ICS FA ICom Notes Class XI Principles of Economics Definition of Money and Functions of Money
If you want to view other notes of Economics Click Here.
“Money is some thing, which has general acceptability in the settlement of debt, or in transfer of ownership of goods and services in a country. The value of exchange of every thing in a country is expressed in terms of money.”
Mr. Robertson defines money in the following words
“Money is a commodity which is widely accepted in payment of goods or in discharge of other kinds of business obligation”.
An English economist Mr. Hawtrey observes that
“Money is one of those concepts which are definable primarily by the use or the purpose which they serve”.
In the words of Goh Cole,
“Money is purchasing power some thing that buys things”
According to Ely,
“Any thing that passes freely from hand to hand as a medium of exchange and is generally received in final discharge of debts”.
One of the simplest definitions of money is given by Mr. Walker who says that
“Money is what money does”.
In the light of the above definitions, it can be said that
“Any thing that is generally accepted as a means of exchange and at the same time acts as a measures and a store of value”.
Functions of Money
Money is said to perform the following functions
- It serves as a medium of exchange.
- It is used as a store of value.
- It acts as an instrument of deferred payment.
- It is a measure of value.
These are further discussed below
1. Medium of Exchange
The most general function of money is that it serves as a medium of exchange. The ownership in goods and services is exchanged through it. Money is accepted in exchange of goods and services and property rights simply because in its turn money can be exchanged for them at such places and times the possessor wishes. It means any thing can be brought and sold through it. Money acquires the capacity of serving as a medium of exchange also because of legal sanctions behind it and as such it is generally accepted in the settlements of debts or any financial transaction.
2. Measure of value
Money is used as a measure of value in the sense that the value of every thing is demanded in terms of money. As a measure of value money not only facilitates business transactions but is also useful transacting the sale and purchase if immovable properties buying at distant places. Money as a measure of value is also helpful in asserting the financial worth or stability of a business unit or an industrial concern which is possible from the study of their balance sheets containing the value of their assets and liabilities in terms of money. In simple words we can say that function of money as a measure of value helps us almost in every aspect of our daily life.
3. Store of Value
Another function of money is that it serves as a store of value. We can keep our assets in liquid form so that they can be used any time we feel of doing so. A unique feature of our daily life is that the flow of income does not correspond with the expenditure. The income in the majority of cases does not come to us with the same intervals as we have to make payments and consequently their adjustment would have been difficult but money, serving as a store of value makes a happy adjustment possible between the flow of income and expenditure intervals. Due to its value payments for the future can be made.
4. Instrument of Deferred Payment
Money also acts as an instrument of differed payment, which means that transactions requiring deferred payment are made possible through it. It so happens because the value of money having legal sanction behind, is more stable in comparison to other goods the value of which are liable to great fluctuation under the influence of their demand and supply position. The value of money being stable the parties in transaction are assured of getting the same value even after some time if the payments are made in terms of money. It means that money serving as an instrument of deferred payment facilitates credit transactions. Similarly for the same it encourages lending and borrowing which stimulate saving and investment and ultimately accelerates the economic growth of a country.
5. Transfer of Value
Money has simplified the process of transfer of value from one place to another with out losing its worth. Money is readily accepted by all without any difficulty. It is even possible to transfer a billion of rupees from one place to another.
Post a Comment