hyperinflationary economies and no real value maintaining continuous financial capital maintenance in units of constant purchasing power basic accounting model (CIPPA) for low inflationary and deflationary economies. There were still no financial reports.

Copyright (c) 2005-2010 Nicolaas Smith. All rights reserved. No reproduction without permission.

Fin24 17-3-11