Money is a universal equivalent that serves as a measure of the value of any goods and services that can be directly exchanged for them. In its form, money can be a special commodity, security, a sign of value, various goods or values, entries on accounts.

General Provisions

With the help of money, the value of various goods is expressed, since money is easily exchanged for any of them. This monetary value makes dissimilar goods easily comparable in exchange. According to the supporters of the labor theory of value, in particular K. Marx, it is not money that makes goods commensurable, but vice versa: precisely because all commodities represent materialized human labor and, therefore, themselves are commensurable in terms of the amount of labor expended (the costs of the amount of the worker are compared time, taking into account the qualifications of labor required for the reproduction of goods). This allows the value of all commodities to be measured by the same specific commodity, turning this latter into a common measure of value for them, that is, into money.

Usually, a commodity with high liquidity becomes money (it is easiest to exchange it for another commodity, for example, livestock). In addition to the measure of value for other goods, money is a medium of circulation, that is, the commodity that is an intermediary in the exchange process. In addition, the function of money can be performed by various things, other property rights, obligations, and property-obligation complexes.

Unlike goods, which after exchange go out of circulation, money as a medium of circulation is always in it, continuously serving the acts of exchange of goods.

In modern conditions, the role of money is played not so much by specific goods (for example, gold or other precious metals from which investment coins are made), as by the obligations of the state or the central bank in the form of banknotes. Such money has no independent value and is only nominally equivalent.


Basic functions of money

Money manifests itself through its functions. The following functions of money are usually distinguished:

  • A measure of value (sometimes a unit of account). Dissimilar goods are equated and exchanged among themselves on the basis of price (coefficient of exchange, the value of these goods, expressed in the amount of money). The price of a commodity performs the same measuring function as in geometry, length for segments, in physics, mass for bodies. For measurements, you do not need to know thoroughly what space or mass is, it is enough to be able to compare the desired value with the standard. The monetary unit is the standard for goods. In the conditions of non-commodity money, the question arises of using money as a measure of the value of money itself (selling money as a commodity, exchanging money for money). A number of authors believe that such a formulation of the question does not make sense. It also depends on the nature of money whether money is a stable measure of value. Some authors believe that stability remains only as long as the mass of commodities in value is many times higher than the money. When commodity-money circulation reaches the level of the balance of commodity and money supply, money loses this function.
  • Means of circulation. Money is used as an intermediary in the circulation of goods. For this function, the ease and speed with which money can be exchanged for any other commodity (liquidity indicator) are extremely important. When using money, a commodity producer gets the opportunity, for example, to sell his goods today, and buy raw materials only in a day, a week, a month, etc. Moreover, he can sell his goods in one place and buy the goods he needs in a completely different one. Thus, money as a medium of exchange overcomes temporal and spatial restrictions in exchange.
  • Instrument of payment. The money is used to register debts and pay them. This function gains independent significance in situations of unstable commodity prices. For example, a product was purchased on credit. The amount of debt is expressed in money, and not in the number of purchased goods. Subsequent changes in the price of the goods no longer affect the amount of debt that must be paid in cash. This function is also performed by money in monetary relations with financial authorities. Money plays a similar role when it expresses any economic indicators.
  • A means of accumulation. The money accumulated but not used makes it possible to transfer purchasing power from the present to the future. The function of a means of accumulation is performed by money that is temporarily not involved in circulation. Unlike goods, money does not disappear when consumed. However, it should be borne in mind that the purchasing power of money depends on inflation.
  • World money. Foreign trade relations, international loans, provision of services to an external partner caused the emergence of world money. They function as a universal means of payment, a universal means of purchase, and a universal materialization of social wealth. Until the 20th century, precious metals (primarily gold in the form of coins or ingots) played the role of world money. Nowadays, reserve currencies are usually considered world money (at present it is the US dollar, Swiss franc, euro, British pound, Japanese yen). For direct international payments, money from other countries can also be used. For example, the CLS payment system allows you to freely convert 18 currencies. Any of them serves as an international means of payment.
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