Myros and Other Concepts and Definitions
The purpose of this chapter is to establish the concepts and definitions that will be used in the sequel. One of the problems with economics is that much of its vocabulary consists of everyday words such as income, capital, and money that have fairly time-honored technical meanings, but meanings that frequently vary from economist to economist and from one generation of economists to another. As was noted in Chap. 1, capital is a notable example, as there are about as many concepts of capital as there are economists who have thought and written about it.
KeywordsHuman Capital Physical Capital Current Income Fluid Component Cash Balance
A Glossary of Concepts and Definitions
A good is anything for which individuals are willing to exchange their labor or fruits of their labor.
Production is the creation of goods through the combining of labor with natural resources and produced means of production.
The social dividend represents the net output (but gross of depreciation) from production for an economy. In most circumstances, the social dividend can be identified with Gross Domestic Product.
Income is generated by production and represents “claim tickets” to the social dividend.
Saving represents that part of the social dividend that is not currently consumed.
Produced means of production are additions to the capacity to produce that are themselves produced. Produced means of production are temporary resources, in contrast to natural resources which are permanent. Produced means of production are durable, but nevertheless will eventually disappear if not maintained or replaced.
Investment represents the creation of produced means of production. The goods that are needed in the creation of produced means of production are drawn from the pool of fluid capital.
Quasi-rents represent the difference between revenues and the out-of-pocket costs (but only the out-of-pocket costs) of producing those revenues.
Myros recovery charges represent charges against quasi-rents that return the capital embodied in produced means of production back into the pool of fluid capital. Alternately, myros recovery charges can be seen as the process whereby physical capital is transformed back into fluid capital.
Sunk capital represents that part of the fluid capital embodied in produced means of production that has not yet been transformed (or recovered) back into fluid capital through myros recovery charges against quasi-rents.
Money is a social invention which allows the pool of fluid capital to be transformed into universal purchasing power.
Monetization is the process by which the pool of fluid capital is transformed into universal purchasing power through the granting of loans denominated in money. There are many forms that monetization can take, including the creation of bills of exchange, bank notes, checking deposits, etc.
Once a unit of account is established, the general price level is determined by the pool of purchasing power that is established by monetization of assets in conjunction with the stock of goods represented by the goods side of the pool of fluid capital. The general price level is established initially by selecting some good as the numeraire and expressing the prices of all other goods in terms of units of this good. Prices in terms of the numeraire’s price may in turn be expressed in terms of the money unit of account.
The natural rate of interest is the price which equates the demand for fluid capital with its supply.
The money rate of interest is the interest rate on money loans, and represents the price for monetizing the pool of fluid capital. In a world of uncertainty and a fractional reserve banking system, the lower bound to the money rate of interest is ultimately determined by the price that has to be paid to get holders of the primary money to give up their immediate claims to it (i.e., liquidity preference).
Assets represent instruments for transferring purchasing power over time. They come into existence because those with claims on the pool of fluid capital are willing to give up some of their claims in exchange. Assets can take a number of different forms – money, goods, old masters, loans, property rights in produced means of production, etc.
Wealth for an individual is represented by the sum of current income plus the value of all assets held. Wealth for an economy as a whole (viewed as a closed system) is given by the sum of current income plus the value (measured in current prices) of all stocks of unconsumed consumables.
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