Inflationomics Glossary
A priori
Self-evident, known by reason alone without any appeal to experience or sensory perceptions.
Catallactics is the theory of the market economy, that is, of exchanges and prices. Lack of this theory is called acatallactic.
Acceleration principle
In Keynesian theory, the principle that changes in demand for finished goods and services tend to give rise to much greater changes in the demand for producers' or capital goods.
Adjustable-Rate Mortgage (ARM)
A loan secured by real property with an interest rate that is altered periodically to reflect the current interest rate trend. A three year ARM is adjusted every three (3) years according to the formula outlined in the mortgage documents. If the market interest rate is higher at the time of adjustment, the mortgage rate of interest will be increased with commensurate higher monthly payments.
The purchase of a commodity against the simultaneous sale of a commodity to profit from unequal prices. The two transactions may take place on different exchanges, between two different commodities, in different delivery months, or between the cash and futures markets.
Property owned by or owed to an individual or business. On a balance sheet, this includes: cash, accounts receivable, inventory, plant and equipment, loans receivable, deposits, pre-paid expenses, investments, and goodwill, to name a few. Some people think of an asset as anything that puts money into one’s pocket.
One who believes in authoritarian policies and obedience to authority rather than individual freedom.
Balance of Payments
Recording of a country's economic transactions with the rest of the world during a particular time period. It is divided into two accounts – current and capital. The current account covers imports and exports of goods and services; the capital account covers movements of investments. A balance-of-payment deficit usually refers to a current-account excess of imports of goods and services over exports and a deficit in the capital account. It may signal weakness of a currency.
Balance of Trade
The difference between the volume of a country’s exports and its imports during a certain time period. If the imports are larger than the exports, a trade deficit exists. If the exports are larger than the imports, a trade surplus exists.
Bank reserves
Consist of cash in the vault and monies deposited with the central bank. Minimum required bank reserves are set by the central bank. Excess reserves may be lent to other banks that fall short of their required bank reserves.
Bank run
When a bank’s customers lose confidence in the bank’s ability to pay out the customers’ deposits, they simultaneously demand “their” money from the bank. This act ultimately ends in the bank’s bankruptcy when the banks are operating under a fractional reserve banking system and they don’t have enough funds on hand to meet their customers’ demands for cash.
A legally recognized status for a debtor who is unable to pay his/her debts. There may be different procedures to follow depending on the severity of the debtor’s debt to equity ratio and earning’s power.
Bimetallic standard
A monetary system in which gold and silver coins are used as standard money.
Black market
A generic term describing economic transactions in violation of price controls and ration regulations.
Black Swan
An event or occurrence that is very rare and not foreseen by most people due to their reliance on historical data that does not include the possibility of such an event because it has never occurred before. The consequences of this event are cataclysmic, having a huge impact out of all proportion with normal events.
An intangible asset designating debt. The debtor issues the bond and receives cash (or other assets) in return for the bond. The bond purchaser (or bondholder) is entitled to repayment of the loaned funds, plus interest (as payment for the use of the capital over time).
A time of inflation-induced prosperity.
Bretton Woods Agreement
Agreement reached by an international conference at Bretton Woods, New Hampshire, in 1944, for the establishment of an International Bank for Reconstruction and Development and an International Monetary Fund. The American position at the conference was prepared by Harry Dexter White. The British proposal was in large part the work of John Maynard Keynes.
British Currency School
A Nineteenth century school of thought which advocated that all future changes in the nation's quantity of money should correspond precisely with changes in the nation's holdings of monetary gold. It opposed any discretionary increases or decreases in the quantity of money by central or commercial bankers.
Bars of a metal. Gold bullion comes in one ounce, ten ounce, one kilogram, and 100 ounce bars.
Bullion Coins
Coins that are minted in large quantities and carry only a slight premium above the spot price of the bullion from which they are minted. Because bullion coins derive most of their value from the metal out of which they are minted, grading their quality is generally not necessary.
Bureaucratic Management
Bureaucratic management is the type of management used by governments; i.e., where rules and regulations are promulgated from a superior body for bureaucrats to follow. Furthermore, the objectives of such management are not measured in terms of money (profit). See Bureaucracy for more information.
Business cycle
Periods of expansion and contraction in economic activity due to central bank manipulation of money. Without a central bank’s intervention, the market rate of interest would guide investment decisions. On the other hand, if central banks set their interest rates below the market rate of interest, borrowers are encouraged to borrow more than if the market rate of interest prevailed. Conversely, if the central banks set their interest rates above the market rate of interest less money will be available than would be were there a market interest rate in effect.
In the long run, the central bank’s intervention misallocates capital which results in booms (when interest rates are held below the market rate for extended periods) and busts (when interest rates are then raised above the market rates). Recessions then are the market’s attempt to correct for the misallocation of capital during the expansionary periods. Unprofitable investments are liquidated with a renewed emphasis placed on meeting market priorities (unless central banks continue to intervene in the markets).
Business Plan
A statement of goals and a list of steps to be taken to accomplish the goals. Most business plans include a description of products or services to be offered, marketing strategies, production methods, human resource requirements, and financial projections of future earnings and expenses.
Capital is both “productive” assets that help to produce either more productive assets or consumer goods, and money that can be used to purchase “productive” goods. In either case, the asset employed earns enough of a return to “pay back” the owners (entrepreneurs and businessmen) and form a self-sustaining activity. To the extent that an activity does not earn a profit, it is consumptive in nature, rather than productive. Thus, an automobile in the hands of a profit-making traveling salesman is capital, while a student’s car used to go out for lunch is not. Cash, too, can be capital or not, depending on what it is used to purchase—a productive asset or a consumer good. Thus, by definition, capital increases productivity and, ultimately, standards of living.
Capital goods
Produced factors of production, such as tools, buildings, transportation facilities, etc. that make human labor more productive.
A social system in which the means of production are owned privately. Supply and demand is met by entrepreneurs seeking to earn profits by supplying goods efficiently.
Cash Flow
Money coming in and money going out. If more money comes in than goes out, there is a positive cash flow. If more money goes out than comes in, there is a negative cash flow.
The theory of the market economy, which is an important part of the general theory of human action called praxeology.
Central Bank
A country's bank that alone can legally issue currency and holds the reserves of other banks. It administers monetary policy and engages in transactions designed to influence the economy. In the United States the Federal Reserve Bank is the central bank.
Central Bank Credits
Funds available to be borrowed by member banks from a central bank and secured by securities or repurchase agreements. By increasing available funds (credits) more money is available to be loaned out by banks.
Cheap Money
Funds borrowed at a low interest rate.
Chicago School
The Chicago School is a loosely defined group of economists historically associated with the University of Chicago whose fundamental characteristic is its empirical epistemology. Its foremost contemporary representative is Dr. Milton Friedman.
Clearing house
An agency established by banks or brokers to reduce the labor of paying and receiving funds due one another. Each member's net credit or debit to another member is settled by transfers of net balances to or from established accounts.
The use of force against another person. This force can be either physical or psychological, and includes threats.
Assets used to assure the payment of a debt.
Command System
A command system is an economic system in which the factors of production are managed by central planners, i.e., government agents. A command system is also known as socialism and was shown by Ludwig von Mises in his book, Socialism, to be an inefficient method for allocating scarce resources.
Commercial bank
A bank which accepts deposits subject to withdrawal on demand.
A tangible economic good or item of trade or commerce; for example, corn, gold, or hogs, as distinguished from intangibles and services.
Commodity bill doctrine
The doctrine that promissory notes, drafts, and similar documents representing loans secured by commodities provide an elastic credit system.
Commodity money
A commodity, such as gold or silver, which is used as money.
Common law
The body of unwritten law developed primarily in england by judicial decisions based upon Scripture and custom, constituting the historical basis of the English and United States legal system.
Comparative advantage
The theory that all countries (or individuals) benefit from a division of labor when it (he/she) specializes in producing that which it (he/she) produces relatively more efficiently than others do, even if it (he/she) can produce many things somewhat more efficiently than others.
Comparative shopping
The practice of comparing prices and quality of various goods/services before purchasing something. Comparative shoppers are looking for the best quality at the lowest possible price.
Conspicuous consumption
The practice of buying expensive consumables to impress people. People can use current income, savings and inheritances, or debt to satisfy this ego need.
Constitutional law
The body of law that developed from commentaries upon and judicial decisions made pursuant to the United States Constitution. Unlike common law, constitutional law is written, though not codified.
Consumer's good
A good used directly in satisfying a human want.
Using up economic and/or free goods.
Continental Congress
Federal legislature during the American Revolution (1774-1789).
Contract law
The division of law that concerns the interpretation, application, and enforcement of contracts among contracting persons.
Contract with America
A 1994 Republican campaign program that promised a variety of tax cuts and benefits for families.
Contracyclical policies
Interventionist policies that are intended to counteract the undesired but inevitable effects of previous credit expansion.
Cornering (a market)
Purchasing (or selling) a large enough position in a particular market to drive prices in the cornerers’ desired direction.
The lack of integrity, honor, and/or righteousness. Usually used with regard to government officials who use their political powers for personal gains rather than the betterment of the commonweal.
The value of the price paid to buy, produce, or achieve anything. For the businessman, cost refers to the money paid to purchase the factors of production.
Cost of Capital
A weighted average of the expense associated with borrowing money (an interest rate) and the expense associated with the use of equity capital (dividends paid). The weight accorded to borrowed funds and capital depends on the percentage of each used.
Crawling peg
A price imposed by a government or central bank that is changed frequently by small amounts.
  1. The extension of time between receipt of goods or services rendered, and payment.
  2. Access to money; e.g., a line of credit.
Credit crunch
A time when it is difficult to borrow money. This can apply to individuals, corporations, banks, and/or governments. A crunch usually occurs suddenly.
Generally, money or other valuables currently in use as a medium of exchange. Some people use the term to refer exclusively to paper "money," and reserve the term "money" to refer to gold and/or silver.
Currency Reform
Issuing new money at various ratios to the old currency. A currency reform often occurs after the depreciation of a currency through hyper-inflation.
Originally, a currency unit such as a dollar, mark, pound sterling was stated as a specific amount of gold or silver. Eventually, the government revalued the currency to be a lesser quantity of gold or silver, but continued to call it a dollar, mark, pound sterling, etc. The difference between the old weight and the new weight was pocketed by the government, thus reducing the value of the monetary unit. The act of reducing the metal content of the monetary unit became known as “debasement.”
Unsecured corporate and/or government bonds backed only by the credit of the issuer.
An obligation to pay back borrowed funds. Being in debt is having an obligation to pay back borrowed funds.
Failure to perform as promised.
In the world of inflationomics, this can occur when a debtor fails to make a mortgage payment on schedule or a government fails to pay off its debt as promised. When it comes to sovereign debt default, there are two kinds of default, depending on the type of government involved. Governments that do not have control over a currency (i.e., the control to print it) will default when they fail to pay off their debts when they come due.
On the other hand, governments that have control over the quantity of their own currency can default gradually and insidiously by inflating their currency, thus paying off their debts with currency of ever decreasing value. In short, they delay the day of obvious default by paying off debts with currency of lesser value until people ultimately realize that they are providing goods and services to the government in return for pieces of paper that are steadily losing their purchasing power. In the end, they stop accepting the paper and the government must find a way to restore its credibility.
An excess of liabilities and debts over income and assets. In finance, an excess of expenditures over budget.
A decrease in the supply of money and/or credit. The symptom of deflation is a decline in prices.
Demand deposit
A bank deposit that is withdrawable on less than thirty days' notice.
Demand, Law of
States that when demand increases and supply remains constant, the price of the good tends to rise. Conversely, when demand declines and supply remains constant, the price of the good tends to fall.
An economic condition characterized by falling prices, rising unemployment, and a general decline in business activity. It is the final phase of a business cycle that begins with inflation and credit expansion.
An investment vehicle whose value depends on the value of an underlying asset or index. For example, a futures contract for the delivery of gold depends on the value of gold (the underlying asset). A futures option which, upon exercise, delivers a gold futures contract depends on the value of the underlying gold futures contract.
Reduction of the gold or silver content in the monetary unit or, where one currency is quoted in the currency of another country, reduction in the number of foreign units exchangeable for one domestic unit.
A reduction of the principal amount, or the face value or list price.
Discount rate
Interest rate which the Federal Reserve charges member banks for loans. Now consists of the primary credit rate, secondary credit rate, and the seasonal credit rate. The primary credit rate is commonly referred to as the discount rate.
Disutility of labor
The discomfort, inconvenience, fatigue, or pain inherent in human effort. All labor, mental or physical, is characterized by disutility.
Division of Labor
The practice of having different parts or individuals perform the tasks for which they are best suited with the goal of obtaining a higher level of productivity.
Due Diligence
A process for determining the likelihood that you are going to get what you expect in any sort of business transaction. This involves a careful and complete investigation into the circumstances surrounding and parties to the transaction. This is most effective when done prior to entering into the transaction.   Unfortunately, there are limitations to this process. Consider, for example, the September 11, 2001 disaster. Most people could not foresee or plan for such an event. Many contracts and business transactions came to an end on that day.   Less dramatic examples can occur, such as the bankruptcy of a company like Enron, or REFCO, or the sub-prime problems that are costing major brokerage firms and banks billions of dollars.
Easy Money
When interest rates are set below market rates by a central bank to encourage borrowers to borrow more money, thereby “stimulating” the economy.
Economic Bubble
Bubbles are a dramatic increase in the price level in a particular section of the economy, for example, high-tech stocks, real estate, or precious metals. Bubbles can result from a capital shift in search of a profit, or as a result of a change in government policies/demands.
Economic good
That which is scarce (relative to man’s wants) and useful to mankind.
Economic Maladjustment
A structure of investment and production that is at variance with that of an unhampered economy.
Economic Orders
Economic orders or systems are methods used by a society or country to allocate scarce resources. Examples include socialism, capitalism, communism, mercantilism.
The science of means, i.e., the means to be used to obtain a specific goal. One of the primary questions confronting economists is the means by which to best allocate the world’s limited resources among the unlimited human wants.
Employment programs
Government programs that are intended specifically to create/increase employment.
A person who sees the need and then acts to perform needed new services or to produce new products.
The theory of human knowledge. It is concerned primarily with the origin, structure, methods, and validity of knowledge.
A state of rest or inaction in which all opposing forces and influences are exactly equal and in balance. In economics, it is a concept used for analytical purposes, but it is never observed in any actual economic system.
European Central Bank – ECB
The central bank of 12 European countries which issues the euro currency since January 1, 2002.
European Economic Community
The official name for the Common Market, which is an economic union established in 1958, originally including Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany.
"Excessive" carries the connotation of being extreme and improper. Of course, what is excessive or extreme in one case may not be excessive in another. Like the word "fair," it is a subjective term, which can be used by politicians and other inflamatory speakers to incite envy in voters, rioters, strikers, and other groups prone to violence.
Exchange rate
The price of foreign currencies. If it costs $.42 to buy one Swiss Franc, the exchange rate is .4200. As one currency is inflated faster or slower than the other, the exchange rate will change, reflecting the change in relative value. The currency being inflated faster is said to be becoming weaker because more of it must be exchanged for the same amount of the other currency. As a currency becomes weaker, exports are encouraged because others can buy more with their relatively stronger currencies.
Exchange-Traded Fund (ETF)
An Exchange-Traded Fund (ETF) is an open-ended investment company that trades on a stock exchange. By investing in the components of an index or in a commodity, the ETF makes available to small investors the opportunity to invest in the index or commodity. For example, an ounce of gold may cost $900.00, but a share in a gold ETF may cost $90.00, making it a more viable investment for many more people.
Factors of Production
Economists usually distinguish three factors of production — land, labor, and capital. "Land" includes all the natural elements, including water; "labor" is both physical and mental; and "capital" is that personal wealth that has been produced by the intelligent application of labor and land and will be used to produce more goods.
Equal treatment (under the law). Without bias. An honest weighing of the pros and cons.
Fed funds
Monies deposited at the Federal Reserve Bank by commercial banks. These deposits, along with the cash in the commercial banks’ vaults comprise the bank’s “reserves.”
Fed funds rate
The interest rate charged by one commercial bank to another commercial bank for funds borrowed and held by the U.S. Federal Reserve Bank or "the Fed" (usually for short periods of time). While the Fed Funds Rate is negotiated between the borrowing bank and the lending bank, the Fed influences this rate through open market operations; i.e., by manipulating the supply of money in the economy.
Federal Home Loan Mortgage Corporation (FHLMC)
A quasi-governmental stockholder-owned corporation that makes loans and loan guarantees. It is quasi-governmental because it is regulated by the Federal Housing Finance Agency (FHFA) and because the U.S. Treasury Department will step in to bail it out if necessary. It is commonly known as Freddie Mac. As of September 7, 2008, it is under the conservatorship of the FHFA.
Federal National Mortgage Association (FNMA)
A quasi-governmental stockholder-owned corporation that makes loans and loan guarantees. It is quasi-governmental because it is regulated by the Federal Housing Finance Agency (FHFA) and because the U.S. Treasury Department will step in to bail it out if necessary. It is commonly known as Fannie Mae. As of September 7, 2008, it is under the conservatorship of the FHFA.
Federal Reserve System
Also known as the "Fed," it is the U.S. central banking system. It consists of a Board of Govenors (7 members appointed to 14 year terms by the President and approved by the U.S. Senate), 12 Federal Reserve Banks and member banks (both state and national). The system was established in 1913.

Not only does the Federal Reserve System act as a clearinghouse for most U.S. bank transactions, but it also sets the reserve requirements for its member banks. The Fed also buys and sells government securities, i.e., T-Bills, T-Notes and T-Bonds and issues the U.S. currency.

The U.S. dollar inflation rate since 1914 has been 1,915%, according to While some people contend that the Fed is independent of the U.S. government, what do you think would happen to its "independence" if it stopped purchasing U.S. government debt? In fact, the Fed is by far the largest holder of U.S. T-Bonds. It also owns more than $1 trillion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae.
Fiat Money
A coin or piece of paper of insignificant commodity value that government has declared to be money and to which it has given "legal tender" quality. Latin translation: "Let it be done."
Fiduciary Money
Money-substitutes, such as bank or treasury notes and demand deposits, that exceed the cash reserves immediately available for their conversion into proper money.
Financial Crisis
This could refer to any number of different things. It could refer to a stock market crash, bank runs, numerous business failures and individual bankruptcies, significant nationalizations and bailouts, loss of faith in a currency or, as in 2008, all of the above.
Fine tuning
A term in the jargon of some economists who believe that economic activity can be carefully and precisely governed by government manipulation. It presupposes a mechanical relationship between the quantity of money and its effects on prices and markets, and ignores the subjective valuations made by millions of individuals.
An economist who believes that the fiscal (budgetary) policies of government are more important that its monetary policies in regulating economic activity.
Fixed-rate loans/mortgages
Loans having an interest rate that does not change throughout the life of the loan.
Flexible Exchange Rate
A monetary system with a monetary unit whose rate of exchange is subject to instant change by order of a government agency or because of fluctuations in the international money markets.
Foreign trade
The purchase and sale of goods and services by businesses and individuals in two or more countries.
Forward Cover
The purchase or sale of a foreign exchange futures contract in order to meet a payment due at a future date in a foreign currency. It avoids exposure to exchange rate fluctuations.
Fractional reserve banking
A banking system in which commercial banks are required by the central bank to maintain a small percentage of their deposits on hand as cash reserves. Both vault cash and deposits kept with the central bank qualify as reserves.
Free economy
An economy free of government intervention. An economy where people are free to choose their professions, jobs, investments and consumer goods (all economic decisions) without government regulation.
Frictional Employment
Temporary unemployment due to changes in the demand for or supply of specialized labor.
Futures or Futures Contract
An intangible asset (a contract or agreement) designating the right to receive or sell a specific asset at a certain time in the future at a price set today. Futures contracts started with commodities such as rice, corn, butter, gold and later crude oil. Today, futures contracts also exist for many intangibles such as US Treasury Bonds, stock indexes, and currencies.
To take a chance on a man-made risk. Gambling does not have any socially redeeming qualities.
People who seek out man-made risks; e.g., the roll of dice, spin of a roulette wheel, outcome of a race, sporting event, or card game. They actually create risk that never existed before they placed the bet. Man-made risks fall under the category of “fun” or “entertainment.” They are contrived events not based on economic goods. Gambling does not benefit society as a whole—only a small class of winners. Compare with speculator.
Activity involving the entire world. Extension of division of labor to other parts of the world.
Gold Clause
A gold clause in a contract provides for payments to be made in gold. They are generally used by creditors when the local “legal tender’s” value is depreciating due to inflation. Gold clauses were prohibited in the United States in 1934 and allowed again in 1977. See Jamaica Avenue, LLC vs. S&R Playhouse Realty Co.
Gold Reserve Act of 1934
An act of Congress that put the country on a modified gold standard defining the U.S. dollar as a certain fixed value of gold, but prohibiting the use of gold as a medium of domestic exchange.
Gold Standard
That monetary system in which gold is money. All types of money substitutes are freely convertible into gold at a specified rate.
The supreme authority/force in a state that establishes laws, rules, and regulations by which its residents/citizens must abide. It is also the entity that applies/enforces its laws, rules, and regulations.
The belief that government activity should be expanded; the inclination to expand the role of government.
Great Depression
Most people, including the Fed, think of the Great Depression as a deflationary event caused by a shortage of spending and money, which could have been avoided if the Fed had created more money (inflated the money supply). In reality, it was a government-induced economic stagnation of the 1930s in the United States. See The Great Depression: Will We Repeat It?
Gresham's Law
The principle that "bad money drives out good money if government decrees them to be equal in value," first expounded by English financier Sir Thomas Gresham in 1560.
Gross National Product
The market value of goods and services produced in a country. Figures of GNP or GDP (Gross Domestic Product) are released by the Commerce Department on a quarterly basis.
Hard Asset
A tangible economic good such as gold, silver, or platinum coins or bars.
Hedge fund
A private investment partnership or an investment corporation for non-U.S. or tax-exempt investors in which the general partner has made a substantial personal investment and which uses leverage and derivatives and invests in many markets.
To hide away something of value for the sake of building a reserve; assets held in abeyance rather than productively or consumptively utilized. Note: this is different from saving.
A concept of epistemology according to which economic knowledge can be gained from totals or aggregates rather than the actions of individuals.
Quite simply defined, hyperinflation is excessive or extreme inflation, however, some authors have tried to define hyperinflation as an inflation rate of 20 to 50% per month. While hyperinflation often leads to a currency reform, this is not always the case.
I.R.S. (Internal Revenue Service)
A U.S. government agency charged with the responsibility of enforcing the U.S. Treasury Department’s tax code. The IRS conducts audits, promulgates rulings, collects and assesses taxes, and prosecutes suspected tax offenders.
Income is the amount of wealth which can be consumed within a certain time frame without reducing the capital invested in that venture.
A specialized average. Stock indexes may be calculated by establishing a base against which the current value of the stocks, commodities, bonds, etc., will change; for example, the S&P 500 index uses the 1941 – 1943 market value of the 500 stocks as a base of 10.
An increase in available currency and credit resulting in a decline in their purchasing power. Such an increase results in higher prices for goods and services.
Inflation factor
A multiplier used to estimate future prices, assuming a specific rate of inflation. For example, if we estimate an annual inflation rate of 5%, something that currently costs $100.00, in ten years will cost $162.89. Assuming an annual inflation rate of 15%, our $100.00 item will cost $404.56 in ten years.
Inflationary Spiral
Initially, inflation is caused by an expansion of the money supply, but eventually people begin to anticipate future declines in their currency’s purchasing power, and the currency’s price (relative to goods) begins to drop faster than the supply expansion would suggest. Thus, an ever-expanding money supply is needed to effect the same purchasing power and/or stimulate the economy. In short, as existing money buys less, more money is needed to buy the same quantity of goods. More money is then printed to meet the ever-expanding anticipatory “need”/demand for it, reducing the currency’s price and pushing goods’ prices higher still. This spiral often ends with hyper-inflation and a monetary reform.
  1. A body of economic thought that favors inflationary policies.
  2. In popular terminology, indicates the sway of inflation thought in education and the affairs of government.
Institutional Unemployment
As distinguished from frictional unemployment, institutional unemployment is caused by government interference in the economy: minimum wage laws, legal privileges for labor unions, unemployment compensation, etc.
The "institutional" approach to economic theory. It was largely influenced by the thought of Thorstein Veblen (1857–1929) and had a great influence on U.S. government policies during the Roosevelt New Deal.
Interest is comprised of three components:
  1. Time value of money or the originary rate. Anyone who chooses to invest his/her money to receive interest payments is forgoing current consumption for later gratification. Money spent now provides instant gratification; the buyer knows exactly what he is getting for the value of his dollar. Money saved presents the element of uncertainty. The future is hard to predict when it comes to finances, and the value of a dollar tomorrow might be radically different from today. In addition, what might be available to be purchased today may not be available tomorrow. In short, the originary rate is the ratio of currently desired goods relative to future-desired goods, or the rate of interest that must be paid to someone to induce him/her to forgo the use of his/her money today (become a saver). Some people think of interest as a time premium paid for the use of money. Under free market conditions, this rate has traditionally been around 2-3% per year.
  2. Debtor's risk premium. Debtor's risk premium is the portion of interest paid by the debtor due to the possibility that the borrowed money might not be readily forthcoming when due. In other words, what are the chances of the debtor’s being unwilling or unable to repay the original sum or the interest payments? What if the debtor dies or declares bankruptcy? Economic crises in the past have destroyed thousands of seemingly-secure banks. Today, record numbers of individuals are declaring bankruptcy, and 96% of all businesses started in the U.S. fail in their first five years. Debtor's risk premium is an important component of interest and is determined on a case-by-case basis.
  3. Inflation premium, the third component of interest, results when there is price inflation; i.e., when enough new money is created (or anticipated to be created) to reduce the price of the currency (relative to goods prices) during the term of the loan. The borrower must be charged enough interest to compensate for the loss the lender will incur because he will receive cheaper dollars (dollars with a lesser purchasing power) when the debt is repaid.
Interest Arbitrage
The transacting of business in loan markets in order to profit from interest rate differences among different loan markets.
Interest Rate
Rate of interest charged for the use of money and present economic goods, usually expressed at an annual rate.
International Money Fund
Established by the Bretton Woods (1944) conference and designed to meet the requirements of international monetary cooperation. In 1978 it had 134 members. The total paid subscriptions of the member countries are denominated in Special Drawing Rights (SDR's). The United States quote for 1978 was $8.4 billion. These funds can be drawn upon by the members for the purpose of bolstering their own inflated currencies. Because of this function, the I.M.F. has been called the engine of world inflation.
A politico-economic system in which governments interfere with the smooth workings of a capitalistic system through various means, including taxation, price and wage controls, regulations, and government spending. Interventionism is the type of system all free world countries have today. In most cases it leads to socialism.
To employ an asset with the purpose of receiving a return.
A technique used by governments to influence various other entities into acting in ways that the government wants. Governments can do this by threatening an undesirable course of action if the other party fails to act in accordance with the government's wishes. Governments might use this technique to "persuade" labor not to strike, businesses not to raise prices, businesses not to lower wages, countries to increase oil production, or other central banks to inflate their currencies to bolster their own currency.
Jefferson, Thomas
Thomas Jefferson was the primary author of the U.S. Declaration of Independence, and third president of the United States. A strong advocate of liberty and states' rights, Jefferson was nevertheless in favor of public education and established the University of Virginia. He died on July 4, 1826.
1. An impartial or equal treatment under the law. For a law to be just, it must require equal treatment and application. 2. An equal weighing of the merits and demerits when determining a punishment/reward. 3. Without bias.
Keynes, John Maynard
A British economist (1883–1946) who cloaked inflation and credit expansion in mathematic economics and gave scientific justification to old popular fallacies. He was the most influential economist of the twentieth century.
The school of economic thought following John Maynard Keynes (1883 - 1946). The school disagrees with classical economics and Say's Law that supply creates its own demand. It believes that general overproduction leads to chronic unemployment, and therefore advocates governmental intervention in one form or another.
Labor Income
Remuneration for an employee’s or a professional’s mental or physical effort. Often refers to a salary or wage which is limited by the number of hours available.
Laissez-faire Philosophy
The doctrine that economic production functions best when there is no government interference. It is based on the knowledge that a natural economic order tends to secure maximum well-being for the individual and therefore for the country as a whole.
Legal Tender
Any kind of money which by law must be accepted when offered in payment of a debt. Legal tender laws were enacted when contract law was rejected. They are designed to tell citizens what medium of exchange to use, rather than to allow the citizens mutually to agree upon medium of exchange in a contract. Governments made their fiat money legal tender and denied the status to gold and silver coin in order to force the people to use fiat money, which could be created at will.
Legal Tender Act of 1933
An act of Congress that decreed that United States notes and Federal Reserve notes may be legally offered in payment of any debt and must be accepted by a creditor.
Legal Tender Laws
Laws that require individuals to accept the issuing government's currency, regardless of its value. Thus, when a currency falls in value due to inflation, people living in that country are still required to accept it as payment for all debts public and private. Refusal to accept the currency can lead to forfeiture of the goods.
The control of a larger sum of money with a smaller amount. For example, by accepting the liability to purchase or deliver the total value of a futures contract, a smaller sum (margin) may be used as earnest money to guarantee performance. If prices move favorably, a large return on the margin can be earned from the leverage. Conversely, a loss can also be large, relative to the margin, due to the leverage.
Debts and/or other monetary obligations. On a balance sheet, this includes: accounts payable, short- and long-term loans, accrued taxes, and deferred income (to name a few). Some people think of a liability as anything that takes money out of one’s pocket.
Limited Resources
Throughout history and up to this time, man's resources have been limited to what is available on planet earth. These resources are often referred to as "supply."
Referring to the quantity of dollars or assets available in a given market. Greater liquidity increases the ease with which a market participant can enter or exit a market.
Loan Default
Failing to make consistent and timely payments according to the terms of a loan agreement.
A term used by dealers in commodity and money markets to describe the action of holding goods or currencies in anticipation of a rise in prices.
Contemporary economic analysis is divided into macroeconomics and microeconomics. The former is the study of aggregates of prices, wages, and incomes, as opposed to that of the economic actions of individuals.
Causing market prices to act in a way not justified by the underlying supply/demand fundamentals. Governments often add to this definition the cornering of a market.
Marginal Productivity
The market value imputed to the lats (that is, marginal) unit of labor, land, or capital used in production.
Marginal Utility
The least important (valuable) use to which a unit of a supply of identical goods can be put.
Market Economy
The economic system of private ownership of the means of production which is guided by supply and demand with price as a rationing mechanism. The market directs individual activity to serve the wants of fellow men. The state does not interfere with the market.
The national health insurance program for low-income people, established 1965.
The national health insurance program for people aged 65 and older, established in 1965.
Medium of Exchange
Any object that is used primarily for exchange rather than for production or consumption. Historically, gold, silver, iron, cattle, and beads, among other things, have functioned as media of exchange. The best medium of exchange is one that has its value fluctuate as little as possible over a long period of time. Traditionally, this has been gold and silver.
Menger, Carl
Founder of the Austrian School of Economics. He published Principles of Economics in 1871 and Investigations into the Methods of the Social Sciences in 1884. He died in 1921.
Economists of the sixteenth, seventeenth, and eighteenth centuries who taught that national wealth and power were best served by increasing exports and importing precious metals in return. They also believed in an irreconcilable conflict between the interests of nations.
Mergers and acquisitions
In a highly competitive economy, corporations often combine or merge with other similar companies to achieve an economy of scale or pricing advantage over the competition. Purchasing or acquiring other companies or their assets may be done for similar reasons. Oft times mergers and acquisitions involve a stock swap or a cash payment and are generally completed on a “friendly” basis with both companies working together to ensure a successful successor entity.
As opposed to macroeconomics, which is statistical and mathematical in nature, microeconomics is the study of individual valuation and action.
Mises, Ludwig von
Prominent member of the Austrian School of Economics. To learn more about his role, click here. For some of his publications, click here.
Monetary Policy
A course of action adopted by the Federal Reserve Board to influence the economy or facilitate government financing. The Fed may alter the discount rate, engage in open market operations, and change its reserve requirements.
Monetizing the debt
The process by which government debt is used to issue more money. The central bank may purchase Treasury obligations, thus releasing newly created money.
Mainstream economists attribute three qualities to "money." a. Medium of exchange; b. Store of value; c. Unit of measure. While money is a medium of exchange, and a unit of measure, its value fluctuates according to the law of supply and demand. Because its value fluctuates, is does not act well as a store of value. The best medium of exchange is one that has its value fluctuate as little as possible over a long period of time. Traditionally, this has been gold and silver.
Money markets
Markets for short-term debt instruments, including government issued bill (T-Bills), commercial paper, banker’s acceptances and negotiable certificates of deposit. While short term generally means less than one year, most money market instruments have a maturity of 30 days or less.
Money Substitutes
  1. Something that takes the place of or stands in for a medium of exchange.
  2. Fiat currencies.
Money Supply
Money supply can be defined narrowly or broadly. The United States Government uses at least five different definitions, ranging from actual currency to currency plus demand deposits, plus time deposits, plus certificates of deposits, plus deposits with institutions other than commercial banks. Some economists have even suggested the inclusion of food stamps, for they are accepted as media of exchange for food.
Working at a second job, often during the evenings.
A Keynesian term used to describe the alleged effect government spending has on economic activity. When government spends one new dollar, it in turn is spent again and again, which is said to stimulate economic activity. In Keynesian usage, the multiplier is the ratio of the change in national income to a change in investment.
Mutual fund
A fund operated by an investment company that raises money from shareholders and invests in stocks, bonds, options, futures, currencies, actual commodities, or money market securities. It charges a management fee, typically between 0.5% and 2% of assets per year. To learn more about mutual funds than you ever wanted to know, visit the Investment Company Institute.
Seizure of private property by the state to be used (consumed) by the state thereafter. Because governments do not have “profit” motives, it is just a matter of time before they consume the assets they have seized.
Negative amortization loans/mortgages
Loans in which the loan payment for any period is less than the interest expense for that period. With such a loan/mortgage, the principal balance increases as time goes by. Such loans/mortgages may also be called deferred interest loans/mortgages or Graduated Payment Loans/Mortgages (GPM). Such loans/mortgages are generally used as an introductory loan/mortgage for a period prior to starting a conventional self-amortizing loan/mortgage.
The process of reaching an agreement to trade. Generally, each party to a trade values what he receives more highly than that which he gives in trade.
Net Present Value
The current value of future cash flows less the cost of the original investment. The current value of future cash flows is calculated by reducing (discounting) the total expected cash receipts by the interest rate paid to borrow the initial investment. If an investment costs $100,000, the expected annual cash flow is $20,000 for 10 years, and the investor’s cost to borrow funds is 10%, the net present value is $22,891.34. The more positive the net present value is, the better the investment is. Comparison of net present values for various alternatives can help an investor decide which investment is best.
Net Worth
Generally, net worth is calculated by subtracting one’s liabilities from one’s assets. During inflationary times, assets are often undervalued because they are usually priced at cost.
New Economics
The name given to Keynesianism by proponents of the economic doctrines of Lord Keynes.
Nominal economic production
Theoretical economic production. The prices of goods are stated in non-inflation adjusted currencies.
Nominal Wages
Wages expressed in monetary units rather than purchasing power.
North American Free Trade Agreement
A 1992 agreement among Canada, Mexico, and the United States that eliminated most tariffs and other trade barriers over a ten to 15 year period.
Having value beyond the value of the metal/paper the money/coin/medallion is made of.
Numismatic coins
Coins whose market prices depend on their age, rarity (number of coins printed), quality, aesthetic qualities, popularity, origin, etc. What they are made of is of lesser importance. Because quality is of such importance, grading of numismatic coins becomes an important consideration. Consequently there are several companies that specialize in grading rare coins. See NGC and PCGS.
The study of currency, including coins, paper money, and medallions.
Something with a measurable quantity; e.g., degrees of temperature, decibels of loudness, speed in miles or kilometers per hour.
That branch of philosophy that is concerned with the objects, physical and mental, that exist, and with their nature and interrelationships.
Opportunity Cost
The expected yield on the best alternative investment. It is not a cost in the accounting sense of the word, just a missed alternative.
There are two kinds of options: calls and puts. A call gives the purchaser the right to purchase an underlying asset at a specific price within a certain period of time (before expiration). The call seller (or writer) is obligated to deliver that underlying asset at the specified price (strike price) if the call purchaser exercises his right to buy. A put gives the purchaser the right to sell an underlying asset at a specific price within a certain period of time (before expiration). The put seller (or writer) is obligated to buy the underlying asset at the specified price (strike price) if the put buyer exercises his option (right to sell).
Originary rate
The ratio of currently desired goods relative to future-desired goods, or the rate of interest that must be paid to induce someone to forgo the use of his/her money today (become a saver). Under free market conditions, this rate has traditionally been around 2-3% per year.
Paper Assets
Include federal reserve notes, bonds, stocks, dividends, IRAs, Keough plans, ETFs, Social Security claims, Medicare and Medicaid, mortgages, notes, futures contracts, options, warrants, swaps, certificates of deposit, commercial paper, bank accounts, insurance claims, and any other rights, claims, or certificates payable in a currency.
Parallel market
A pricing system which uses a foreign currency because the domestic medium of exchange is depreciating rapidly.
Payback Period
The time needed for an investment to pay for itself with net projected cash flows. The payback period is generally used when estimating the time it will take to recover the original investment amount.
Phillips Curve
Developed byProfessor A.W. Phillips of the London School of Economics, the curve allegedly describes the relationship between inflation and unemployment. More inflation means less unemployment; less inflation means more unemployment. Because it ignores the factors that cause unemployment, the curve is an exercise in futility, and in recent years has falled into disrepute with most economists.
Political Science
A social science which studies the actions of governments.
The use of government to achieve specific goals.
The general theory of human action, whose most developed part is catallactics, the theory of the market economy.
What one must impart, carry out, or endure to acquire something. Prices are usually expressed in monetary terms. In a free market, prices are set as a result of the interaction of supply and demand in a market; when demand for a product increases and supply remains constant, the price tends to rise; when demand for a product decreases and supply remains constant, the price tends to decline. Conversely, when the supply increases and demand remains constant, the price tends to decline; if supply decreases and demand remains constant, prices tend to rise. Today's markets are not purely competitive; prices are affected by government controls and supports that create artificial supplies and demand, and inhibit free trade, thus making price predictions more difficult.
Price bubble
Price increases caused by an exceptionally large demand for a particular good or service. The cash/credit used to pay for the demanded goods/services is often supplied by central banks causing a mal-adjustment in the economy.
Price controls
Government policy measures that place a ceiling on prices, purportedly to curb inflation. Violators may be prosecuted.
Price Level
A macroeconomic term which implies that all prices rise and fall uniformly. Actually, there are only prices, not price levels. Attempts to measure or determine a price level through such devices as the Consumer Price Index or the Wholesale Price Index are futile, for the very concept of a price level is chimerical.
Primary credit rate
An interest rate at which sound depository institutions (banks) can borrow short-term funds at 1% above the targeted fed funds rate. There are no restrictions or questions asked for the use of primary credit.
Prime rate
The lending rate at which a bank’s best corporate customers can borrow money. Many loan rates are stated relative to the prime rate; for example, prime plus 1% or prime plus 2%.
  1. the amount of money borrowed,
  2. the remaining unpaid balance of a loan,
  3. the original amount of an investment,
  4. the primary investor (as opposed to an agent), or
  5. the main one in its category (principal residence, principal place of business, etc.)
Private equity firms
Businesses established to manage private equity funds, i.e., funds comprised of investments from corporate investors, private individuals, government agencies, banks, pension funds, and insurance companies (institutional and qualified investors). Such firms manage the money by investing in venture capital projects, buyouts, mezzanine financing and other special situations such as turnarounds. Most recently, private equity firms are buying publicly traded firms and taking them private—see Chrysler Corporation.
Producers' Goods
Goods that satisfy human wants indirectly, not being wanted for consumption, but for the sake of creating goods that will satisfy wants directly. They include raw materials, machinery, and factories.
Productive asset
An asset that earns a profit.
Productivity is a measure of the output relative to input. The greater the output per input, the greater the productivity. Productivity is usually used to describe capital and labor output.
The difference between the higher value of the good produced or the service rendered and the lower value of its cost, that is, yield minus cost.
Profit Management
Profit Management presupposes a market economy in which there is private ownership of the means of production. Such ownership allows private individuals to arrange and manage their assets in such a way as to earn a profit. In short, profit management is managing assets to earn a profit. See Bureaucracy for more information.
Profit Motive
Having an incentive to earn more than one’s costs in the production of a product or service. Such an incentive is derived from the right to own property privately and use it to produce/sell products/services that consumers are willing to pay for. It also presumes that the producer will have the right to keep enough of the sales proceeds to earn more than what it cost him to produce the product/service. Notice that private businesses have a profit motive, while governments do not.
Program Trading
Computer-aided trading where orders are automatically generated at trigger points.
Progressive Income Tax System
A scheme of increasing rates of levies against earnings as earnings rise. In the U.S., in 2007, a single individual taxpayer with a taxable income of $7,825.00 paid 10% of his taxable income in taxes, while a single individual taxpayer with a taxable income of $50,000 paid 17.85% of his taxable income in taxes. The higher the tax rate, the more it destroys people’s incentive to earn more and/or to file “honest” tax returns.
Property Rights
A just and legal claim to possess, consume, enjoy, transfer, or gift something as the owner pleases.
Public welfare
When unemployment rises or inflation increases, government is called upon to do something about it, although it may have caused the problem in the first place. The age-old question is, where do the state’s interests in the public’s well-being end and where do individual’s interests take priority?
Purchasing Power
Refers to the value of money in buying economic goods. The exchange value of a unit of currency is its purchasing power.
Quality of Money
Addresses the question, how well does a particular type of money fulfill its goals as a unit of measure, store of value, and medium of exchange? The better the quality, the better it fulfills these goals. The more poorly it fulfills these goals, the poorer is its quality. At some point, if its quality becomes too poor, it will be substituted by a different money.
Quantitative Easing (QE)
A euphemistic term referring to the expansion of the money supply through the purchase of U.S. government issued Treasury instruments by the Federal Reserve Bank. The modern day equivalent of printing more money—very inflationary.
In broad terms, the act of acquiring money "illegally," especially through fraud or extortion. Because governments generally make their own acts legal (and therefore cannot do anything illegal) they can force their citizens to accept depreciated currency against the citizens' wills by threatening to seize property if the currency is not "freely" accepted. This would be racketeering except that it is legal for governments to do this.
Rate of Return (Return on Assets)
For an investment where you have a one-time gain or loss on the investment, the return is calculated by dividing the gain or loss upon liquidation of the investment by the initial cost of investment. A more complicated formula applies for investments with streams of income over a period of time. For those investments, the rate of return is calculated by taking the annual cash flow for the life of the investment and equating it with the initial cost of the investment. The resulting interest rate is the rate of return. A comparison of rates of return for various competing investments reveals the best investment.
Real Goods
Land, capital goods, gold, silver, precious stones, consumers' goods, all are real goods. They are distinguished from cash holdings of fiat money.
Real Return
The increase in the value of one’s investment, adjusted for inflation. If your investments increase by 15%, but the inflation rate is 7%, your real return is 8%.
Real Wages
Wages expressed in terms of real goods rather than monetary units.
A moderate and temporary decline in economic activity caused by readjustments precipitated by inflation and credit expansion.
To discount again.
Regression Theorem
Developed by the late Ludwig von Mises, the regression theorem traces the value of present fiat money back through its predecessors to the point where the medium of exchange served only non-monetary purposes. The theorem explains the value presently attached to fiat money on the basis that its predecessors had commodity value.
Reserve Currency
A currency that is held by many central banks and used to make international payments.
Reserve Requirements
The legal requirements imposed on banks in order to force them to keep a certain fraction of their actual deposits on hand to meet cash withdrawals. In order to conduct inflationary policies the Federal Reserve has greatly reduced the reserve requirements. In a sound monetary system it would be in the interest of all banks to maintain a one hundred percent reserve.
Ricardo, David (1772-1823)
A British economist who introduced a rigidly deductive and scientific method of analysis. His The Principles of Political Economy and Taxation (1817) made him a very influential and famous economic thinker.
Safe haven money
A medium of exchange that provides refuge (relief) from a world of depreciating fiat currencies; i.e., precious metals.
To use one’s income for productive purposes; to invest the excess of production over consumption. Note: saving includes investing! For an in-depth discussion of saving versus hoarding, see
The fundamental economic phenomenon is scarcity. If a good is not scarce (air, for example) it is not an economic good.
Seasonal credit rate
An average of selected market rates. Seasonal credit is extended by the Fed to relatively small banks with seasonal fluctuations in reserves. Examples include banks with agricultural or seasonal tourist business depositors.
Secondary credit rate
An interest rate at which troubled depository institutions (banks) can borrow short-term funds at 1.5% above the targeted fed funds rate. Use of secondary credit entails higher levels of supervision by the Fed.
A term that includes stocks, bonds, debentures, and mutual funds.
Refers to the difference between a money’s face value and the cost to produce it; i.e., the profit earned by the issuing entity on the currency it issues.
A term used by traders in commodity and currency markets to describe a commitment to deliver at a future date a security or commodity which the seller does not own, but which he hopes to buy later at a lower price.
To be distinguished from scarcity, which is a natural phenomenon. A shortage is induced by political interference in the market economy, either through hampering production and distribution or through controlling prices.
Smith, Adam (1723-1790)
A Scottish economist who published a book, commonly known as The Wealth of Nations (1776), which earned him fame greater than that of any other writer on political economy. His work still stands as outstanding in the development of economic thought. Smith wrote before the Industrial Revolution; his analysis and explanation paved the way for the new order.
Social Security
The U.S. federal benefit system, created in 1935, that provides retirement income and many other benefits such as disability income, Aid to Families with Dependent Children, the Food Stamp program, Unemployment Insurance, Medicare, Medicaid, Public Assistance for the Aged, Blind, and Disabled, and Student Aid.
A social system in which the means of production are government owned. It is the opposite of capitalism. Production of goods is determined by government bureaucrats. Also called communism (arising from the word commune—a place where people live together and theoretically share equally among themselves). Communism and socialism are forms of total government control or authoritarianism. To learn more about socialism, see Socialism, by Ludwig von Mises.
The ability of an individual or business to pay its payables when they become due.
Sophisticated Investor
An investor who: (i) has a net worth individually or with a spouse of $1,000,000 or more; (ii) is an institutional investor such as a bank, insurance company, registered broker/dealer, or large pension plan; (iii) a tax-exempt organization with total assets in excess of $5,000,000; (iv) a private business development company; (v) a director, officer, or general partner of the issuer; or (vi) any entity owned entirely by sophisticated investors.
Sound Money
A medium of exchange that is not easily inflated; i.e., a commodity of consistent weight and quality. Antonym: fiat money.
Sovereign wealth funds
A government-owned fund, intended to act like a for-profit private equity fund with investments in anything from securities to real estate, even private equity funds. Such funds are generally owned by governments with surplus funds. Some well-known sovereign wealth funds are owned by China, Singapore, Norway, United Arab Emirates, and Saudi Arabia. Also called sovereign investment funds.
Space Arbitrage
The sale and purchase of goods on two or more markets separated by geographical location. Its effect is to equalize prices in both markets, except for the costs of transportation.
Special Drawing Rights
The monetary unit created and used by the International Monetary Fund. Its value is based upon a "market basket" of leading currencies and may vary depending upon the value of the currencies in the basket. Also called "paper gold." It is designed to substitute for gold.
Coins; usually made of gold and/or silver.
To calculate (or take a chance on) the coming change in prices of economic goods and position oneself to profit from those changes. Note that if speculators correctly anticipate the changes in market conditions, they perform a valuable service to society; e.g., supplying an economic good or service at the best possible price at that moment.
One who buys and sells economic goods, risking his capital with the goal of earning a profit from price changes. In contrast to gamblers, speculators understand and evaluate existing market risks on the basis of data and experience, while gamblers are those who seek out man-made risks or "invest" on a roll of the dice.
Slow economic growth combined with inflation.
Standards of Living
The levels of living in a country as judged by income, quality of housing and food, and other amenities.
The political doctrine that the state is the supreme institution in society and that all other individuals should be subjected to and controlled by it. It includes communism, socialism, fascism, Nazism, and interventionism.
An intangible asset designating ownership in a corporation. Stock is divided into shares. Owners of shares are known as shareholders or stockholders. Stockholders own a proportional interest in the corporation’s assets, liabilities, and profits. Voting rights may be associated with share ownership.
Store of Value
Usually refers to an economic good that retains its value over time, relative to other economic goods. Is there such a thing? Traditionally, precious metals have done a relatively good job of retaining their value, but even they can be inflated with new discoveries and improved mining techniques. Of course, the past is not a guarantee for the future.
A loan or interest rate that is made to a borrower whose credit rating (a FICO score of 660 or lower is often used) is less than the bank’s “prime” corporate customers. Other criteria for sub-prime borrowers may be payment delinquencies, foreclosures, bankruptcies, high debt-to-income levels, and liquidity problems. Such customers pay a higher interest rate for new borrowings due to their poorer credit rating.
Sub-prime debacle
A worldwide banking crisis, which surfaced during 2007, resulting from the Fed-induced easy credit bubble and lax lending practices in the U.S. banking industry.
Something varying with the perspective of the viewer; e.g., cold, hot, fair, unfair, too much, not enough, fast, slow.
Subjective Theory of Value
The theory that the value of economic goods is in the minds of individuals and is not quantifiable or objective. Its most consistent exponents are the members of the Austrian School of economic thought.
Supply, Law of
States that when the supply of a good goes up and the demand remains constant, the price of the good tends to go down. Conversely, when the supply goes down and the demand remains constant, the price of the good tends to rise.
Supply-side economics
The economic theory that seeks to influence the supply of labor and economic goods as a path to economic productivity and prosperity. The "Laffer curve," which illustrates supply relationships was the heart of economic policies of the Reagan Administration.
A contract to buy and sell currencies or short term paper with spot (cash and carry) or forward contracts. The contract provides for the buying and selling to occur at different times; thus, each party acquires a currency or short term paper it needs for a predetermined period of time at a predetermined price, and locks in a sales price for the currency or short term paper as well.
A forced levy by a government to pay for government services. There are many different types of taxes: income, wealth, estate, excise, gift, sales, value-added, occupational privilege, per capita, real estate, school, personal property, intangibles, unemployment, social security, medicare, and use, to name but a few.
Someone who is classified by a government as owing money to the government for services rendered by that government.
Time Arbitrage
The simultaneous or nearly simultaneous purchase and sale of goods to profit from differences between present and future prices.
Time Deposit
A bank deposit which is subject to at least thirty days' notice before withdrawal.
Time Value of Money
The concept that cash is worth more today than it will be in the future because of the uncertainties associated with waiting for a period of time. Inflation adds to these uncertainties because you can’t predict an exact rate of inflation.
Trade barriers
Restrictive laws and regulations that prevent people from competing in the market. They result in shifting production from most favorable conditions to places in which they are less favorable. They protect less efficient producers from more efficient competitors.
Trade Deficit or Surplus
A mercantilistic term describing an excess of imports over exports (trade deficit) or of exports over imports (trade surplus), resulting in a negative or positive balance of trade.
Treasury Department
The executive agency responsible for managing the United States government’s finances. They have also taken on the self-appointed responsibility of safeguarding the U.S. and world financial systems. See their web site.
Treasury I.O.U.
U.S. Treasury promise to pay a debt (short for I owe you).
Underground Economy
Economic activity involved in secret or illegal activity. Taxes are usually not paid on income earned in the underground economy.
Unit of Measure
Can have two possible meanings: a set relationship between different denominations within the same currency. To the extent that there are always 100 cents in a dollar or Euro, money acts as a unit of measure; however, it cannot act as a (second meaning) constant measure of value relative to other economic goods. This meaning is usually covered by the concept “store of value.”
Usefulness. The ability of a material good or a service to satisfy human wants.
Value is subjective. Specifically, each individual has his own hierarchy of wants, so the same economic good has a different ranking for different consumers. (It may even have a different ranking at a different time for the same person.) Thus, both parties to a freely negotiated trade can believe that they benefited more from what they received in the trade than from what they gave up.
Variable-rate loans/mortgages
Loans/mortgages with interest rates that change as market interest rates fluctuate throughout the life of the loan/mortgage. The interest rates generally key off of an index rate such as the prime rate. A variable rate loan/mortgage is sometimes known as a floating rate loan/mortgage.
Velocity of Circulation
The average number of times in a year which a given dollar serves as income (the income velocity) or as an expenditure (the transaction velocity).
Wage control
Government policy measure that places a ceiling on wages to purportedly curb inflation. Oft-times starts as voluntary and ends as mandatory.
Each person is unique in his list of desires (wants). Most people want at least to survive. From there, the list of desires grows, with some people wanting more than others. As a whole, mankind has unlimited wants. These "wants" are often referred to as "demand."
Wealth consists of man-made material goods and/or land and natural resources put to a gainful use. See Capitalism by George Reisman for an in-depth discussion of wealth.
Welfare State
A social system in which legislators and regulators assume primary responsibility for the welfare of citizens.
To pay interest, make a profit, or pay a return on an investment. Also, the return earned.