Money and Its Importance


Money and Its Importance

Money is a term used all over the world and can mean different things to different people. Some people refer to money as a commodity while others think of it as a symbol of wealth and power. Some people believe money is a substance that can be physically abused and is therefore not something we should encourage or count upon. Others believe that money is an abstract object that describes the worth of goods and services to society and humans in general.



Money, like every other commodity, is created through the operation of banks. Banks create money on behalf of their customers by borrowing it from a central bank, usually a government institution, that promises to redeem the money for them later. The central bank then redistributes this commodity money among various public enterprises or banks according to the demand for it. Money is traded, bought and sold as a commodity in the market. Money is used as a medium of exchange in the market so that it can be quickly and easily traded to meet the demands of consumers when they need it.


Money, unlike commodities such as food and shelter, is not produced in the free market. Instead, money is created by the government through the operation of banks. Because commodity trading is a complex process, the operation of banks provides a medium through which complex transactions can take place. Through the intervention of the central bank, money can now be quickly and easily transferred from one person to another and is now a fiduciary instrument, which means that it has become a legal obligation, like any other asset.


Commercial bank money, which represents the total value of all loans that have been made to business establishments, combines several distinct kinds of assets. In addition to the monetary components of bank balance sheets, commercial bank money also represents secured assets. Some of the most common kinds of assets being secured by commercial bank money are equities in companies, claims on securities, foreign trade assets, gold bullion, and bank bonds. In simple terms, bank loaned money represents ownership rights in a portfolio of securities or other investments. This portfolio is usually made up of highly rated assets that are obtained through borrowing from the central bank.


Money, unlike commercial bank money, is created by governments through the operation of their central banks. Unlike commercial bank money, the currency supply is determined by the decisions of the central banks of the countries involved in international trade. In fact, it is this very decision-making process by the central banks that determines the level of currency that will be used in the economy. The role of the central banks in the economy is closely related to the purpose of their existence in the first place: to control the supply of money and its price in the economy. In the course of this role, central banks often intervene in the business market to effect changes in the supply of money and the prices of particular commodities.


Money, unlike food and other natural resources, is a non-free resource that must be gotten from some source and may not be produced within the boundaries of a nation. This makes money a deflationary commodity. As money is a commodity, it is subject to drops in the prices of commodities as a result of increases in the supply. For example, if the supply of commodities like oil drops below the level that was originally established by the government when it decided to establish the price level of oil, the demand for oil immediately falls by about 10 percent. If the government decides to raise the price level again, the same phenomenon occurs.


Money is a high street bank product because it is a tangible asset that can be physically removed from the economy. But unlike goods and services that can be brought into physical existence, money cannot be transferred from one person’s possession to another nor can it be taken out of one’s possession. Consequently, the supply of money is limited and tends to increase only to the extent that the supply is allowed to contract. Money is unlike any other commodity in that, unlike goods and services, it cannot be produced out of nothing and it has to be bought or produced out of the sweat and toil of human beings. This physical character of money means that it can only be obtained by effort and through circulation. Money has to be created out of something – and only money can be produced out of anything.


Money, therefore, is a fiduciary money or a commodity that can be either produced or ordered by effort. Money is, thus, the commodity that is most easily transformed into cash. Money has become the measure of value, the standard of exchange, the law of exchange and the normal condition of life, which is why it tends to become the ruling passion of our age. The moderns are fascinated by the beauty of money and, as such, they have developed a whole theory of aesthetics devoted to money: the idea that money is the formative element of culture. Indeed, the Moderns are fond of talking about money as the essence of modernism, and it is likely that, when the sociologist Karl Polonsky talks about Money, he will not have much to do with a theory of aesthetics, but merely with a theory of accumulation.


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