Lecture
Money is a financial asset that serves to complete transactions (for the purchase of goods and services). An asset is something that has value. Assets are divided into real and financial. Real assets are material (tangible) assets (equipment, buildings, furniture, household appliances, etc.). Financial assets are securities. They are divided into:
Money is a financial asset, but it differs from other types of financial assets in that only money can service transactions and is a means of payment. You can not buy bread in the bakery, giving in return a share or bond.
The essence of money is best manifested through the functions they perform. Money performs the functions of: 1) means of circulation; 2) units of account; 3) deferred payment measures; and 4) value margins.
As a medium of exchange, money is an intermediary in the exchange of goods and transactions. Everything is bought and sold for money. An alternative to monetary exchange is barter (exchange of goods not for money, but for another product). However, barter is costly. On the one hand, it is a waste of time and effort, i.e. opportunity costs, and, on the other hand, these are direct transaction costs (transaction costs), which include, for example, “worn shoes” costs. In order to exchange goods for goods, it is necessary to fulfill the condition that the well-known English economist of the last century, one of the founders of marginal utility theory and the mathematical school in economic theory, William Stanley Jevons called “double coincidence of desires” (double coincidence of wills). A person who wants to purchase any product must find such a seller of this product, who in return would agree to receive what the person produces. For example, a shoemaker who wants to buy bread must find a baker who needs boots in exchange for the bread they sell. The ill artist must find a pharmacist who agrees to give him medicine in exchange for paintings. A macroeconomic teacher who wants to make himself a fashionable hairstyle should find a hairdresser ready to provide this service for listening to a lecture, for example, on the theory of money. Searches can last a long time and fail. But at the same time, time will be spent, and shoes are worn out. Therefore, barter is a highly inefficient and irrational form of exchange.
Money is the greatest invention of mankind. The emergence of money as an intermediary in the exchange eliminated the problem of double coincidence of desires and eliminated the costs of exchange. Any product can be sold for money, and with the amount received you can buy any other product. This property of money quickly and without cost to exchange for any other asset, real or financial, received the name of absolute liquidity (liquidity) - from the English word "liquid", which means "liquid, fluid." It is obvious that all assets have the property of liquidity, since sooner or later they can be sold or exchanged, but the degree of liquidity among equal assets of different assets is different. Only cash has the property of absolute liquidity.
The second function of money is that they are a measure of the value of all goods and services, a unit of account. As mass is measured in kilograms, distance is in meters, and the volume of liquid is in liters, so the value (cost) is measured in a certain amount of money. Until money began to fulfill this function, the value of each commodity was to be measured in the specific quantities of all other commodities produced in the economy. Moreover, a person who wanted to buy a certain product or sell his product needed to know all these proportions of exchange. For example, how much does bread cost in shirts, sausages, boots, televisions, computers, etc. With monetary exchange, this need disappears. Just know how much money each item can be exchanged for. The unit of the account is the monetary unit of the country, i.e. national currency (the ruble in Russia, the dollar in the United States, the pound sterling in the UK, Tugrik in Mongolia, etc.). In conditions of high inflation, when there is no stability of the national monetary unit, a stable monetary unit of another country (for example, a dollar in Russia) or a conventional monetary unit (cu) can act as an additional unit of an account.
The third function of money is the function of the means of payment (standard of deferred payment), which manifests itself in using them when paying deferred payments (paying taxes, paying debts, receiving income). The difference between this function and the function of the medium of circulation is that the use of money as an intermediary in the exchange involves the simultaneous movement of goods and money, and when performing the function of a means of payment or the movement of goods and the movement of money over time do not coincide (for example, commercial credit, t. e. a loan for goods), or there is no movement of goods, but there is only a movement of money (for example, a bank loan). The function of the means of payment money can perform, as they retain their value over time. And this is the fourth function of money.
The fourth function of money is that money is a stock of value (a means of preserving value) - the store of value. Money is a financial asset of value. This value consists in their liquidity, in their purchasing power - in that at any moment they can buy any product, service or security. In a non-inflationary economy, this value (purchasing power) is preserved and does not change over time. For the same amount of money you can buy the same quantity of goods in a year, and in 5 years. In terms of inflation, money loses its value, their purchasing power decreases. As the general price level rises, you can buy less and less goods for the same amount of money. To accumulate depreciating money becomes meaningless. And the function of the stock of value (means of accumulation) begins to perform not the national currency, but the stable currency of another country. In addition, money is not the most attractive financial asset that should be held in your hands, because they do not generate income. At the same time, there are profitable financial assets, for example, shares that generate income in the form of dividends and bonds that provide interest income.
The most important is the first function of money - the function of the medium of circulation, since it distinguishes monetary financial assets from non-monetary. However, all the functions of money are interrelated and interdependent. Money is used to make transactions, because they serve as a unit of account and measure the value of all goods, which is possible, because money itself has value, being a financial asset, and since they retain their value over time, they can be used as a measure of deferred payments.
The main types of money are commodity (commodity money) and symbolic money (token money). Money arose from the needs of commodity exchange, with the development and complication of which it became necessary to isolate a commodity that measures the value of all other commodities. In different countries, this role was performed by various goods: salt, cattle, tea, furs, leather (just remember that the first money in Russia was pieces of leather), precious metals, valuable shells and even pig tails, dried banana skins and dog teeth. So there was commodity money.
A distinctive feature of commodity money is that their value as money and the value as goods are the same. Commodity money may appear in modern conditions, when for some reason ordinary money is not used or can not be used. Such reasons can be either isolation from the outside world (for example, cigarettes are money in prisons), or high inflation and hyperinflation, which destroys the monetary mechanism, replacing it with barter (for example, during the Civil War in Russia, money was salt, matches and kerosene, and in 1993-94 in Russia, barter accounted for more than half of the exchange transactions).
As the exchange proceeded, the role of money entrenched in one commodity — noble metals (gold and silver). This was facilitated by their physical and chemical properties, such as: 1) portability (in small weight lies great value - unlike, for example, from salt); 2) transport closeness (convenience of transportation - unlike tea); 3) divisibility (the division of gold ingot into two parts does not lead to a loss of value - unlike cattle); 4) comparability (two gold bars of the same weight have the same value - unlike furs); 5) recognizability (gold and silver are easy to distinguish from other metals); 6) relative rarity (which provides precious metals with a rather great value); wear resistance (precious metals do not corrode and do not lose their value over time - unlike furs, leather, shells).
There were different monetary systems in different countries:
• monometallism (if only one metal was used as money - either gold or silver); • bimetallism (if both metals were used as money).
Initially, noble metals were used in the form of ingots. The exchange service required constant weighing and dividing the ingots. Therefore, in the 6th century BC in Ancient Rome, in the temple of the goddess Coins, bullion began to be given a flat shape, put on the weight of metal and stamped the portrait of a ruler. So there was a monetary circulation of money.
As they were used, the coins were erased, their weight decreased, but when exchanged, their value remained the same. This suggested that it was possible to replace valuable gold and silver money with value symbols, i.e. paper and metal (made from base metals - copper, tin, nickel) money.
Paper and metal money is symbolic money (token money). Their peculiarity is that their value as goods does not coincide (much lower) with their value as money. In order for paper and metal money to become legal tender, it must be fiat money, i.e. legalized by the state and approved as a universal means of payment.
Paper money first appeared in China in the twelfth century. In the US, the first paper money was printed in 1690 in Massachusetts. In Russia, the first issue of paper money, which was called "banknotes", occurred in 1769 by order of Catherine II (therefore, unofficially, they were called "ekaterinka"). The peculiarity of paper money of that time was their free exchange for gold money (the “gold standard” system operated).
In modern conditions, maternity money is supplemented by credit money, which is called “IOY-money” (I owe you-money), which means “I owe you money”). Money is a debt obligation. This may be a debt obligation of the Central Bank (cash) or a debt obligation of a private economic agent. Therefore, paper money is credit money. There are three forms of credit money: 1) bill 2) banknote 3) check.
A promissory note is a debt obligation of one economic agent (private person) to pay another economic agent a certain amount borrowed in a certain period and with a certain remuneration (interest). A bill is usually given under a commercial loan, when one person purchases goods from another, promising to pay off after a certain period of time. A person who has received a bill and has not received money can transfer it to another person by putting a transfer inscription on the bill — an endorsement. So there is a bill of exchange appeal.
Banknote (banknote) - is a bill (debt obligation) of the bank. In modern conditions, since only the Central Bank has the right to issue banknotes into circulation, cash is debt obligations of the Central Bank.
A check is the order of the owner of a bank deposit to issue a certain amount from this deposit to himself or to another person.
Plastic cards are divided into credit and debit cards, but neither of them is money. First, they do not fulfill all the functions of money, and above all are not a medium of circulation. Secondly, with regard to credit cards, it is not money, but a form of short-term bank credit. Debit cards (which for some reason are called credit cards in Russia) do not refer to money, since they imply the possibility of withdrawing money from a bank account within the amount previously deposited, and therefore are already included as a component of the money supply in the total amount of funds for bank accounts.
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Macroeconomics
Terms: Macroeconomics