Category Archives: A Primer in Monetary Economics

Monetary Economics

14. Giving, receiving, and the currency

Real costs and real benefits
In all societies people engage in giving and receiving real values: There are real costs in giving them, and there are real benefits in receiving them. In gift-with-reciprocity and hierarchy systems, there is either an undefined counterpart to giving, or no counterpart at all, since giving is driven by people’s initiatives, strong social bonds, or as a result of enforcement.
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13. The flow-of-funds account and the net financial position

Net income and capital expenditure
The flow-of-funds account as well originates from the double-entry ledger book, and it can be seen as an extension of the income statement. In the latter, “net-income generated” is the balance between revenue (on the credit side) and current expenditure (on the debit side). If positive, net income is a source of funds, which are used for purchasing capital goods, acquiring financial assets (lending), or reducing liabilities.
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12. Income statement and net income

By: Andrea Terzi

Monetary incomes
Information contained in the double-entry ledger book is the source for a second key document: the income statement. Its conceptual basis stems from the notion that economic units, in any given time period, earn monetary incomes when providing productive services, i.e., by selling labor services, leasing property, lending money, and selling newly produced output. Because it is a selection of entries from the ledger, debits and credits need not match. For example, while the selling of a service on the ledger comprises both a debit entry (the payment received) and a credit entry (the service provided), only the latter shows on the income statement.
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11. Balance sheet and net worth

By: Andrea Terzi

Assets and liabilities

In a double entry ledger book, debits reflect acquisitions of value and credits reflect releases of value. This information offers a source for preparing some key documents that show how the activities of giving and receiving shape monetary values.
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10. Accounting for debits and credits

By: Andrea Terzi

Double-entry bookkeeping

A double-entry bookkeeping account is a technique of documenting records of economic transactions made by an economic entity (such as a household, a business enterprise, a nonprofit institution, a government). Its raw form is a ledger that records, in time sequence and for a specified time period, the value of all transactions expressed in a common unit of account. It is called “double-entry” because every transaction is recorded twice: once as a debit and once as a credit. Continue reading

8. What monetary economics is about

By: Andrea Terzi

Money in a monetary economy

A monetary economy is an economy in which items that people consider valuable are transferred through contractual arrangements, and thus real claims and real liabilities have monetary counterparts that can be ultimately settled only by delivery of a monetary claim on the sovereign state. This substantially differs from an economy where people give and receive real values either with no direct, well-defined counterpart or with a collective system of real settlement. Continue reading

7. Nominal and real value: The legacies of Smith and Keynes

By: Andrea Terzi

The nominal character of monetary value

In a monetary economy, contracts are denominated in units of money value and so are prices, these latter being nothing else than offers of contracts for sale or purchase. The number of monetary units defined in the contract becomes the measure of value of the item being traded, irrespective of the subjective value that the buyer, the seller or a third party may be willing to attach to said item, before or after the trade. Contractual money value reflects the monetary liability of the buyer and the claim of the seller. It does not measure the quantity or the attributes of the item traded. Thus, monetary value is called nominal, as opposed to real. Continue reading

6. Contracts in a monetary economy

By: Andrea Terzi

When real values transfer by contract

Social systems organized within a system of property rights and a hierarchy relationship between the state and the people provide the setting for a powerful stream of contractual (legally enforceable) transactions. These provide by far the most important (yet not unique) platform for giving and receiving values in modern economies. Continue reading

5. Value transferred and stored in non-monetary economies

By: Andrea Terzi

Private and commonly shared measures of value

Under any of the three means of transferring values discussed above, anyone giving or receiving subjectively measures the values of the objects exchanged: each individual, whether acting by force, gift, or contract, has a private belief of what something is worth. In hierarchy and gift-with-reciprocity systems, value may indeed remain exclusively an individual estimate of worthiness, as these systems can function with no commonly shared and publicly known measures of value, or “prices.” Continue reading