Why? > “The accumulation of money allows investment-like transactions to take place, and with it lent excess profit.”
The accumulation of money makes investment-like transactions possible because money takes the form of capital.
- In general, capital is a resource for producing goods and services.
- This includes land, labor, machinery, and technology.
- Once you own these resources, you can use them to start a profitable business or investment.
For example, if you have accumulated money, you can use it to start a business or invest in an existing enterprise.
- Such investments aim to provide new goods and services and to profit as a result.
- This is an investment-like transaction.
And the reason why excess profit (rent) is greater is because when an investment is successful, the profit generated by the investment exceeds the cost of the investment (i.e., the money spent for the investment). This is “excess profit” or “rent.
When perfect market competition does not exist (i.e., when markets are imperfect), excess profits can be generated due to a variety of factors, including the balance of supply and demand for certain goods and services and the ability of some market participants to manipulate market prices.
- In other words, investors can take advantage of market imperfections to earn excess profits.
- This is why monetary accumulation allows for investment-like transactions and, accordingly, greater rents.
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