Abstract Nature of Money and the Modern Equation of Exchange

Abstract

The essence of money economy reveals an abstract triad: capital – labor – money, where capital is an ability of doing work, labor is a transfer of the capital to products, and wages receivables correctly define money earned by the employees. The only proper money creating process is through labor. Money is a certification of work done; therefore labor is always self-financing. Using this theoretical framework, Governments can eliminate budget deficit, reduce direct taxes and unemployment while avoiding inflation. If the compensation paid in the public sector comes from the funds collected by taxation the economy works as a scarcity machine. In the reshaped economic system the Central Bank directly transfers salaries earned by the public sector employees to their bank accounts. Then the budgets are balanced, the direct taxes are limited, and the public debt no longer grows. The modern equation of exchange involves labor productivity as a fundamental economic ratio.