Labour and capital

In economic theory, labour is any work undertaken in return for fixed payment. Human labour produces both goods and services. The activities of a farmworker and a nurse are very different, but both are measurable in terms of payment received. Labour in this sense is not concerned with distinctions of soc[al class, but simply with the payment of wages in return to work.

Potential real output is the output that would be produced if all resource, including labour, were fully employed. Labour resources are fully employed when there is an equilibrium in each labour market. That is, when everyone who wants to work at the prevailing wage is able to work, labour is fully employed.

Unemployment may occur for many different reasons. When a contract is completed labour is not required. Occasionally workers are discharged when a factory is being reorganized. Unemployment occurs, because the real wage does not quickly adjust to a new equilibrium when the demand or supply of labour changes.

The real wage is the purchasing power of the wage payment, which is in turn the amount of money paid to workers per hour, week, or month of work. Equilibrium in the labour market, as in the market, occurs when the amount willingly supplied is equal to the amount willingly demanded, that is, when the number of persons willing to work at a particular real wage is exactly equal to the number of persons that firms want to employ.

The capital which people provide to help new businesses is an accumulation of previous surpluses on previous business activities. In this way the past is used to finance the future. Such capital is accumulated by a deliberate policy of saving surpluses. In general terms, capital can be defined as a factor of production and the assets possessed by a person, a firm or a state.

MONEY

Money is a generaly accepted medium of exchange which means that all market participants accept it as payment. Money functions as a unit of accounting. The value of goods and services is measured relative to other goods and services and expressed in money. Token coins and bank notes are generally accepted as the “fiduciary monetary standard”. They have all the desirable properties of money. By law, only notes and coins issued by the the central bank are considered legal tender. The dollar, for instance, which is the monetary unit in the USA is used by the accountants in the US Department of Commerce to measure national income; businesses use dollars prices to measure profits or losses; family budgets are calculated in dollars. In this way financial records can be kept, indicating who owes us money and to whom we owe money.

Basically, money is what money does. This means, that money can be any substance that functins as a Medium of Exchange, a Measure of Value, and a Store of Value.

As a medium of exchange, money is something generally accepted as payment for goods and services. As a a measure of value money expresses worth in terms that most individuals understand. Money also serves as a store of value. This means goods or services can be converted into money that is easily stored until some future time.

Modern money is very durable. Metallic coins last a long time under normal use and generally do not go out of circulation unless they are lost. Paper currency also is reasonably durable. Nobody would accept money as a salary if they knew that it would not maintain its purchasing power. Modern money also rates high in divisibility. In addition, checks almost always can be written for the exact amount. Modern money, however, is not as stable in value. The fact, that the money supply often grew at a rate 10 to 12 percent a year was considered as major cause of inflation.