Veil of money
Encyclopedia
Veil of money describes a problem in economics, which centers on the question of whether money
is a commodity
like other commodities, such as oil or gold or food - or whether it has special properties.
This question arises in classical political economy, where John Stuart Mill
argues that money is unimportant, and that while money might disguise the true values in an economy, it would only do so for a limited period of time. This was used to argue against government intervention in political economy as a waste of time. The problem expanded however as money swung back toward credit based issuance of notes. What money meant, or was equivalent to, became important as governments attempted to adjust interest rates rather than maintain the Gold Standard
.
In the 20th century the veil of money is used to describe questions of stability and the exchangeability of money for interest or commodity in a macro-economic
model. In essence, as long as money can be treated like a commodity, there is no stickiness
between money and goods, or money and interest.
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
is a commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
like other commodities, such as oil or gold or food - or whether it has special properties.
This question arises in classical political economy, where John Stuart Mill
John Stuart Mill
John Stuart Mill was a British philosopher, economist and civil servant. An influential contributor to social theory, political theory, and political economy, his conception of liberty justified the freedom of the individual in opposition to unlimited state control. He was a proponent of...
argues that money is unimportant, and that while money might disguise the true values in an economy, it would only do so for a limited period of time. This was used to argue against government intervention in political economy as a waste of time. The problem expanded however as money swung back toward credit based issuance of notes. What money meant, or was equivalent to, became important as governments attempted to adjust interest rates rather than maintain the Gold Standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
.
In the 20th century the veil of money is used to describe questions of stability and the exchangeability of money for interest or commodity in a macro-economic
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...
model. In essence, as long as money can be treated like a commodity, there is no stickiness
Sticky (economics)
Sticky, in the social sciences and particularly economics, describes a situation in which a variable is resistant to change. Sticky prices are an important part of macroeconomic theory since they may be used to explain why markets might not reach equilibrium right away. Nominal wages are often said...
between money and goods, or money and interest.
See also
- Money illusionMoney illusionIn economics, money illusion refers to the tendency of people to think of currency in nominal, rather than real, terms. In other words, the numerical/face value of money is mistaken for its purchasing power...
- Neutrality of moneyNeutrality of moneyNeutrality of money is the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages and exchange rates, with no effect on real variables, like employment, real GDP, and real consumption....
- Real versus nominal value