Money is Money: essence, types and functions

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

With the advent of the first production between people began to exchange. But it was not always possible to find the right amount of product for this operation. Money is the equivalent that began to be used when making an exchange.

They can rightfully be considered an achievement of mankind, because modern life cannot be imagined without them.

Money and History

Historically, the exact time of the emergence of money has not been determined. However, the first mention of making a payment in silver is in cuneiform writing around 2500 BC. After that, metals began to serve as a means of payment. This was later reflected in the appearance of coins.

The first money was very diverse:

• Stone, which were disks with a hole in the center. They differed in diameter and were used when exchanging goods and paying for services.
• Metal - made from soft metals such as copper, which were not used in the manufacture of weapons.
• S alt - were bars of s alt and were used in some countriesup to the 20th century.
• Cattle at certain times served as a measure of money. Even entire herds could be considered equivalent in economic transactions.

Money in the form of coins was first used in the seventh century BC. They were irregularly shaped metal plates on which a drawing was depicted. He determined the value of the coins depending on the weight.

First paper money was recorded in China in 910. Their production was made possible by advanced technology in papermaking.

Banknotes became more widespread after the invention of the printing press by Gutenberg in 1440. From now on, paper money is the means that are used in any transactions.

Theories of the origin of money

Many economists were attracted by the question of the origin of money. Economic theory distinguishes two directions in the origin of money:

• rationalist theory;
• evolutionary theory.

According to the first, money is a product involved in agreements between people. They were created as a tool for the exchange and circulation of goods. For the first time such a concept was set forth in the work "Nicomachean Ethics", written by Aristotle. The philosopher wrote about the comparability of goods involved in the exchange, and suggested using a certain unit of measurement for this - a coin.

American economist Samuelson viewed money as a socialartificially created economic convention. According to this theory, any commodity endowed with certain functions and accepted in society can act as money.

Evolutionary theory considers the appearance of money as an inevitable process, during which some objects were allocated. In the future, they took a special place in the life of society.

The classics of economic theory Riccardo and Smith, and then Marx, developed the idea that money is a commodity and they appeared in the process of exchange.

Essence of money

In modern society, money has a special status. They are an integral part of economic relations. For people, money is a blessing, that is, an opportunity to satisfy their needs.

The essence of money is reflected in their participation:

1. In reproduction, distribution, consumption and exchange. Money is the basis for the development of trade relations, they change along with the development of exchange processes.
2. In the distribution of GNP, as well as the sale and purchase of land and real estate. Money is a means of distributing we alth in society.
3. In setting the price. Money reflects the value of human-made goods.

In addition to the features of the participation of funds in the life of society, these signs have two features:

• Serve as an equivalent in the general exchange of goods. This feature is reflected in the direct exchange for any commodity. In contrast to the fact that under barter conditions other goods can be equivalent, but within the framework ofmutual needs.
• Keep the value of the item. Money is the best way to save it, because it reduces storage costs and prevents damage to the goods.

Functions of money

In the conditions of the modern economy, money does not have its own value, but retains its exchange value. This indicates that money is paper, which has the properties of a commodity.

The functions of money reflect the possibilities, features and role in economic life. Money appears as:

• A measure of value. The function is implemented by setting the price of goods.
• Means of circulation. Banknotes are involved in the process of buying and selling goods. In this case, the calculation and transfer of goods are made simultaneously.
• Means of payment. This function is implemented when paying for goods or services, paying taxes, granting and repaying loans, etc.
• Means of accumulation. Money not involved in circulation creates savings.
• International means of payment (or world money). This function is reflected in the use of money for settlements between countries. What is this money? The function of the global means of payment is performed by currencies backed by gold. For example, dollar, euro, Japanese yen, pound sterling, Canadian dollar, Swiss franc and Australian dollar.

Types of money

Money is a financial and economic category that can be classified. They are divided into the following types:

1. Natural or material money. Oftenthey are called real. This category includes any goods that can serve as an equivalent in exchange and money from precious metals. For example, such money is silver and gold coins, livestock or grain. The face value of such money is equal to the real one.
2. Symbolic money. These are tokens of value that replace natural money. This category includes credit and paper banknotes, as well as electronic money - digital analogues of coins and banknotes. Their face value is higher than the real one.

In modern developed countries, non-cash payments and electronic money take advantage. They have a number of advantages, including the absence of storage and transportation costs, as well as the impossibility of forgery or loss.

Forecasts of leading economists suggest that in the future, electronic money will completely replace cash.

There are two forms of such money: smart cards and network. The first are electronic wallets, an analogue of a credit card, but without mediation through a bank. Net money is a software that provides the ability to transfer funds according to the needs of a person.

Distinctive features of money

In the process of evolution, money acquired not only certain properties, but also its own features. These include:

• compactness or portability is the convenience of money in moving and using;
• value – money must have value, cheap or readily available goods cannot bemoney;
• quantity - money must have a quantitative value and the possibility of calculation;
• divisibility - signs must be easily divisible for payments of any kind;
• scarcity - the amount of money in circulation should be less than the demand for them, otherwise there will be a lot of money and inflation will set in;
• acceptability – money is a form of payment that should be legislated.

Number of reversible characters

Money has a direct impact on the formation of prices for goods, works and services. Since money is the amount of cash in the hands of the population and the reserves of commercial banks, the regulation of the amount of money in circulation is the main method of influencing the market economy.

Since each country must have a certain amount of money, which will correspond to the volume of production, trade and income, the amount of money in circulation can be determined by equality:

mV=PT where:

- m - the amount of money involved in circulation;

- V is the turnover rate of one monetary unit;

- P - general price level;

- T is the volume of commodity transactions.

When there is such equality in a country, price stability is ensured.

If mV PT, then prices rise and inflationary processes occur.

Based on this, the main condition for the optimal amount of money in circulation is the establishment of price stability by the state.

Money aggregates

Moneythe mass is subdivided depending on liquidity into monetary aggregates М0, М1, М2, М3:

1. All types of money that have a high degree of liquidity are included in the M0 aggregate and include checks and cash: M0=H + H.
2. Addition to the previous aggregate is M1, which adds funds to bank accounts: M1=M0 + B.
3. The next step, supplementing the previous ones, are funds that do not have absolute liquidity - deposits. These are certificates of deposit, bonds, bills: М2=М1 + В.
4. The last aggregate contains government securities: М3=М2 + Central Bank.

This division into aggregates allows the state to regulate the amount of money supply and control inflation.

Monetization rate

The most important indicator by which one can judge the state of the money supply is the monetization coefficient calculated by the formula:

Km=M2 / GDP where:

- M2 is the corresponding monetary aggregate, - GDP is an indicator of gross domestic product.

The monetization coefficient makes it possible to get an answer to the question of whether there is enough money in circulation. It can be used to judge how much GDP is backed by real money, in other words, how much money is spent per ruble of GDP.

In economically developed countries, this coefficient can reach 0.6, and in some it is close to 1. In Russia, this indicator is slightly close to 0.1.