A post in the Austrian Economics thread got me thinking…when a transaction involving money occurs…is there automatically an exchange of goods of equal monetary value taking place?
Well one end of the transaction then is money itself, so the question would be: is the service or good being purchased worth the price? And that is an unanswerable question because we can’t know how much a person values something. We might think that a hundred dollar painting is overpriced, but not if someone buys it. Even if we take something less subjective like a car, a person might trade overpaying for it so that he doesn’t have to spend the time looking at reviews and comparing prices. In a market, less things are overpriced because of competition, but there are always going to be differences in value because that is what makes the transaction happen in the first place.
I didn’t ask about how much the person values what he is buying. I’m asking if the two things being exchanged are of equal monetary value.
They are if the two things being exchanged are both dollar bills or another means of exchange that have no non-monetary value (such as one dollar bill is nicer looking than the other), but then why would that transaction even occur?
You need a reason why a transaction would occur between two goods that have equal monetary value? Suppose two school kids are sitting at lunch. One has a sandwich that has a market value of $4, the other has a pizza that has a market value of $4. The first kid likes pizza more than his sandwich and the opposite is true of the second kid. They trade. They are both better off. That’s why the transaction between goods of equal monetary value would take place…because all parties involved believe they will be better off because of it. That’s why all voluntary transactions take place.
It might be better if you let someone else take a crack at this.
Define monetary value. What is the monetary value of money?
When a transaction involving apples occurs, is there automatically an exchange of goods of equal apple value taking place? What is the apple value of apples?
“Monetary value” = value in terms of the money. Your introduction of apples makes it a trick question, as they are not fungible. (Perhaps this is why there aren’t any notable instances of them evolving into a money anywhere.)
But to answer your question, I would have to assume the monetary value of one unit of money is “one unit”. In pedestrian terms, the monetary value of $1.00, I would have to say is, “$1.00”.
I don’t think my comments restrict other responses. The only thing that can have an objective market value relative to the thing used as money is the money itself in its purely monetary sense at the time of the transaction; and in this case, there would be no need for the transaction even if the transaction costs were zero. For example, a $20 bill equals every other $20 dollar bill used at the same time. In the future though, the monetary value of that money will change and probably be worth less. You can say that a market price need not be objective to be an equilibrium market price, but that equilibrium price depends on how you set up your demand and supply curves, and is not possible to find in reality. You are not going to find the exact same pizza or the exact same sandwhich sold at the exact same price. The example of trading food at school is not good because its not open to a large market open to competition. It is unlikely that either of those two things would fetch more than a penny outside of the cafeteria. But because the buyers are friends or children they might value each one at four dollars or at their milk or whatever.
False.
False.
That’s funny…because it just so happens $4 is exactly what the mothers paid for those food items right before they were dropped off to the children.
This is why I suggested you let a few others respond before continuing with your own. You are confused on a number of things. Anything can have an objective market-exchange value relative to virtually anything…especially something used as money. In fact, that’s the whole point of money. It makes it easier to calculate whether you are using resources efficiently or not. And the “monetary value of money” (at least in the way I defined “monetary value” for this discussion) never changes. The value of something relative to itself is always going to be the same. A = A. $1 will always equal $1. It is the value of that dollar relative to something else that changes, as the supply and demand of either good (i.e. the dollar or whatever your comparing it to) changes.
I would suggest having a read through some basic econ material. Lessons for the Young Economist is probably the best place to start. (There is a link there to a resources page where you can download it for free). But actually, even before that, you might go ahead and start with this article.
I’m ashamed to admit I’ve read that book if I’m that far off base. Saying the only objective price is the price of money is saying A=A. Where the supply and demand curve intersect is the equilibrium price, and though it is optimal, I don’t know if its objective, but I guess it doesn’t matter.
Did you read the article?