Glamor Economics

Chapter 112

Chapter 15 Section 3 Why Money Can Buy Goods - The Function of Money

In modern society, money can be said to be everywhere, and it has long penetrated into all aspects of people's clothing, food, housing, and transportation.If a person does not have money, he will be unable to move forward in society; if he has money, he can get material enjoyment.Because money has this function, it has a kind of crazy magic power, which is covered with a veil of mystery.

But money is not exactly equal to currency.To understand money, it is necessary to understand the basic functions of money:

1. The scale of value.Just as the ruler for measuring length has its own length, and the weight for weighing things has its own weight, so the currency for measuring the value of commodities is also a commodity and has value; things without value cannot serve as a measure of value.

In the process of commodity exchange, currency becomes a general equivalent, which can express the value of commodities and measure the value of commodities.When currency performs the function of value scale, it does not need actual currency, only conceptual currency.For example, a bicycle is worth 1 yuan, as long as a sticker is attached.Although the currency used to measure the value of commodities is only a conceptual currency, this conceptual currency must still be based on real currency.People cannot price commodities arbitrarily, because there is an objective ratio between the value of money and other commodities, and the realistic basis of this ratio is the amount of socially necessary labor consumed to produce the two.

The value of a commodity expressed in a certain amount of money is the price of the commodity.Value is the basis of price, and price is the monetary expression of value.The function of money as a measure of value is to express it in various prices according to the value of various commodities.For example, 1 cow is worth 2 taels of gold, here 2 taels of gold is the price of 1 cow.

2. Medium of exchange.In the process of commodity exchange, commodity sellers convert commodities into money, and then use money to buy commodities.Here, money plays the role of a medium of exchange and performs the function of a means of circulation.

Before the advent of money, commodity exchange was direct barter.After the emergence of money, it plays an intermediary role in the commodity exchange relationship.Commodity exchange with currency as the medium is commodity circulation, which consists of two processes: commodity-to-money and currency-to-commodity.Since currency is used as a medium of exchange in commodity circulation, it breaks direct barter exchange and local restrictions, expands the variety, quantity and geographical scope of commodity exchange, thereby promoting the development of commodity exchange and commodity production.

Since currency has the function of a means of circulation, the buying and selling of commodities breaks the time limit. After a commodity owner sells a commodity, he does not necessarily buy it immediately; it also breaks the limitation of buying and selling space. Or, after selling the commodities, they can buy other commodities on the spot, or buy any other commodities in other places.

3. Storage means.Money withdraws from circulation and is hoarded as an independent form of value and general representative of social wealth.The function of money as a means of storage develops continuously with the development of commodity production and commodity circulation.In the early days of commodity circulation, some people exchanged surplus products for money and kept them. Hoarding gold and silver was regarded as a sign of wealth. This was a simple form of money hoarding.With the continuous production of commodities, commodity producers have to continuously buy means of production and means of subsistence, but it takes time for him to produce and sell his own commodities, and he is not sure whether he can sell them.Thus, in order to be able to continue to buy, he must hoard the money he got from the previous sale of the commodity, which is the money hoard of the commodity producer.With the expansion of commodity circulation, the power of currency is increasing day by day, everything can be bought and sold with currency, and currency exchange extends to all fields.Whoever owns more currency will have greater power, and the desire to hoard currency will become stronger. This is a currency hoard of social power.Currency, as a means of storage, can spontaneously adjust the currency circulation and act as a reservoir.

4. Means of payment.The functions performed by money as an independent form of value when it moves unilaterally (such as paying off debts, paying taxes, paying wages and rents, etc.).

Because commodity transactions are initially paid for in cash.However, because the production time of various commodities is different, some are longer, some are shorter, and some are seasonal.At the same time, the sales time of various commodities is also different. Some commodities are sold locally and the sales period is short, while some commodities need to be exported to other places and the sales period is long.The transfer of goods is separated from the realization of price in time, that is, the phenomenon of credit purchase appears.After purchasing on credit, when the debt is paid off on the agreed date, money functions as a means of payment.Currency as a means of payment was initially caused by credit purchases and prepayments of commodities, and later gradually expanded beyond the field of commodity circulation. In an economic society where commodity exchange and credit business are developed, it has increasingly become a common transaction method.

5. World currencies.Money performs the function of a universal equivalent on the world market.Due to the occurrence and development of international trade, currency circulation exceeds the scope of a country and plays a role in the world market, so currency has the function of world currency.As a world currency, it must be gold and silver of sufficient value, and must take off the regional cloak of coinage and appear in the shape of gold and silver nuggets.Coins and banknotes, etc., which used to play a role in each country, have lost their role in the world market.

In domestic circulation, generally only one monetary commodity can serve as the measure of value.Internationally, since some countries use gold as the measure of value, and some countries use silver as the measure of value, gold and silver can simultaneously function as the measure of value in the world market.Later, in the world market, gold achieved a dominant position, mainly performing the function of the value measure by gold.

International currency acts as a general means of purchase, and one country directly purchases goods from another country with gold and silver.At the same time, as a general means of payment, international currency is used to balance the balance of international trade, such as repaying international debts, paying interest and other non-productive payments.International currency also serves as a means of international wealth transfer. As a representative of social wealth, currency can be transferred from one country to another, for example, to pay war reparations, export monetary capital, or transfer gold and silver to foreign countries for other reasons.In contemporary times, the main function of the world currency is to serve as a means of international payment to balance the balance of international payments.

[links to related words]

World Currency Functions Purchase foreign goods on the world market and pay the balance of payments.Currency that needs to be real is created when it is transferred from country to country as a representative of social wealth.

Means of payment functions Pay debts, land rent, interest, taxes, wages, etc.The need for real currency emerged with the creation of commodity credit transactions.

(End of this chapter)