Time Value Of Money

Discussion in 'Money & Finances' started by Frank Sanoica, Apr 7, 2018.

  1. Frank Sanoica

    Frank Sanoica Veteran Member
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    This one has troubled me forever. "The time value of money is the greater benefit of receiving money now rather than later. It is founded on time preference."

    If you labor for money, you must generally perform before receiving it. Then, the amount earned is generally based on how long you labored. Companies often use two "payroll" schemes: "hourly and Management". Hourly, of course labors by time interval, while "Management" receives a fixed amount, regardless of time labored.

    Herein lies the key stickler for me: "The principle of the time value of money explains why interest is paid or earned: Interest, whether it is on a bank deposit or debt, compensates the depositor or lender for the time value of money."

    "Historically in Christian societies, and in many Islamic societies today, charging any interest at all would be considered usury." ("Usury: the practice of making unethical or immoral monetary loans that unfairly enrich the lender. Originally, usury meant interest of any kind."

    If the time value of money could be done away with, it would seem many things related to money and values might remain more constant, like the value of gold did when it backed our currency. See, the "value" of gold was FIXED, could never change, thus buying and selling it for profit made no sense, other than perhaps "collector value" of certain gold coins.

    The concept of depreciation in value would remain the same; value decreases as things wear out, evaporate, break, or otherwise become unusable. Whaddaya think? Frank
     
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  2. Don Alaska

    Don Alaska Very Well-Known Member
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    I'm a little confused, Frank. The value of things is also related to the scarcity and demand for a commodity. Not many years ago, the lithium sands of Bolivia were essentially worthless; since the advent of the lithium-ion battery in electronic devices, the lithium value is increased dramatically. Same goes for real estate in most places. As the population increases, the value of land increases. the value of real currency in any form remains the same; fiat currencies, however, change over time. I read that the value of a 2014 dollar was $0.18 in 1971 dollars. In other words, U.S. currency had lost roughly 80% of its value over that time period. Gold, however, if allowed to be priced on value rather than being pegged to a currency, will remain the same over time allowing for population increases and commodity shortages. While the dollar was based on gold, the wage for a day-laborer remained at $1 to $2 a day since the Revolution. Once the gold backing was removed, wages started to increase as the money supply increased and the currency was inflated. Much more money was "printed" (created) than the was silver to back it (remember silver certificates?), and when foreign investors and governments began demanding silver for the paper currency they held near the end of the Vietnam War, Nixon was forced to "Float" the Dollar, thus making it a true fiat currency and preventing the U.S. from going into immediate default.

    Anyway, "real" currencies retain their value, while fiat currencies do not.
     
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  3. Frank Sanoica

    Frank Sanoica Veteran Member
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    @Don Alaska "Anyway, "real" currencies retain their value, while fiat currencies do not."
    @Don Alaska
    What are "real currencies"? My thinking goes back way beyond the Jewish Talmud declaring the time/money interface when there was NO money, only the option of barter. Barter works. Establishes no bounds or variances with time. Frank
     
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  4. Gloria Mitchell

    Gloria Mitchell Very Well-Known Member
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    I have never ever had money in my hand- or even imaginary in my head-long enough to even consider the time element:D
     
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