Saturday, January 8, 2011

Capitalist Abstract Money of Account

The problem of market economy is that the relative prices of goods and services are to be determined using money of account. This money of account could be a commodity money like gold, silver, copper etc. or paper money also know as fiat money backed by some reserves say gold reserves or an abstract money of acount like dollar, euro, yen, etc. What happens once price listing is done using money of account? Obviously money is demanded as for Exchange purposes. People require money to buy goods and services. Government require money to pay for public services, such as policing, defense, identity provision,legal and civil services and hence money's use of as means of payment. Because of money's utility, people start saving or investing using money as means of store of value despite there are other best alternative vehicles of investment. and finally money's use as money of account, the demand for all assets will be affected by monetary conditions in the market economy.

Money like any other commodity has its own price and obviously a commodity which is also providing monetary services will have more price then its usual market price. The capitalist money is a concocted one. It is abstract money an human incursion. Both its price and quantity is subject to human interference. The abstract money facilitate economic activity and organisation of resources more efficiently then any other natural commodity acting as money. With the advent of abstract money more is possible albeit with significant uncertainity.

The phenomenon of abstract money has particularly supported the idea of inflation mainly in the times when a monetary economy operated near its long term trend. Excessive money chasing few goods and services would result in inflation.

The abstract of money has created all kind of economic contract susceptible to variation even if the inflation is absent. the poor time-invariant quality of capitalist money led to wide spread financial instability and chaos and confusion.

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