7 Mart 2009 Cumartesi

Money Mischief, Monetary Mischief

"The purely monetary connection between ruler and subject demonstrated the absence of any other relationship. The continuous depreciation of currency by rulers was an appropriate technique within such a relationship; for these methods, which give all the benefits to one side and the entire loss to the other. This has been traced to the fiscal policy of rulers who use the royal prerogative of coinage as a means of taxation without concern for the consequences of devaluation,"Georg Simmel (from Philosophy of Money).

"Money is much too serious a matter to be left to central bankers", Milton Friedman (from Money Mischief).

"Everything must be assessed in money; for this enables men always to exchange their services, and so makes society possible", Aristotle (384-322 B.C).

MONEY AND STATE

The progressive deterioration in the value of money throughout history is not an accident, and has behind it two great driving forces; weaknesses of the government and the superior political influence of the debtor class. The power of taxation by currency depreciation is one which has been inherent in the state. The creation of legal tender has been and is a government's ultimate reserve and no state or government is likely to degree its own downfall, so long as this instrument still lies at hand of unused.

GOVERNMENT FAILURE OF MANAGING MONEY

Government failure of managing money is not merely a historical curiosity but continues to be a present day reality. It is not market failure but government failure in safeguarding the long-run purchasing power of money- erosion of the value of money and distorting the relative prices by draconian polices.

DESIRABLE PROPERTIES OF A GOOD KIND OF MONEY

In judging today's monetary standards, we pay little attentions to the desirable properties of money; we pay primary attention to broader economic consequences- movements in the level of prices, the implications of the standard for cyclical behaviour, and the like. At a minimum, money has five requisite properties, which are the following:

  • PORTABILITY
  • DURABILITY
  • DIVISIBILITY
  • STANDARDIZABILITY
  • RECOGNIZABILITY

Money and banking is an important area of study in economics. The study of money and banking is always fascinated me because there are so many ways in which money and banking issues affect us individually and collectively. Almost all of us agree that the quantity of money in a nation's economy can affect the welfare of all its citizens. Money is a special kind of economic good and hence related to economic activity.

THE FUNCTIONS OF A GOOD KIND OF MONEY

Money has four basic functions:

  • MEDIUM OF EXCHANGE
  • STORE OF VALUE
  • UNIT OF ACCOUNT (STANDARD OF VALUE)
  • STANDARD OF DEFERRED PAYMENT