Approaches regarding Definitions of Money and its Function
Explain the Importance of money and significance of money in modern economy?
Contents
Importance of Money
According to Marshall, “Money is a centre around which economic science clusters.” According to Trotsky, “The blue prints produced by the offices must demonstrate their economic expediency through commercial calculation. Without a firm monetary unit commercial accounting can only increase the choas.”
Money plays important role in the economy.
According to A. C. Pigou, “It is a wrapper in which goods come to you.”
According to G. Crowther, “Money is one of the most fundamental of all man’s inventions. Every branch of knowledge has its fundamental discovery. In mechanics it is the wheel, in science the fire, in politics the vote, similarly in economics in the whole commercial side of man’s, social existence, money is the essential invention on which all the rest is based.”
significance of money in modern economy
All activities are directly affected by money. Significance of money can be explained as under:
(a) Significance of Money in the Capitalism :
Main advantages of money in the capitalism or as under :
1. Loans are possible only in the presence of money.
2. With the help of price mechanism a rational choice of goods is possible to derive maximum satisfaction.
3. In the capitalism money encourages national unity by reducing social disintegration.
4. The price mechanism determines the rewards of the factors of production in monetary terms.
5. The price mechanism renders guidance to producers for production activities. What is as well as how much is to be produced is decided.
6. Money can easily be deposited, invested and transferreed from one hand to other hand.
7. Money helps the consumer to equalise the marginal utilities.
8. Devision of labour and specialisation becomes possible only with the help of money.
9. Money helps in buying materials, borrowing capital, advertising finished products and in combining the factors of production.
10. Money removes the inconveniences of the barter system.
11. Money increases the economic welfare by equitable distribution of national income.
12. The most important function of money is to serve as a medium of exchange. As a medium of exchange, money solves all the difficulties of barter. There is no necessity for a double coincidence of wants in a money economy.
13. Money also serves as a standard of payment made after a lapse of time. Lending and borrowing therefore must take place in terms of a commodity that will reasonably be speaking, keep its value stable overtime.
By serving as a standard measure of payments, money makes borrowing and lending less risky. Thus it helps in stimulating all kinds of economic activity, which depends upon borrowed money or credit.
14. Money serves as a store of value. It enables a person to keep a portion of his assets liquid. Liquid assets are those which can be used for any purpose at anytime. You may buy things by using these modes of money. Money is kept as a store of value to be used as and when the need arises.
15. Means of transferring value from one place to another or between two persons is another one of the important functions of money. One can sell immovable and movable belongings in one place and with the money acquired can buy then elsewhere. The value will thus be transferred.
16. Money helps the consumer to spend his income in such a way so that he can get maximum satisfaction. Money has generalized purchasing power. The consumer can buy the necessary goods at reasonable rates to get maximum utility.
17. Another thing that can elaborate on the importance of money in better ways is the exchange of values through money. The exchange of goods and services is done through money. When goods are exchanged for goods even then money is used as a measure of value.
18. Money is important to the government. The taxes, fee and penalty are collected in money. The government can take loans in the shape of money. The development of the economy requires the establishment of schools, hospital, bridges, roads, communication etc. which is only possible through money.
19. Money helps both local and foreign trade. Money is a means of making payments for the goods and services purchased. Money is the basis of the money market and capital market. Also in the trade, we need to hire people for promoting our business and money is required to make the payment against their services.
(b) Significance of Money in a Socialist Society:
Following points clarify the importance of money in it:
1. Money plays its role as a measurement of value and basis of payment. Things are purchased in terms of money.
2. Evaluation of the contribution of the factors of production can be done in terms of money.
3. Prices of commodities are expressed in terms of money.
4. Money is easier alternative for capital formation.
According to George N. Halm, “Social economy has always been and probably will remain a monetary economy.”
(c) Significance of Money in Planned Economy:
Following is the significance of money in the planned economy:
1. It provides basis for the development of plans.
2. It plays role of intermediary for financing the plans.
3. Growth with stability is possible with monetary controls in planned economy.
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