MEANING AND

FUNCTIONS OF
MONEY

ALOK KUMAR
ASSISTANT PROFESSOR
DEPARTMENT OF ECONOMICS
L.S COLLEGE, MUZAFFARPUR
Meaning and definition of money
 The word ‘money’ is derived from the Latin word
‘Moneta’ which was the surname of Roman
Goddess of Juno. Money was coined in her
Temple at Rome
 Money is define as anything that is generally
acceptable as a means of exchange and that at
the same time act as a measure and as a store
of value.
 Money has three important functions i.e medium
of exchange, a standard value and a store
value.

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Evolution of money

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DEFINITIONS OF MONEY

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Descriptive or functional definition

 According to Coulborn , ‘Money may be

defined as the means of valuation and
payment”.
 According to Hartley Withers , “ Money
is what money does”.
 According to Thomas, “ It is a means to
an end not for its own sake but as a
means of obtaining other articles or of
commanding the service of others.”

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 Legal definition
 According to Knapp, “ Anything which is
declared by state as money , becomes
money”.

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Common acceptability definitions

According to Seligman , “ Money is one thing that

possesses general acceptability.
According to G.D.H Cole , “ Money is simply
purchasing power something which buys thing, it
is anything which is habitually or widely used as a
means of payment and is generally acceptable in
the settlement of debts.”
According to Keynes , “ Money is that by delivery
of which debt contracts and price contracts are
discharged and in the shape of which a store of
general purchasing power is held.”

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 Functions of money

PRIMARY FUNCTIONS

SECONDARY
FUNCTIONS

CONTINGENT
FUNCTIONS

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 Primary functions
 1.Medium of Exchange: Money act as a medium of
exchange. It has the quality of general acceptability.
In modern days, exchange is the basis of entire
economy and money makes this exchange possible.
It was on account of the difficulties and
inconveniences (lack of double coincidence of wants)
of Barter system the money came into existence.
 2.Measure of Value: Money act a unit of measure of
value. In other words, it acts as a yardstick of
standard measure of value to which all other things
can be measured. Value of all goods and services is
expressed in terms of money.

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 SECONDARY FUNCTION
 Standard of Deferred Payments : Money has proved to be
a suitable standard of deferred payment as it is more durable
and stable compared to values of other commodities . It has
the quality of general acceptability. Hence it is always
desirable.
 Store of Value : Money can be stored for future use. It has
this merit because its utility is never lost. It serves as an
excellent store of wealth, as it can be easily converted into
other marketable assets , such as land, machinery , plant etc.
 Transfer of Value : Money is a liquid means of exchange .
Hence purchasing power of money can easily be transfered
from one person to another and from one place to another.

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 Contingent functions
 Basis of Credit : At present credit is used as money on the basis of money,
Bank and Financial institutions create credit on the basis of money.
 Basis of Distribution of Social Income :Total output of the country is
jointly produced with the help of different factors of production (Land, Labor,
Capital and Enterprises).So, the output should be distributed among them.
Money helps in the distribution of the national product in the form of Rent,
Wage, Interest and Profit, , which are expressed in money terms.
 Basis of Maximum Satisfaction and Production : A Consumer maximizes
his satisfaction by equating the prices of each commodity(in terms of
money) with its marginal utility. Similarly, a Producer maximizes his
satisfaction by equating the marginal productivity of a factor with price of
that factor.
 Helpful in Making Capital Liquid and Mobile : Money makes capital liquid
and mobile.
 Guarantee of Solvency : Money acts as a guarantee of solvency for an
individual or institution. Every individual or institution prefers to keep
some money ready as cash deposits. Money deposits serve as a guarantee
against solvency.
 Bearer of Option : Money serves as a bearer of option which implies that
accumulating wealth in the form of money , any individual can change their
decision regarding the goods and services as and when the situation
demands. 11
 Static and dynamic functions
 Paul Einging has classified functions of Money into two
broad groups:
 1.STATIC FUNCTIONS: Static functions are those which
help the operation of the economy but these do not
create movement in the economy like medium of
exchange, measure of value , store of value and
measure of deferred payment are the static functions of
money.
 2.DYNAMIC FUNCTIONS : The dynamic functions are
those by which money actively influences the economic
system through its impact on price level , interest
rates ,volume of productions , distribution of wealth and
Incomes etc.

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 STAY HOME , STAY
SAFE

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