Money and the monetary system

Money is any object that is generally accepted as payment for goods and services and
the repayment of debt.

THE THREE TYPES OF MONETARY SYSTEMS

Commodity Money: This is made up of precious metals or other commodities that have intrinsic value. This
form of money retains its value even if its melted down. Ex: Gold/silver coins
Commodity-based Money: This draws its value from a commodity but doesnt involve handling the commodity
on a regular basis. The notes dont have physical value but can be exchanged for the commodity it is backed by.
For example, the US Dollar used to draw its value on gold.
Fiat Money: In this system the currency, which by government decree is legal tender, i.e. that the government
guarantees the value of the currency. Today, most monetary systems are fiat money because people use notes or
bank balances to make purchases. Fiat money is paper currency or base metal coin, but bank balances and
records of credit or debit card purchases are also examples of fiat money.
USE OF MONEY
MEDIUM
Money is used as a means of payment or a medium of exchange and therefore eliminates the coincidence of
needs problem that is created by a barter system. The coincidence of needs requires that two parties want what
the other person is willing to trade, and thus makes it difficult to trade.
MEASUREMENT
It is also a standard unit of measurement that can be used to price things and to compare value. Ex: Book $150
Meal $5 long distance call $0.10/min or 1 book = 30 meals = 1500 minutes.
VALUE
Money can be used to store value, and thus it becomes an asset itself. Money may not be a good store of value
since it loses value with inflation.

Production and Consumption

Production Limits Consumption

The productionist, of course, takes a different view of matters. He argues that the birth and upbringing of
children always constitutes an expense to the parents. In raising children, the parents must spend money on
them which they otherwise would have spent on themselves. Of course, the parents may, and hopefully will,
consider the money better and more enjoyably spent on their children; but still, it is an expense. And if they
have a large enough number of children; they will be reduced to poverty. This is a fact, the productionist argues,
that anyone may observe in any large family which does not possess a correspondingly large income. The
presence of children does not make the parents spend more than they otherwise would have, but only
spend differently than they otherwise would have. They buy baby food, toys, and bicycles instead of more
restaurant meals, a better car, or costlier vacations. There is no stimulus given to production. Production is
merely differently directed, to the different distribution of demand.

The only increase in production that could take place, the productionist maintains, would be as a result of the
parents having to take an extra job or work longer hours to support their children and still be able to maintain
their own previous standard of living. And when the children grow up, the additional market which they are
supposed to constitute for houses and automobiles and the like will only materialize to the extent that they
themselves are able to produce the equivalent of these things and thereby earn the money with which to
purchase them. It will only be by virtue of their production, and not by virtue of their desire to consume, that
they will be able to constitute an additional market.

International economy

An economic system consists of the institutions and the method by which resources are allocated
and products and services are distributed. Economic systems differ primarily in who owns
the factors of production, how the allocation of resources is directed and the method used to
direct economic activity. The primary distinction between the different systems is the degree to
which the government participates in the economy.

Communism

Communism, also known as a command system, is an economic system where the government
owns most of the factors of production and decides the allocation of resources and what products
and services will be provided.

The most important originators of communist doctrine were Karl Marx and Frederick Engels.
Like the socialists before them, they wanted to end the exploitation of the masses by the few. The
capitalist system at that time required workers to work under harsh and dangerous conditions for
little pay. The end goal of communism was to eliminate class distinctions among people, where
everyone shared equally in the proceeds of society, when government would no longer be
needed.

Karl Marx agreed with Louis Blanc in how labor and income should be managed: "From each
according to his abilities, to each according to his needs." However, it seems clear from history
that Adam Smith had the correct principle, which is that people work in their own self-interest.

Marx and Engels believed that there was a class struggle between the masses, which Marx
referred to as the proletariat, who could only offer their labor, and the owners of the means of
production, which included land, raw materials, tools and machines, and especially money. Karl
Marx called these members of the ruling class the bourgeoisie. He believed that a political
revolution was essential because the state was a central instrument of capitalist society, and since
the bourgeoisie had a stranglehold on the government, it would, in many cases, be necessary to
use force and violence to overthrow the capitalists.

Although Marx and Engels believed that property should belong to society, they did not really
give much thought to how economic decisions would be made. Communist countries,
particularly Russia and China, decided on a centrally planned economy (aka command
economy). The centrally planned economy had the following major attributes:

The government owns all means of production, which is managed by employees of the
state.
 These employees operated under party-appointed economic planners, who set output
targets in prices and frequently interfered with the operations to satisfy personal or
party desires.
And because communist economies are not efficient and because of the Communist
Party's desire to retain power, most economic resources were devoted to
industrialization and to the military, depriving consumers of food and other necessary
products, causing intense competition for these limited necessities, where many people
had to wait in long lines for common consumer goods, such as toilet paper.

Another major feature of communist economies was their emphasis on the country's self-
reliance, discouraging international trade and investment.

Major decisions were made by the highest-ranking members of the Communist Party, which, in
the Soviet Union, was the Politburo. The Politburo frequently met with the Central Committee
that consisted of the heads of the local Communist Party factions and government ministries, the
military, police, and other major participants in the economy.

Although the purpose of communism was to serve the needs of the proletariat, communist
governments simply became repressive regimes that exploited their people to aggrandize their
own power, exploiting the masses even more so than the capitalists.

Capitalism

As long ago as 1776, the Scottish philosopher Adam Smith set down many of the main principles
of capitalism in his now classic book An Inquiry into the Nature and Causes of the Wealth of
Nations.

Under capitalism (aka market system), each individual or business works in its own interest and
maximizes its own profit based on its decisions. A market economy is one where the allocation
of resources and the trading of goods and services are through the decentralized decisions of
many firms and households. Prices and the willingness of the market to pay those prices
determines economic output, which, in turn, determines the allocation of resources.

The market system fosters competition that generally produces the most efficient allocation of
resources. In pure capitalism, also known as laissez-faire capitalism, the government's role is
restricted to providing and enforcing the rules of law by which the economy operates, but it does
not interfere with the market. (Laissez-faire means "let it be.")

The essential characteristics of capitalism are that:

the factors of production are privately owned;

economic transactions take place in markets, where buyers and sellers interact;
businesses and employees are free to pursue their own self-interest;

Because consumers are free to buy what they want, the competition for their funds will require
businesses to satisfy their needs, or else they will cease to exist due to lack of sales.
This consumer sovereignty is what effects the efficient allocation of resources.
The main purpose of the government in regard to the economy is to promote free markets, keep
inflation low and steady, protect the rights of private property, and to guarantee contracts.

Socialism

The definition of socialism varies widely, but it can be described as an economic system between
communism and capitalism. Like communism, socialism seeks to redistribute the wealth more
equitably by the communal ownership of natural resources and major industries, such as banking
and public utilities. Socialists also seek to nationalize monopolies, which greatly enrich their
owners at the expense of the proletariat. However, unlike communism, most small or
nonessential enterprises would remain privately owned. Also unlike the Communists, most
socialists do not advocate violence or force to achieve their economic system.

Inflation
Inflation is the rate at which the general level of prices for goods and services is rising and, consequently,
the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in
order to keep the economy running smoothly.

Labor and Unemployment

Labor is the aggregate of all human physical and mental effort used in creation of goods and services. It is
a primary factor of production. The size of a nation's labor force is determined by the size of
its adult population, and the extent to which the adults are either working or are prepared to offer their labor
for wages.
Unemployment is a phenomenon that occurs when a person who is actively searching for employment is unable
to find work. Unemployment is often used as a measure of the health of the economy. The most frequently
measure of unemployment is the unemployment rate, which is the number of unemployed people divided by the
number of people in the labor force.

Nature of Taxation
Taxation is the act of levying the tax, i.e., the process or means by which the sovereign, through its law-making
body, raises income to defray the necessary expenses of the government. It is merely a way of apportioning the
cost if the government among those who in some measures are privileged to enjoy its benefits and, therefore,
must bear its burdens.
Tax is defined as the lifeblood of the government. Major revenue of the government is sourced from taxation so
that in the most pressing times of financial and economic crisis, the agency authorized to administer taxes the
Bureau of Internal Revenue (BIR) should always be on the front line. As a matter of fact, BIR nowadays are
becoming stricter in the implementation of the tax laws and are seeking ways to collect much revenue from
taxes. Lately the BIR has widened the coverage of mandatory withholding of virtually all income payments
certain taxpayers by the implementation of the Top Twenty Thousand Corporations (TTC) from the
previous Top Ten Thousand Corporation list. Under the program, on top of those income payments subjected to
expanded withholding tax, these corporations are required to withhold 1% for payments to its suppliers of goods
and 2% for regular suppliers of services. Additionally, reportorial requirements are required to be submitted to
BIR to monitor and verify compliance through its computer systems. Currently, the BIR is coming up with a
similar scheme for individual taxpayers, expectedly, under the same procedures of TTC above. A draft
regulation is now in place for comments at the BIR website.
By a simple definition, tax may be defined as an enforced proportional contribution levied by the law-making
body of the state to raise revenue to support the indispensable and all the necessary expenses of the government.
Enforced as it involves the mandate of the law so that its imposition is mandatory to those covered by it.
Unreasonable deviation from the mandate is subject to penalties imposable to an organized society which gives
due respect to each and every humanly right. This implies that the sanction, nevertheless, undergoes a due
process.
Proportional as theoretically, tax is proportioned upon a taxpayers ability to pay. This goes to show that the cost
of the entire governance in the state is being apportioned among the inhabitants through a certain rule of
apportionment being put into play.
Raise revenue goes with the very heart of taxation, to earn income for the government. Secondary however to
this primary purpose, tax is being seconded to serve some other concerns for the majority. Example is the
import duties and taxes of imported articles. At some point where quality of local and imported article is of no
moment, imported ones prove to be more costly that the local ones because of this import duties and taxes being
imposed as a way of encouraging the public to buy locally produced for the comparable quality.
Support the expenses of the government is related to public purpose of the imposition of taxation. While the
government is empowered to collect from among its inhabitants by the power of taxation, proceeds are bound to
serve the public needs and expenditure only. For this purpose, a collection of taxes for a sugar industry was held
to constitute as a public purpose for the sugar industry represents and directly affects the public.
Nature of the power of taxation as an inherent power
Power to tax, being inherent in an independent state for its existence and survival by the furtherance of its
multifarious functions, the same does not require delegation from the supreme law of the land. However,
exercise of such power upon the inhabitants is subject to limitations imposed by the power, by its very nature, or
by the Supreme law of the land, the Philippine Constitution. To tax a subject matter, person, property or excise,
there must be a valid law imposing the same. Validity of a tax measure presupposes the fact that it has overcome
the test and scrutiny against it. Tax measures duly passed by the legislative department, the Congress or the
local legislative under its delegated power, enjoy the presumption of validity and he who controverts has the
duty of proving that the same is otherwise.
By nature, power to tax is inherent in a sovereign estate so that the grant of which is not necessary but the
exercise is provided safeguards and limitations. This means that the state needs not be empowered by its
constitution or any mandate for it to be allowed to tax. Such power co-exists with the state and thus, grant is not
necessary. What are being provided by the supreme law of the land, the Constitution, are the guidelines and the
limit on the exercise of the power. It wishes to curtail the exercise in such a way as not to abuse and misuse said
power to the detriment of the majority and to the advantage of the selected few.
Under our tax system, compliance is initially voluntary on the part of the taxpayers. Nevertheless, the
government through the administrative agency empowered to administer the tax, the BIR , is clothed with such
remedies, under proper procedures, to imposed correct amount of taxes due to the government upon finding that
the compliance based on the declarations in the return is insufficient. It can issue deficiency assessment and
impose such measures provided under the law within the prescribed period to see to it that taxes are paid and
that tax measures are complied with. This does not however follow that a taxpayer being assessed is doing an
illegal business because non-payment of the tax does not make the business illegal.