Since money has market with all the other goods, and ceteris paribus the more monetary returns the better, the concept of rate of return can abstract the specificity of goods exchanged with money. Because of money, the concept of rate of return can be abstracted to the ratio between present goods exchanged against future goods in general, resulting in the pure rate of interest which would be uniform for all lines of production in the ERE.
“The concept of rate of return is necessary in order for him to compare different potential investments for different periods of time and involving different sums of money.”
“After data work themselves out and continue without change, the rate of net return on the investment of money capital will, in the ERE, be the same in every line of production. In the ERE, there is no entrepreneurial uncertainty, and the rate of net return is the pure exchange ratio between present and future goods. This rate of return is the rate of interest. This pure rate of interest will be uniform for all periods of time and for all lines of production and will remain constant in the ERE.”
“The establishment of money as a general medium of exchange has greatly simplified the present-future market as compared to the laborious conditions under barter, where there were separate present-future markets for every commodity.”
Next:
- 13-5b2a1 The production structure, along with credit transaction, constitute the time market
- 13-5b2b Because of money, the rate of return will tend to be uniform throughout the length and breadth of the production structure
Related:
- On the evenly rotating economy (ERE)
- 13-1a3a4 The equilibrium price cannot be realized, except in the evenly rotating economy (ERE)
- 13-1a3a4b The long run of the evenly rotating economy (ERE) is not real at all, but a very useful theoretical construct that enables the economist to point out the direction in which the market is moving at any given time
- 13-5b2c There is no time inconsistency in the evenly rotating economy (ERE)
- 13-1a3a1d Money facilitates the maximum use of knowledge available, and accommodates error-corrections (the two are the same thing)
- 13-1a3a2d3 Value scales are unified individually—they become more transparent, more measurable, and more comparable to the individual—with money, although never exhaustively
- 13-1a3a2e2 The introduction of money creates the money market wherein everything can be exchanged for anything in the economy
- 13-9a All goods are somewhat substitutable for one another thanks to money