Money is ... Money: essence, types and functions

With the advent of the first production, 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 was used to make an exchange.

They can rightly be considered an achievement of humanity, because modern life without them is not.

Money and history

Historically, the exact time of appearance of money has not been determined. However, for the first time about the payment of silver is mentioned in cuneiform about 2500 BC. After that, metals began to serve as a means of payment. Later this was reflected in the appearance of coins.

The first money was very diverse:

• Stone, which were discs with a hole in the center. They differed in diameter and were used in the exchange of goods, payment for services.
• Metal - made of soft metals, such as copper, which were not used in the production of weapons.
• Salt - were bars from salt and used in some countries until the 20th century.
• Cattle at certain times served as a monetary measure. Even whole herds could be considered the equivalent for economic transactions.

Money in the form of coins first began to be used in the seventh century BC. They were metal plates of irregular shape, on which the picture was depicted. He determined the value of coins depending on the weight.

For the first time, paper money was recorded in China in 910. Their production was possible due to advanced technologies in the production of paper.

The bill was widely distributed after the invention of the printing press Gutenberg in 1440. Since that time, paper money is a means that are used when making any transactions.

Theories of the origin of money

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

• Rationalistic theory;
• Evolutionary theory.

According to the first, money is a product involved in agreements between people. They are created as a tool for the exchange and circulation of goods. For the first time such a concept was set forth in the work of "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 - a coin.

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

Evolutionary theory considers the emergence of money as an inevitable process, during which the selection of certain items occurred. In the future, they occupied a special place in the life of society.

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.

The 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 one's 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 purchase and sale of land and real estate. Money is a means of distributing material values in society.
3. In setting the price. Money reflects the value of goods produced by man.

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

• Served equivalent in the general exchange of goods. This feature is reflected in the direct exchange for any product. In contrast to the fact that in barter terms and other goods can be equivalent, but within the framework of mutual needs.
• Keep the value of the goods. The best way to save it is money, because it reduces storage costs, and prevents damage to the goods.

Functions of money

In a modern economy, money does not have its own value, but it retains barter. This shows that money is a paper that has inherent properties of the goods.

The functions of money reflect opportunities, features and role in economic life. Money acts as:

• Measure of value. The function is realized by setting the price of the goods.
• Means of circulation. Monetary signs are involved in the process of buying and selling goods. In this case, the calculation and transfer of goods are made simultaneously.
• Instrument of payment. This function is implemented during payment for goods or services, payment of taxes, provision and repayment of loans, etc.
• Means of accumulation. Money that does not participate in the turnover creates accumulation.
• International means of payment (or world money). This function is reflected in the use of money for settlements between countries. What kind of money is this? The function of the world's means of payment is currency, backed by gold. For example, the dollar, the euro, the Japanese yen, the pound sterling, the Canadian dollar, the Swiss franc and the 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 real money. Often they are called valid. This category includes any goods that can serve as an exchange equivalent and money from precious metals. For example, such money is silver and gold coins, cattle or grain. The value of the face value of such money is equal to the real one.
2. Symbolic money. These are signs of value that replace natural money. This category includes credit and paper banknotes, as well as electronic money - digital counterparts of coins and banknotes. Their nominal value is higher than the real one.

In modern developed countries, non-cash payments and electronic money are an advantage. They have a number of advantages, among which there are no costs for storage and transportation, as well as the impossibility of forgery or loss.

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

There are two forms of such money: smart cards and network. The first ones are e-wallets, an analogue of a credit card, but without intermediation through a bank. Network money is a software that provides the ability to transfer funds in accordance with the needs of the individual.

Distinctive features of money

In the process of evolution, money has 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 easily accessible goods can not be money;
• Quantity - money should have a quantitative value and the possibility of calculating;
• Divisibility - signs should be easily divisible for making payments of any kind;
• Scarcity - the amount of money involved in circulation should be less than the demand for them, in another situation there will be a lot of money and inflation will come;
• Acceptability - money - Form of payment, which must be introduced by law.

Number of characters to be converted

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

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

M * V = P * T, where:

- m - amount of money involved in circulation;

- V - speed of turnover of one monetary unit;

- P - general price level;

- T - the volume of commodity transactions.

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

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

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

Monetary aggregates

The money supply is subdivided depending on liquidity on monetary aggregates M0, M1, M2, M3:

1. All types of money that have a high degree of liquidity, are included in the unit M0 and include checks and cash: M0 = H + N.
2. Addition to the previous unit is M1, adding funds to bank accounts: M1 = M0 + B.
3. The next step, supplementing the previous ones, is the funds that do not have absolute liquidity - deposits. These are deposit certificates, bonds, bills: М2 = М1 + В.
4. The last unit contains state securities: M3 = M2 + CB.

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

Monetization ratio

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

Km = M2 / GDP, where:

- М2 - the corresponding monetary aggregate,

- GDP - an indicator of the gross domestic product.

The coefficient of monetization gives an opportunity to get an answer to the question of whether enough money is in circulation. On it it is possible to judge, how much gross national product is provided by real money, in other words, how many on a ruble of gross national product there is a money.

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