The Economic Definition Of Money
The Economic Definition Of Money
Money is that which makes transactions between persons. Money is any object or normally accepted account as payment of debts and payment of goods and services, including repayment of taxes, in a specific country or socio economic context. The money is usually accumulated in banks by owners as a result of their ownership of goods and services. It is not necessary that the money be in its precise state at the time of the transaction.
Money is the general term applied to a number of substances having equal value. Its use is not confined within the definite boundaries of a country, being instead a term used by different individuals, institutions and nations to refer to the legal tender in trade. Money may therefore be circulation in the economy, or it may take the form of banknotes and bank certificates. Money being a very important part of all economic activities, it is subject to fluctuations in value, particularly on a market-determined price. Money is normally measured by weight in coins, bills and coins. Money is not a commodity but a means of exchange in which commodities are normally bought and sold.
Unlike commodities, money is usually not fixed in quantity but variable in value, so that it represents actual commodity prices on a given date. Unlike commodities, money is normally issued by a government, and is therefore not designed to be easily measured and accepted as cash. Money, unlike commodities, is generally created through transactions in commodity markets. The issue of money and the accumulation of money by individuals usually takes place in a financial market called a market. There are two basic methods of money creation: money production and money circulation. Money production involves the production of money by governments or banks, and money circulation involves the exchange of payments for the money created.
Money is not a physical commodity, but a broad concept covering a range of various exchanges. For instance, money is the means of exchange in the market for goods, services, and labor; however money production is distinct from the production of commodities. A physical commodity like money is usually produced and stored in a commodity market; money, when traded, is usually “redistributed” among various producers and consumers within a market. Money is a form of abstract wealth, since it neither has a shape, color, nor any definite shape or size, and it can therefore be regarded as equivalent to all other forms of wealth.
Money is usually defined in terms of its use-value. The use-value of money is determined by its exchange rate against other currencies. Exchange rates refer to the proportion between the quantity of a product that you can purchase with the amount you pay for it, expressed in terms of units. This proportion determines the price of the goods and services that you buy and sell in the domestic market.
Money, unlike commodities, cannot be produced or stored in physical form. The money that you may carry about with you changes hands several times before it finally gets “cashed in.” Money, as a medium of exchange, merely refers to the fact that you can pay for the goods that you purchase in another country by exchanging a certain quantity of your currency for that of the seller. This process is known as money circulation.
Money plays a very important role in the overall economy of a nation. The money system basically enables an economy to function smoothly by allowing the distribution of resources to be done smoothly, and by making possible the effective movement of goods and services from one place to another. This also allows a country’s economy to expand and improve through the utilization of available resources. In addition, the exchange system, through money, enables the economy to maintain a balance of payments, since money usually influences the prices of goods and services that are exchanged within the national economy.
The general functions of money are therefore not only to facilitate exchange of goods and payments between persons. Money serves as a medium of interaction and is, therefore, not a pure form of wealth. Money, as a medium of exchange, allows people to get to know one another and to develop business relationships based on trust, which is the basis of all market transactions. The use-value of money facilitates production of real goods and services, through its role as a standard of measurement and a guide to efficient pricing. This leads to the maximization of productive efficiency.