Effective Monetary Demand of the Population

the collective expression of the personal needs of people who have money at their disposal with which to purchase goods and services. Effective monetary demand arises with the appearance of a simple commodity economy and, consequently, commodity-money relations. It is conditioned by the socioeconomic nature and structure of the aggregate social product, by the magnitude of national income and the mode of income distribution, and by the level of prosperity among the people. Effective monetary demand can be met in proportion to a society’s level of economic and cultural development.

In economic terms, the reality of effective monetary demand is determined by the availability of money to the population. K. Marx pointed out: “As to demand, it will only be effective on condition that it has the means of exchange at its disposal. These means, in turn, are themselves products, marketable values” (K. Marx and F. Engels, Soch., 2nd ed., vol. 4, p. 79). The effective monetary demand is counterposed to that of supply, “the product available in the market, or that which can be delivered to it” (ibid., vol. 25, part 1, p. 203). Supply and demand influence each other. In their contradiction is expressed the contradiction between the exchange value and use value of a commodity and the contradiction between the two stages of the process of exchange—buying and selling. The sale of a commodity takes the form of offering use values, and buying, the form of realizing effective monetary demand.

Under capitalism, the relationship between effective monetary demand and the supply of commodities at each given moment forms spontaneously and influences the actual level of market prices. The movement of effective monetary demand is determined by the fundamental economic law of capitalism and is subject to sharp fluctuations in the course of the industrial cycle (seeCAPITALIST CYCLE). The tendency toward unrestricted expansion of production is in contradiction to the limited amount of effective monetary demand generated by the workers, who are the principal purchasers of consumer goods. In the drive for maximum profit under the conditions of a fierce competitive struggle, the capitalists increase the degree of exploitation. As a result, workers’ wages come to represent a smaller fraction of national income, and this leads to a decline in effective monetary demand. Increased taxes also contribute to a reduction in the effective monetary demand of the workers, as do inflation, higher prices, the growth of unemployment, and the decline of real wages (seeABSOLUTE AND RELATIVE DETERIORATION OF THE PROLETARIAT’S SITUATION). The lag of effective monetary demand relative to the possibilities for expanding capitalist production is one manifestation of the basic contradiction of capitalism: the contradiction between the social character of production and the private capitalist character of appropriation, which is a general cause of economic crises.

Under socialism, effective monetary demand of the population operates as social demand, which socialist production seeks to satisfy to the fullest extent (seeFUNDAMENTAL ECONOMIC LAW OF SOCIALISM). In a developed socialist society, the necessary conditions for realizing this aim are created. The workers’ real income and material prosperity are defined to a significant extent by the degree to which effective monetary demand is satisfied. For this reason, the balancing of supply and demand is an important element in the functioning of the fundamental economic law of socialism. The volume and structure of effective monetary demand depend directly upon the monetary income of the population—that is, on wages and cash payments from the social consumption funds. They also depend on the quantity of goods produced and services provided and the level of retail prices. On the basis of the continuous rise in socialist production and increase in the productivity of social labor, the real income of the population rises, and effective monetary demand systematically increases. The volume of monetary incomes, the level and correlation of prices in a socialist society, and the production of consumer goods are determined on a planned basis. This planning is applied both on the national and regional scale and on the level of individual commodity groups. The balance of the monetary income and expenditure of the population is important in the planned regulation of effective monetary demand and commodity turnover. Effective monetary demand is extremely dynamic and depends not only upon production and economic factors but also upon specific regional, national, psychological, and other factors. Therefore, in order to ensure the formation of the effective monetary demand of the population according to plan and to provide for the fullest satisfaction of this demand, effective demand must be constantly studied, and changes taken into account.