A Brief Explanation of the Price of Money

Abstract

Our aim is to explain the purchasing power of money based on the theory of subjective value and based on the direct application of the law of diminishing marginal utility to money. The paper follows the criticism of the Mises’s attempt to explain the problem by the concept of regression theorem presented in Pošvanc (2020b).

The basic line of explanation which has to be followed to explain the problem in question within the theory of subjective value will be as follows: the human subject (in the case of money human subjects) – a valuation – a scale of needs – an act of exchange – a price of money as inverse exchange ratio of money and goods.

Our explanation starts with some present time inconsistencies concerning the explanation of economic phenomena “over time” and related problem of value homogeneity. To explain phenomena “over time” is crucial for money because we use money over time as a basic anchor for mutual understanding among economic agents. It will be shown that to explain the phenomenon of price of money we need to make some modifications to the theory of subjective value to be applicable over time and to define some homogenous concepts men are dealing with when act.

Presented solution will be based than on three theories which explain a) intersubjective valuation of money, b) economic calculation without money and evolution of money-goods concept and c) explanation of the essence of the interest as an intersubjective phenomenon.