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| | The nominal amount of money in circulation can in reality have a different purchase power depending on the real value of money. A decrease in the real value of money is called inflation, while the opposite process is called deflation, when the same nominal money actually gaining more purchase power.
There's another interesting term, called Agflation:
Economists from the invest corporation Goldman Sachs for designating the harsh growth of prices on agricultural products thought of the new terminology: "Agflation" (agricultural inflation). High rates of agflation were registered already twice consequently. In the year 2006, the index of prices on food products, prepared by Goldman Sachs, increased by 26 percent. In the year 2007 its growth was 41%. In both cases the purchasing power of money for agricultural products decreased.
Money history:
Four centuries ago, the English philosopher Thomas Hobbes compared the state with the human organism, and money - with its blood. The analogy is beautiful and to this day it is true and really summarizes a variety of processes occurring in the economy with the involvement of money. We perceive the fact of their existence as a reality and a base for life's well-being, which needs to be protected and strengthened. Following Hobbes in using biological terminology, let us try to figure out how this ancient symbiosis between money and society arose and evolved?
For many millennia the only method of getting the desirable, not considering the usage of brutal force or theft, before the development of legislation to punish in the most brutal way – was to barter, i.e. the exchange of essential items in the quantum satisfying the requirements of the concerned parties. Direct barter, that is, the bilateral or multilateral exchange of goods, was in practice in all cultures with subsistence farming. The Sumerians were paying the clay platelets and wheat for natural raw materials, the Phoenicians exchanged cedar trees for Egyptian papyri, the Vikings - panels for the skins of otters. But what if the interests of the sides did not coincide? Presume that, in Mesopotamia there turned out to be an unusually good year for crops and the Sumerians are ready to exchange the surplus grain for the metal that they required. But the northern neighbors do not need much grain. That means that part of the Sumerian harvest will be lost and unclaimed
Thus, the more parties that are involved in this exchange and the more diverse their needs are the better, because it becomes more difficult by direct barter to make a deal that will suit everyone. And this is not the only difficulty associated with bartering. Products having a different shelf life and time of manufacture also affect the process of their sales.
The disadvantages of direct exchange led to the emergence of universal brokers, who were able to satisfy the widest range of queries: the crops or livestock. A bulky and exotic means of payment, that went up in the exchange between the small tribal groups, such as hides among the nomads, beads among the natives of Palau, the shells from African tribes, or sunk into oblivion or continued to perform a restricted function.
In general, the life cycle of the ancient commodity economies was directly linked to harvests and livestock. Grains, like cattle, - which are an example of the so-called commodity money, i.e. money with intrinsic value and are used primarily as a universal means of exchange in barter. The concept of intrinsic value is inseparable from any discussion of the history of money; it means the utility embodied in the subject, in other words, the ability to perform an important function for the owner.
How did money emerge?
In the second book of “The Republic”, Plato called money as means used to barter, and Aristotle, largely following his teacher, considered that the money came as a public institution - its citizens have established a collective expression of the will to facilitate the exchange. This view is quite popular to this day. Alternative theories began to appear only by the end of the 19th century. The founder of the Austrian School of Economics, Carl Menger, in his book "Principles of Economics”, asserted that the emergence of money is an evolutionary process. After all, every person, as a scientist wrote, will be interested in sharing his commodity for a more attractive one and will look out for a commodity, which is most popular among market participants, and will be ready for keeping them with him for some time. Thus money arose as a result of such a search. This is the apotheosis of the commodity in great demand. In general, historians, and economists are unanimous that the money has created a market. Prussian Professor Bernard Laum was of a different opinion on this subject, explaining that money could have arisen as a religious object of a calculation between man and god, or rather, the earthly representative of the will of the deity (Emperor Caesar) so that the sanctity of subjects was measurable, and sacrifices - comparable in value and are adequate to favors being asked for or committed deeds. |
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