Money And The Unit Of Account On Jstor


Less liquid assets include money market deposits and savings account deposits. Measure MI, the most narrow of measures, includes only the most liquid forms of monetary assets; all currency and bank deposits held by a nation’s public. M2, a slightly “broader” measure includes all values incorporated under MI, in addition to assets held in savings accounts, certain time deposits and mutual funds balances. Normally, however, banks issue a larger quantity of money substitutes than the amount of physical currency entrusted to them by depositors. The new money substitutes that do not correspond to new units of physical money are called fiduciary media of exchange since they exist solely as entries in the accounting and financial system of the banks.

However, it does not seem that people actually commonly traded oxen. It was not similar to the dollar, where you sell something, earn some dollars, and then buy another thing with those dollars (goods-currency-goods pattern). The ox was just a reference of value, used to compare two goods . I distinguish between a unit of exchange and the unit of account . The former is designated, literally a unit of account denominated, in the latter. I’m not 100% happy with that, but I think it imparts a key conceptual distinction pretty clearly. There are four different economics mechanisms at play here. Real capital formation (“investment”), creation of new real assets, and 2. Net lending/borrowing (accumulation of claims against other sectors’ balance-sheet assets) are utterly distinct economic behaviors.

Types Of Money

Your stock portfolio goes up in value by $100,000 over the years. But no new liabilities have been posted to any balance sheet — yours or others’. Government money is the one you need to pay taxes. We can create more money to spend on house building through the financial mechanisms of gov def spending, bank lending, holding gains. Ditto “paying with liabilities.” If you transfer a liability from the righthand side of your balance sheet to the righthand side of another’s, you are unlikely to receive much thanks, or any value in return. In addition to the commonly used M1 and M2 aggregates, several other measures of the money supply are used as well.

Money’s most important function is as a medium of exchange to facilitate transactions. There are three types of money recognized by economists – commodity money, representative money, and also fiat money. Money that’s in the form of a commodity with intrinsic value is considered commodity money. Representative money is not money itself, but something that represents money. The unit of account in financial accounting refers to the words used to describe the specific assets and liabilities that are reported in financial statements rather than the units used to measure them. That is, unit of account refers to the object of recognition or display whereas unit of measure refers to the tool for measuring it. Unit of account in economics allows a somewhat meaningful interpretation of prices, costs, and profits, so that an entity can monitor its own performance.

Legal & Policies

You can hoard lumps of gold, but you cannot hoard units of account. I may have many dollars in saving, but they are all instances of one unit of account. When people started accepting lumps of precious metal in exchange for a goat or some cabbages, the medium of exchange came into existence. Then, if the total number of lumps suddenly doubled you could have inflation. Before there was a medium of exchange, if cabbage farmers had a bumper crop, it might cost more cabbages to get a goat. For you it seems to be primarily a unit of account. But I agree with you that the “a dollar”/”the dollar” terminology is important.

However, I argue that the focus on what goods money can buy is misplaced; the most important price in a capitalist economy is the price of labour. (By definition, you cannot be a capitalist unless you hire labourers.) Wage contracts are specified in the unit of account, and can be viewed as a form of debt contract. They are thus an extension of the web of debts that encompass all the participants of the modern economies. Therefore, the best that you can probably hope for is some stability in the price of labour when expressed in the unit of account. The most common definition people use is that a thing is money in the proportion as it fulfills the roles of unit of account , medium of exchange and storage of value. The more a thing fulfills these three characteristics, the more it is considered money. You may have something that is more or less money, because it more or less fulfills those characteristics – and so some people created the concept of “moneyness”.

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This is what allows us to evaluate a wide range of distinct products and compare then in monetary values, based on a specific currency, such as the US dollar, the British Pound, or the Euro. Divisibility – This suggests that a unit of currency should be able to be divided into smaller components. The sum of such components should, on the other hand, be equal to the total value of the unit before dividing. For example, if a dollar is being divided into 100 components, each component will be worth one cent. Further, the sum of these 100 cents is nothing more or less than a dollar. This characteristic of divisibility makes it easy to declare the value of goods and services more accurately and effectively and to make a comparison between various values easily.


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