Money and their functions

In this article we will consider such economic categories as money, their essence and functions. Money is a financial asset necessary to complete a transaction, that is, the purchase of services and goods. Assets are all that has value. An asset can be financial and real. Financial assets are divided into monetary and non-monetary (securities - bonds and shares), and real assets are tangible (material) values, such as buildings, furniture, equipment, household appliances and so on.

Money refers to financial assets, but they differ in that they can serve transactions and represent a means of payment circulation. For example, you can not buy bread or milk and in return give a bond or share.

Best of all, the essence of this category is manifested through functions. Considering money and their functions, it should be noted that the money is:

1. The means of circulation.
2. A measure of deferred payments.
3. A stock of value.
4. Unit of account.

Being a medium of circulation, they perform the function of an intermediary in committing transactions, in the exchange of goods. Everything can be purchased for money. An alternative to such an exchange is barter. But the latter requires considerable costs. On the one hand, it is necessary to bear direct transaction costs, and on the other - the loss of effort and time, that is, alternative costs. In order for the barter to take place, a lot of conditions must be fulfilled, including the "double coincidence of desires" condition, as William Stanley Jevons called it.

A person who wants to purchase a product or service must find a seller who will agree to the goods produced by this individual. For example, a shoemaker who needs a loaf of bread should find a baker who needs new boots. The search for the second side can continue for a long time, but still not be crowned with success. It will take time and a lot of effort. Therefore, barter is considered an irrational and ineffective form of exchange.

Money and its functions are the basis of the economy and are considered one of the greatest inventions of mankind. The appearance of money as an intermediary in the process of exchange removed the costs of exchange and eliminated the problem of coincidence of desires. Now the goods can be sold, having received money for it, and on the gained sum to buy to itself other goods. The property of money is easily and without additional costs exchanged for another asset, financial or real, received the name of absolute liquidity.

Considering money and their functions, it should be noted that the second function of money is that they are a unit of account, a value meter. That is, the value is measured by a certain amount of money. Before the appearance of this unit of account, the value of goods was measured in a certain quantity of another commodity. A person who wanted to buy a certain product needed to know well the proportions of this exchange, for example, what is the cost of bread in sausage, shells, boots and so on. Since the appearance of money, their functions allow you to set the cost only in comparison with one equivalent.

The third function of money is that they are a means of payment. This function is manifested in the fact that money is used to pay for deferred payments. This function is possible, because they retain their value over time. This is the fourth function - the stock of value. The value of money lies in their purchasing power and liquidity. At any time, they can buy any product, service. However, in the conditions of inflation over time, money will lose value, the purchasing power will decrease.

Considering money and their functions, it should be noted that the most important is the first - a means of circulation. But all functions are interdependent and interrelated.