Money: definition and causes

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

Money, the definition of which will be discussed below, is often referred to as the language of the market, because with its help the circulation of resources and goods is carried out. Consumers purchase goods from producers, who then pay cash for the resources provided to them by the population. A properly organized and well-functioning monetary system ensures the stability of national production, price stability and full employment of the population.

So what is money? The economic definition says that it is a measure of the value of goods. It is with the help of money that we measure and compare the cost of various services, a particular product. But there is also such a thing as "the price of money." It is rather difficult to define it. It all depends on what exactly we mean by the word "money". The fact is that this financial term is multifaceted, and with one definition given above, to reveal the entirethe meaning implied in this word is impossible. Let's understand what money is. And what they are.

Such different money. Definition of M1

Neither economists nor officials have agreed on a common opinion about the components of M1. This symbol denotes the money supply, consisting of 2 elements:

1. Cash (both paper and metal), which is used by all economic entities, except for banking structures.

2. Deposits (checkable deposits) in savings banks, commercial banks and other savings institutions that can be checked.

Thus, cash is the debt obligations of the state and its departments, and checkable deposits are the obligations of savings institutions and commercial banks.

What is money? Definition of M2

A broader wording has been proposed by the official credit departments. M2=M1 + savings accounts (checkless) + money market deposit accounts + term deposits (less than $100,000) + money market mutual funds. The main point is that all components of the M2 category can be easily and without any loss converted into checkable deposits or cash.

Money: definition of M3

The third interpretation - M3 - recognizes the fact that time deposits (over $100,000), which are usually held by business entities in the form of certificates of deposit, can also easily turn into checking deposits. Such certificates have their own market where they can bebuy or sell at any time. But at the same time, it is worth remembering the risk of possible losses. By adding term deposits to the M2 category, we get the third formula for determining money: M3=M2 + term deposits (over $100,000).

Reasons for the emergence of monetary units

The reasons for the appearance lie in the product contradiction, or rather in the contradiction between the price of the product and its consumer value:

- in terms of consumer value, absolutely all goods are quantitatively incommensurable and qualitatively heterogeneous, and also have varying degrees of utility. Cakes and boots are not only not similar, but are also made by representatives of various professions;

- in terms of price, goods are quantitatively commensurate and homogeneous. Therefore, in the process of exchange, the most exotic things can be compared and equated.

Internal contradictions of the commodity itself appear only in the process of exchange. And it cannot be valued without being placed on the market. The only way to measure its price is to compare it to other products. The expression of the cost of producing a commodity is called exchange value, the gradual development of which leads to the emergence of external polarities, the development of internal commodity contradictions and, in general, to the confrontation between money and goods.