Money as a medium of circulation

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

About money as a means of circulation, few can say something intelligible. What are they in this role? What functions do they perform from this point of view? What economic categories can they influence? Here is a partial list of issues that will be discussed in this article.

Designation

Let's look at what a means of exchange is. This is the name of the function in which money (D) is an intermediary during the exchange of goods (T). This ensures their circulation. In this case, this function works according to the following scheme: T-D-T. By comparison, barter looks like T-T. Thanks to the presence of money, this commodity metamorphosis acquires a fundamentally new quality: it breaks up into two processes that are separated from one another: sale and purchase. And many often ask the question: how is this possible? Doesn't a person, having come to the store, become a participant in them at the same time? No, such first impressions are misleading.

Selling and buying

Let's digress and pay attention to these processes in order to better understand money as a medium of exchange. First, a person works and creates a certain product or service. For it, he receives a certain amount of money.units. Thus, at first he becomes a participant in the process in which initially it turns out to sell his labor. As confirmation of this, a person receives monetary units. Then he goes to the store, where he buys food and other necessary things, while presenting evidence that he can claim them. The seller has goods or services and, in order to earn a living, sells his product. This explanation is, of course, oversimplified, but can be considered as a simple example nonetheless.

Implementation of commodity metamorphosis

So, we continue to talk about how money performs the function of a medium of exchange. First, let's focus on barter. Under him, commodity metamorphosis is carried out completely. After all, both participants in the interaction achieve their goals - they receive the necessary consumer value. Whereas money is a measure of value, a means of circulation, and their use means that not a single owner of the commodity has reached his goal. There is potential, but when it will be realized is a big question. There are also risks here that one seller will not buy anything from the second, and the commodity metamorphosis will not take place at all. This may serve as preconditions for a possible sales crisis. But still, due to the fact that commodity metamorphosis is divided into two independent processes, there are several positive nuances that indicate the usefulness of this mechanism. Here we will consider them now.

Money as a medium of circulation/exchangeGoods: Benefits

If you go into detail, you could bring a lot of points. But for the informational article, they have been summarized. Therefore, we suggest that you familiarize yourself with three points, which indicate the main advantages:

1. It becomes possible to delay money, which leads to the accumulation of value in its absolute form. Thanks to this, production is expanding, which goes beyond the simple exchange of goods. This, in turn, has a positive effect on the development of the economy.
2. The narrow boundaries that barter has are being eliminated. So, the owners of goods with it have certain problems with the implementation. They lie in the difficulty of selecting the necessary products, as well as its quantity. So, for example, a blacksmith could change a horseshoe for a bag of grain. But he wants to have 100 kilograms in it, and people have only 75. And until a consensus is found, a lot of time will pass. And we have money - a means of circulation/means of payment. Thanks to them, we can choose the necessary goods on an alternative basis. This mechanism helps promote competition between different producers.
3. Money allows us to transfer our purchasing power to other markets or save them for the future. In general, they can be used for any desired purpose. Thanks to this, the development of entrepreneurial activity is stimulated, market relations are being improved and a number of other positive aspects are emerging.

How are funds received?

They are the real embodiment of exchange value. So, the seller gives the goods, and in return receives money from the buyer. Note that it doesn't matter what form they are in! So, money can be valuable (silver and gold coins), banknotes, in the form of checks, bills, and so on. It is important that money is a medium of exchange. A means of payment of this type ensures the passage of goods or services from the producer to the consumer, after which they leave the sphere of exchange. But the money continues to participate in it!

Connections

So, money is a means of circulation and helps to establish interaction. In the context of this, it must be understood that a certain mass of them is always in circulation. It is opposed to the quantity of goods and services that can be sold on the market. Ideally, by looking at this ratio at any point in time, it would be possible to see that the amount of money is roughly equal to the prices. If the situation is considered in a certain interval, then it is more difficult here. Thus, it is desirable that the amount of money that is now in circulation be less than the sum of the prices of goods sold. This parameter allows us to talk about the economic activity and financial situation of the country. For this, the coefficient of velocity of circulation of money is calculated. It is considered normal if one unit is spent several times a year. The higher the resulting coefficient, the better the economic situation in the country.

Role in development

Money as a means of circulation contributes to the faster development of market relations. This, in turn, leads to qualitative changes in the mechanism of their implementation. When versatile and constant exchange relations are formed between various commodity producers, this allows creating the "backbone" of the economy. The presence of banks in this chain leads to an increase in mutual trust, and a qualitative improvement in ties leads to an increase in dependence. Therefore, no anthropogenic upheavals will occur abruptly and suddenly. Also, such a mechanism allows you to work on credit, so that the economy can maintain itself in a state of tone for a longer time. At the very beginning of the article, the T-D-T scheme was given. Now the T-K-T model, where K is a loan, is also very popular. But this entails certain difficulties, which we will talk about now.

Modern problems of means of circulation

Initially, it should be noted that the greatest problems are created by the inability to rationally use the available resources. So, initially loans were created as a way to increase production when there is potential, but there is no money to implement it. But those days are already in the distant past. Now loans are used to satisfy even the simplest requests. So, they can be issued on a phone for 10 thousand rubles or on some kind of instrument. In general, the amount could be collected in a month or two. But people refuse to follow this path, despite the fact that they will have to overpay. This eventually leads to what is called an overproduction crisis. After allat one point, the population simply does not have enough money to actively buy, and manufacturers have “bloated” production. This can potentially be avoided by teaching citizens financial literacy. Moreover, to demand from them (us) the highest quality of knowledge and the ability to apply it.

Where can I see the active use of the function in question?

In practice, a citizen can usually meet with the issue considered in the article in retail, wholesale or international trade, in the provision of services to the population and other similar processes. But thanks to the gradual and steady penetration of credits, the role and influence of money is decreasing. This can be observed especially well in countries that have a developed market economy. Regarding the Russian Federation, we can say that due to the imbalance of the financial sector (high interest rates on the same loans, bureaucratic features), this is still rather weakly manifested. Also, the instability of the economy (an indicator of which is inflation) has led to the fact that natural barter is quite actively used. This is a step backwards when considering the development of the functions of money.

Political and economic nuances

If you look at the T-D-T scheme, as well as the practical implementation, you can see that money behaves like a special commodity. This lies in the fact that all products and services, after the completion of the process of buying and selling, leave the sphere of circulation. But money is not. They continue to servecounterparty transactions. So that they do not lose their function as a medium of exchange, they must constantly participate in transactional operations. If you do not use money as a measure of value, then they will also lose their importance. As a universal product, they allow you to evaluate the cost of services and goods from the perspective of both the buyer and the seller.

Benefits and limitations

Thanks to the use of this scheme, the social division of labor deepens, because it becomes easier to overcome individual, temporal and spatial boundaries in matters of the exchange of goods. It also allows business entities to reduce their transaction costs. This is possible due to the freedom to choose the place and time of the transaction. Thus, with the expansion of the range of goods that are on the market, the functional role of money as a means of circulation will grow. True, this process has objective limitations. One of them is inflation. Its high rates lead to the fact that the number and volume of barter transactions between economic counterparties are growing. Indeed, in this case, money depreciates and can no longer provide equal purchasing power. Other restrictions are created during the formation and implementation of social policy on the territory of a certain state, when the goal of rationalizing consumption is pursued.

How is the function running successfully?

On how effectively banknotes are used as a means ofappeals, as well as the degree of implementation of the tasks assigned to them can be judged by a number of factors:

1. Inflation rate.
2. Wage frequency.
3. The level of development of cashless payments.
4. Forms of banknotes.

They all have their influence. So, if a country experiences very high inflation, then this leads to the fact that money is no longer used as an intermediary in the exchange of goods. In this case, the revival of barter looks logical. The appearance, development and implementation of cashless payment systems in all spheres of life is making its contribution here. They reduce the costs of circulation, thereby reducing the scope of money. Due to the fact that people buy services and goods not for cash, but using plastic cards, they are already acting as a means of payment here.

Conclusion

In conclusion, I would like to pay a little attention to distribution costs. The use of the exchange mechanism discussed in the article allows us to reduce time, as well as save effort. This is achieved by the fact that there is no need to negotiate an exchange rate. This, as well as the possibility of standardization, led to the emergence and use of money as a means of circulation. Of course, the realities have a number of inaccuracies, and there are many problems, but gradually, as the social mechanism improves, all of them will be eliminated and solved. In the future, we should expect that money will lose its value as a medium of circulation and will be of interest to us as an elementpayment, which is simply impossible to do without (this feature will probably never disappear). We can only wait, while applying all the efforts that depend on us, so that this moment comes faster. Now money is a medium of circulation, a measure of value, a means of accumulation.