PART II

THEORY OF MONEY

3
FUNCTIONS OF MONEY
~•Every branch or knowledge has its fundamental di.,covery. In mechanics, it Is the
wheel ; in science, fire ; in politics, the vote. Similarly, in economics, In the whole
commercial side or Man's social existence, money i., the essential Invention on which
all the rest i., based." -Geoffrey Crowther, An Outline of Money, p. 4.

Money is, in fact, one of the greatest defmition unnecessarily narrows down the field
inventions of Man. Since money represents of money.
generalized purchasing power, it has been the • None of the above defipitions is satisfactory
object of Man's desires to accumulate it through- since they are either too wide or too narrow. A
out the ages. • , suitable definition of money should emphasize
WHAT IS MONEY ?- not only the important functions of money, but
also its basic characteristic, namely, general
Definitions of Money acceptability. From this point of view, Crowther's
Money has been defined differently by defmition appears to be the ideal definition. He
different economists as there is no unammity defines money as "anything that is generally
over its definition. Some definitions are too acceptable as a means of exchange (i.e. as a
extensive while others are too narrow. For means ofsettling debts) and that at the sam~ time
example, Walker's definition is too wide. In acts a.s a measure and as a store of value."1 This
defmition points out that money should perform
Walker's words, "Money is what money does." all the three important functions of being a
A~ording to this defm1tion, we can. include all medium of exchange, a standard of value, and a
those things in money which perform the
functions of money. Thus, money does not store of value. Besides, money should be a
commodity which is generally acceptable by the
comprise metallic coins and currency notes only. community in payment for anything. In other
It also includes cheques, hundies, bills of words, the commodity chosen as money must be
exchange, etc., because they also perform the universally acceptable within community in
functions of money. On the other hand, exchange for goo~ and services or in payment
Robertson's definition of money is rather of debts.
narrow. According to 'Robertson, Money is a
"commodity whi~h is used to denote anything Money was not a sudden discovery or
which is widely accepted in ·payment for goods invention. Like most other social institutions,
or in discharge of other business obligations." money has undergone a process of historical
According to this defmition, metallic money evolution spread over a long period of time.
alone deserves to be called money in the strict During this process of historical evolution, a
sense of the term because it alone is generally variety of 'things had been used as money.
acceptable by the people, left to themselves. This Commodities like hides and skins of animals,
1 Crowther, Geoffrey, An Outline of Money, p. 2q.
r
sr
◄

I
26 FUNCTIONS OF MONEY

cattle, goats ~nd agricultural products, such as, goods or services. This is known as sale. Later
w_heat and nee had been used as money in with the money obtained, _the seller. buys good~
d1ffere~t stages of economic evolution. In more and services needed by him. That 1s known as
recent tunes, metallic coins and paper notes have purchase. ,Thus, in th~ moder~ exc~ange systeni
been used as money. As regards the actual money acts a~ the u~termediary m sales and
contents of money, there are wide differences purchases. It 1s on this account that money is
among ~conomists. According to the traditional referred to as the medium of ex~ha_nge. The
economist~, mo!1ey includes not only paper notes difficulty of the lack of double coincidence of
and metallic c01n~, but also the demand deposits wants no longer exists. now on ac~unt of the
of th~ commercial banks. According to the invention of money. Smee m.o~ey 1s generally
~adcliffe Committee. Report (1959), money acceptable, everyone acce_p_ts 1t. m exchange !or
mcl~de~ not only currency in circulation, but also goods and services, and utilizes 1t for purchasmg
all hqwd assets (such as saving bank deposits, goods and services of his choi~e•. ~oney, thus,
~ho!t:term secu~ities, treasury bills etc.) held by promotes specialization among mdividuals, firms
1nd1v1duals. 'Milton Friedman has further and regions.
broadened the scope of money as being inclusive Since money is a medium of exchange, it
of not only currency, demand deposits, saving bestows upon the holder ~e power. to comm~d
bank deposits but also of the time deposits of marketable goods and services at bIS own optton
commercial banks. Friedman's interpretation of whenever he needs them. If the individual
money is often referred to as the Chicago concerned has no money, he may have to borrow
Approach. According to the Central Bank it to -acquire the necessary command over
Approach, money includes not only currency in marketable goods and services for his own benefit
circulation, but also various types of commercial (ii) Money is a Measure of Value. The
bank deposits plus all credit cr.eated by the second important function of money is that it
various banking agencies operating in the measures the value of goods and services. In
economy. other _words, the prices of all goods and services
FUNCTIQNS OF MONEY are expressed in terms of money. Money is, thus,
The most general way to define money is to looked upon as a collective measure of values.
lay down its main functions. . The. various Since all values are expressed in terms of money,
functions of money can be cla~sified mto four it is easier to determine the •rate· of exchange
groups-(1) Main F~nctions, (2) _Secondary between various types of goods and services in
Functions, (3) Contmgent • Functions, and the community. But the people enjoyed no such
( 4) Other Functions. facility under the barter system. In that system,
1. Primary or Main Functions. These are . it was difficult to determine the rate of exchange
also referred to as original functions of money. ~- between v~ious types of goQds and services,
Following are the two main functions of money : ~ecause there was no singl~ commodity then in
terms of which all values were measured. But this
(i) Money is a Medium of Exchange. This difficulty has now disappeared with the invention
may be considered as the most basic function of of money. As said above, it is easier and simpler
money. Money has the quality of general no'Y to dete~mine the rate of exchange between
acceptability. As such, all exchanges take place various types of goods and services.
in terms of money. In ancient times, commodities
used to be exchanged for commodities. That was In view of its function as a measure of value,
known as the Barter Sy$tem. But, with the lapse money also serves as a unit of account. All
of time, the barter system proved difficult and records are kept and maintained in terms of the
inconvenient for the people. The main difficulty mon~tary unit, e.g., Rupee, Dollar, Pound
of the barter system was the lack of double Sterling, Yen, Mark etc.
coincidence of wants. It was on account of the . , It may, ho":ever, be_J><?inted out that money
difficulties and inconveniences of barter that still presents a difficulty m its role as a collective
money came into existence. In the modern measure of-valu~s. The difficulty is that the value
money-exchange system, the prices of goods and of 1?1°ney itself is subject to changes from time
services are expressed in terms of money. On to tt~e. Any commodity which acts as a measure
account. of the use of money, the exchange mu5t itself b~ stable in value. Unfortunately, this
transaction has now come to be divided into two
cannot b~ said of money. Though money acts ~
parts. First, money is obtained through sale of
a collecttve measure of values, its own value 15
 27
PUNc nONS OP MONEY
not const•
ant. •The
h
value of mon ey keeps . on the modem money economy has greatly
fluctuating wit occas ional chang • th facilitated the borrowing and lending proce ~.
internal price level. es in e
Now both, borrowing as well as lending, are done
Relationshi
• ph..betwe. en these Two .r unc ions.
z:, t. in terms of money. In other words, money now
Acl o~e rel ations tp exists between the above two acts as the standard of deferred payments.
{unctions of mo~ey. In fact, these two functions Money has proved to be a suitable standard of
are performed sunultaneously at the same point deferred paY!J!ents for the following three
of tune. ~!l long as the values of exchangeable reasons : (a) The value of money is stabler
commodities ~e not measured in ··terms of compared to the values of other commodities.
01on~y, money _itself calll\ot function as a medium (b) Money is more durable compared to other
of exchange: Ftrst, the values of commodities are commodities. (c) Money has the quality of
general acceptability. Hence, it continues to be
roeasure?. m terms of money ; then the always desirable.
commoditi_es •are exchanged for each other ~t a
pred~termmed rate. In other words, the two But in its role as a standard of deferred
funct1~ns of money take place at the same time. payments, ~money also suffers from certain
Sometimes, Jt~wever, the two functions ·may not drawbacks. The main drawback of money is that
take place simultaneously. Sometimes it so its own .value is not wholly stable. On the
happens that m9ney is used as a measure of contrary, its value keeps on fluctuating from time
value, but not as a medium of exchange. For to time. As a consequence, debtors and creditors
example, when a housewife , exchanges old are differently affected at different times. For
example, if the· value of money depreciates on
worn-out clothes for utensils, s~e uses money a~ account of a price rise, the creditors lose while
a measure of value, but not as a medium of debtors gain.
exchange. She evaluates clothes and utensils in
terms of money befor~ actually exchanging them (ii) Money is a Store of Purchasing Power.
for each , other~ But money is not used as a As is well known, savings were discouraged
medium of exchange. under the barter system. The. reason was that in
ate comm oditie s the absence of money,.savinp could be. done only
Some times , two separ
in terms of commodities, some of which
perform the above _two functions of fnoney happened to .be perishable. Thus, savin p done
separately. After · the First World War, two in terms of commodities were not permanent.
different currencies performed these functions But, with _the inventio~ of mo~ey, this ~cu lty
of money in Germany. During the war, Germany ~as now disappeared. Smee saVIDgS 1:fe now done
experienced unprecedented inflation as a . m terms of men~y, they are more permanent than
consequence of which prices rose sky-high. The they used to be under the barte r system.
began to depre ciate rapidl y in
Germa n Mark
ciatio n of Furth~rmore, the invention of mone1 ·has made
value. On accou nt of the rapid ·depre possible capital-accumulation which'. is an
the Mark, the Germ an peopl e now prefe rred to
essential prerequisite of economic growth.
enter into contracts with each other in terms of Money also serves as an excellent store of wealth,
foreign currencies rathe r than the Mark, becaus~ as it can be easily converted into other market-
the foreign currencies were stabler in value than able assets, such as, land, machinery, plant etc.
Germ an peopl e concl uded their
the Mark. The
.foreig n But money can perform this function
acts in Dolla rs or in other
long-term contr
ued to satisfactorily only if its own value (in terms of
currencies. But the Germ an Mark contin goods and services) is fairly stable.
he used as a medjum of exchange. Thus, in the
post-war Germany two currencies were in use: (iii) Money i$ a Means ·of Transferring
the American Dollar as a measure of value and Purchasing Power. The field of exchange al~o
the Ge~a n ·Mark as a medium of exchange. went on extending with growing economic
development. . The exchange of goods now
2. Secondary Functions. Follow ing are the extended to distant lands. It was, therefore fcit
secondary function~ of mone y : necessary to transfer purchasing power fro~ one
(i) Money is a Standard of Deferred place to another. Money performed this function
Payments. Borrowing and lending were difficult easily and quickly. Since money possesses the
problems under the barter·system. In the absence q~ality of ~eneral acceptability, a person can
of money, the borrowed amouf!t C4?uld be d1Spose of htS property at one place and buy new
returned only in terms of goods and services, but property at another place. Furthermore,
 11111111
28 FUNCTIONS OF MONEY •

borrowing and lending also take place in terms the prices of all commodities are exp
of money. It is on account of the general money. • ressed hl
acceptability of money that purchasing power Money also helps to equalize
can be transferred from one person to another. produ~tivities. Every producer, as we knlllargi_llal
Thi~ function of money has its impor!ance ~ the
socio-economic life of the community. It 1s on
at ~aximu_m ~roduction at the minunwn ¾ns °~,
achieve th1~ a~, he combines the variou:1st. l'o
account of this function of money that idle funds of producho~ m ~uch _a manner as to e !ct?,·s
lying with one person can be lent at interest to therr respective ~argmal productivitie~ ~Ile
another person who can put it to more money plays an important role in eq al~~"
productive uses. •
these margmal productivities because ul~ IZltlg
3. Contingent Functions. These functions these productivities are measured in t unately
have been well described by Prof. Kinley. In money. enns of
addition to the above functions, money has to
perform certain additional functions in . (iv) Money increases Productivity of Ca it •
developed countries. These are kn-Own as the Capital 1s to be found in several forms but Dlrp al.
• th.e m?st Iiqui·d type of capital. In other
is , oney
words
contingent functions of money.
capital ~ the form of money can be put to . '
(i) Money is the Basis of Credit. In recent use. ~t •s. on account of 'this liquidity of mo::~
years, the importance of credit has increased iti
all the countries of the world. Credit instruments
that ca~ital can be trausferred from the 1J
pr,o~~.chve to/ _the more productive uses. The
are used on an extensive scale. The use of mobrnty of capital has also increased on accolllit
cheques, bills of exchange, etc. has gone up of the liquidity of money. · ,
particularly in the developed countries of the
West. It should, however, be remembered that 4. Other Functions. In addition to the
money is the basis of credit. Without money, abpv~, mon~y also performs certain other
credit instruments cannot circulate. For functions which may be set forth as below :
example, a depositor can make use of cheques (9 Money helps· , io maintain Repayment
only when there are sufficient funds in his Capacity. Money, as already pointed out
account. Likewise, the Central Bank of a country posse~ses Jhe: quality of general acceptability. s~
cannot issue notes unless there are adequate to mamtam its repayment capacity, every firm
metallic reserves with it. The commerical banks has to keep some ~ount 6f liquid money in its
too create credit on the basis of adequate cash assets.· By so doing, the firm safeguards its
reserves. repaym~nt cap~city. Likewise, banks, insurance
compa!lie~· and even _governments h~ve to keep
(ii) Money facilitates Distribution of Social some hqu1d money (1.e., cash) to mamtain theit
Income. The task of distribution of social income repayment capacity. '
was exceedingly complex under the Qarter system (ii) Money represents Generalized Purchasing
on account of ·the absence of money. But the Power. Purchasing power· stored in terms of
invention of money has now facilitated the money can be put to any use. It is not essential
accomplishment of .this task. As is well known, that money should be used for the purpose for
modern production is made possible by the which_it has been saved. For example, if a person
collective cooperation of the various factors of saves now to build a house in future, it is not
production. The share of each factor, out of total essential that he should utilize that saving only
production is determined in terms of money. In for building tlie house. Instead of utilizing that
other words, each factor is paid the reward for saving for building a house, he may prefer to
its services in money. spenq it on the education of his cJ:tlldren. As we
(iii) Money he'ips to Equalize Marginal know, future is hishly uncertain. It is not essential
Utilities and Marginal Productivities. Every that money should be utilized only for the
consumer, as is well known, endeavours to secure purpose for which it has been saved in the past.
maximum utility out of his expenditure. But he Objectives keep on changing. If the objective of
can obtain maximum utility only if he incurs the saver changes, he has no difficulty because
expenditure on various commodities in such a money represents generalized purchasing power.
manner as to equalize marginal utilities accruing It can be put to any use.
from them. Now in equalizing these marginal (iii) Money gives Liquidity to Capital. ~oneY
utilities, money plays an important role, because is the most liquid form of capital. Capital in the
 FUNCTIONS OP MONEY 29
forJ.11 of money can be put to an .
ht·ghlY'alimportant from this . Yuse. ~oney 1s
k . . point of view It is
dynamic functions are indispensable for the
ssentt
e • to eep capital 1n a liqui'd ~ •~ healthy functioning of an economy.
variety. 0f t' 1orm 1or a
mo ives, as mentioned bel It should, however, be remembered that
according to J. M. Keynes. ow, money .can perform the above functions
(a) Income Motive. Accordtn' t hi satisfactorily only if its own value or purchasing
• d' •
Jllotive, e~ery •!1 g o t s ppwer remains reasonably stable over a. period
1vidual has to keep some cash
to meet his daily requirements. He receives his of time. For example, the value of money has
salary or wages after a well-deftned· period considerably declined at the present moment all
a wee~ or a month, . but he has to hi~:~ the world over due .to global inflation and this
expen~ture almost daily. To meet the daily has seriousl y affected the functions of money as
expen~ture, he has to keep some cash in his a store of value. People prefer now to keep their
possession. savings in bullion (gold and silver) or real estate
(property) instead-of money.
(b) Transactions Motive. A businessman too
bas to. keep some- ca~h to carry on his daily NATURE OF MONEY
operations or ~ransacttons. He has not only to While explaining the nature of money, it is
buy raw materials, but has also to .pay wages to essential. to .point out that money is only a means,
the _labour- fo_rce. Some cash I is, therefore, not an end in itself. As is well known, man buys
required to satisfy the transactions motive. various types of goods and services to satisfy hls
(c) Precautionary Motive. , Likewise an wants. Under the present economic system, these
individual also ~eeps , sonie cash to ~eet goods and services can be purchased only with
conting~ncies. Pro_f. Kernes -refers to it as the the help of money. In other words, money is only
precaution~ry motive. a means to satisfy the wants of man. Money in
(d) .Speculative Motive. Several business- 1 itself_ h~ little value. Money is desired by man
men keep capital in a liquid form to carry on because it helps to satisfy his wants. Thus, money
speculative actiyities. Prof. Keynes refers to it as is only a means, not an end in itself.
the speculative mo~ve. Money and Currency. In ordinary language,
Stati~ ·-and Dynamic Functions. There is· no distinction i~ observed ·between 'money'" and
still another classification of money associated 'currenc y'. But in economic terminology, they are
with the name •of Paul Einzig. Accord,ing to looked upon as two different things.. The term
Einzig, the functions of money can be classified 'curren cy' include s metallic coi"ns and paper
under two heads : (i) Static, and (ii) Dynamic. notes. They are referre d to as 'currency', because
The static functions are those which facilitate the these things are legal tender and are in actual
working of the economy of a country. For circulat ion in the country . The t~rm 'money',
example, the functions of money as medium of howeve r, is assigne d a wid~r meaning. It includes
exchange, measure of value, store of value and not only metallic coins and paper notes, but also
standard of deferred payments are all static credit instrum ents. The distinction between
functions because without these functions the 'curren cy' and .~D;loney ' can be brough t out by
economy'of a country canno~ work in practice. saying that all currenc y is money, but all money
is not currency.
The dynamic functions, on the con.trarr, are
those functions which cause movements m the IMPORTANCE OF MONEY
level of economic activity in an economy.. For Money occupies an important place in the
example, the functions of money as the basis of JllOdern economy. 1 The fact is that the modern
~redit or of liquidi'ty actually bring about changes econom y cannot functio n without money. Money
1nthe
level of economic activity in a c~u~try. T_he . occupies a significant place in all the branch
expansion of credit will result not only m a nse es
of Economics, i.e., consumption, production,'
~ the price level, but would also cause increases exchange, distribution and public fmance~
!n the levels of income, output and employment words of Marshall, "Money Is the pivot In the
tn the economy. Both the static ~s well as the
around
which the economic science clusters." The fact
1 This view of the modem economists \
afforc:ls a sharp contrast with the belief held by the early classical economists
who looked upon money· as something unimportant, as s~mething sterile, as some~ing
barren.
had no independent status of its own. It was merely a medium of exchange (and nothmg else). _To the_m, money

,~.
Th1S was m keeping _
with their doctrine of neutrality of Money. .,
. .... •· .
1, . . ,.
:. ,;J\:: ••
 Y
30 FUNCTIONS OF MONE made Special
h ization 41Jd
ble Division of labou,:.
.
of th e m at te r • th at :_ ?n ey is one of the greatest (iii) Money as ssi an. important role in
inventions O f • • ma . md. Every
branch of Division ~I ?a~our po
~:r
th of them ar e simply
bo
economi and speC1al1Zat1~nn. • rvention of mont ey~
cliffer e tCfr activityat ~1t was m barter economy.
a ~o ne y economy is modern produ~tio t the m te roductive
n om. wh and facilitated all not possible Withou
M b; ;e ~ ~r oc es se s :}
o~ . has mflu~nced
ey Under divisi~n of Ja bo ur s an d sub-process i
e field of consumption, o a nui:;ces
ec od o~ c activities in th tribution and public is divisible mt
s. Every pr s· s
to ion, exchange, dis sub-processe mccan
ps.esse the
para
carried out by seed te Jabour grouoc s d
an The in different prrd
<NvJ '#o t'he Consume,...
"'.. Advan#n,wo eir rewa s in mo nP.V
workers, engagare pat•d th - 1 • diue
, •
1
th the " -i,
s greatly benefitted wi t i:ent
..
sub-processes, pa ra te y m
~n su . r ha the conti'nue to work se • • f 1 bo ul
mvention of money• The consumer canespo .
s pone
If the Y di ~1 on o a ur wo d
•
his de m anfin
so de sir
d today iftheheprice of a ·particular groups.- Without money,
consumer ds th at not have been possible. tes the Drawbacks 0 1the
n postpone the purchase (iv) Money elimina
commodity is high, he caits price falls down to a ulties ~ d drawbacks of
of th e commodity till . Barter System. The difficve no w di sa pp ea re d. The
~~ purchasing po'Yer
!Dor~ !~asonable level. utilized by the consumer tbe old barter system haof wants • between two
un f!a t m money can b!lcessary for the consumer double coincidence necessary. Th e value cag
at • option. It is not ne as he obtains it. Due to individuals is no longer d quickly. Th er e is no
to sp en d money.as soon ity and comparative now be measured easily an of indivisible goods.
th e general acceptabilnsumer can utilize it as difficulty in the exchange y in exchanging one
stability of money, the co Nor is there any difficult
an d when it suits him. r. N o difficulty is
the· consumer to commodity for . anotherchasing po we r.
Besides, money helps es accruing from experienced in storing pu
utiliti s Savings into
(v) • Money transfonn co m m on eeople
equalize the marpnal
is well known, every th e
diverse commodities . As
re the maximum utility
Investment. The savingsinofto investment With the
consumer wishes to secu t this is possible only can_ be got transformed
al s~vings ar e pooled
from his expenditure. Bu obtainable from the help of money. Individ~ tutions which make
es sti
whe/f di e m .a r~ utiliti equal to each other. together by banking in
various commod ities are. th e in dividual en tre pr en eu rs
lishing the'!-1 available to oses.
~o ne y plays an imma portant role in estabva rious for mvestment purp
rginal utiliti es of
equality among the which inc urs the Aliocation of
. (vi) Money helps in.. of Production. The
the cons um er
commodities upont is more, money ensures es
expenditure. Wha consumers who can R~so'!-rces to .different linse d in te rm s of money)
freedom of choice to the mparing the moneta,y pn ce mecharusm ( expres so ur ~ to different
exercise their choice by co . ~o ca t~ eco~omic re ist
prices of rival products. • ~~ :,: ye s ;~Jm es othf ISpr od ~c tio n in a capital
oducer. Money helps . •. ~ . out pn ce mechanism all ,
. (~) ~dvantage to the Pr a variety of wa s such capitalism would come
the mdi~dual producer ins, borrowing ~~pital ;conoIWcdacttVJty 1!11daer socialist ec on om the
as, b' !~ g ra ~ materialucts and in combmin ' o an. en • Even m is gu id ed by th y, •
advertis!ng fmJShed prod production Withouf Plannm~ Commission ocation of e pr t~
the vanous factors of activities ~annot be mecharusm in the all economJc
dustries.
I m o~ ~ these productive
~oducero~in N~talcinly thi
s m<?ney helps the
d ~ ~ :n st o regakdin g
resour~~s to individual in
fa ci lit ~: tModneyby fac
ra e
ilitates Trade. diMoneyf
serying as a m e um o
~u ct io n. Every :o s s h ma e a . Ra pi d ex ch ~. f
~ of calculation lculations exchange e o goods' is possible
before initia ting od u~ -as , cost ca
in a modern econom be us e of money. Money
. It. is evident that,
without mone fheseuction tions cannot be constitutes the bas.Y 15
ca
th~ price mechanism
uJ~
made by the pr ~u ce r FC:lc through which the of
~eternune the quantity.andr
th~~ money helps to
od~ction community ar e ad:,U f
i 00dno nu c activities
of the
h
1 a m ~e rn society thro-.ighuthityfuf P~
i
t e price mecharusm Tli 5 pn ce mechan •
~ nc tio nmg of ( •••) i1 . Se •
'J7oney make·rs Carp•lta/ more Producdvl
b . VUt ing
di
hc;Jps the society toh scover what conswnism ~ increas its Mob
Y-.dAs we know, mone1
wan4 and. how frs !Dakes capital m or e n'1 i • O n ac co un t of iU
goods. muc they Want of particu ar increased liquidi qu
more
.._ ..
mobile It be e ty, ca pi ta l be co m es
,_ ,,, ,,, Girls c • omes po ss ib le to di ve
rt ca P" '
~ ,••~~/ege 1 1 .. ,
 \
FUNCTIONS OF MONEY
from less productive uses t 31
uses. In short, money has moamdore P!od .
acc oun ting and budgeting ·would becom
• •
010bile, and • it ts on accoun e cap1t alucti more
ve
imp oss ible . Money has enabled ·the individual toe
bil·ty f • t of th • d
010 t o bcap1tal that econom e merease make a rational choice between work and
a country ecomes possible. . ic development of spending and sav ing, _investing and hoarding.
leisure,
(ix) Money (xiv) Money helps to raise Livin, Standa
fresent and the })ltesta blishes a link between the
ure. _Savi~s in terms of goods The smo oth and uninterrupted functioning ofrds the
.
involve two . difficulties - (1) it cre money economy helps the society to
ates , the
probl~m <?f st0rage, and (ii) it resu
lts in the living standard by increasing overall prorais duc
e its
deterior~~on of ~e quality of . the
'sto red and through equitable distribution of wea tion
coromodities 0 '!er t~e . But savings in ' lth.
money do not gtve nse to any., such icu term s of (xv) Mo ney is the Mea sure of
Social welfare can be measuredSoc ial Welfare.
the saver· 0~ the contrary, savings diff lties for
the form of medium of money. How much utility is derive
thro ugh the
roon_ey h~lp the saverlo lay claims in on goods and by a particular person can only be me d
services in the f1:1ture, because money can terms of money An atmosphere of unc asu red in
to buy such ~oods and services. Mo be used will permeate .Eco nomics in the absence of
ertainty
establishes ~ ~k between the presen ney thus money.
future. Ac ~r ~g to Keynes,"The imp t and the (xv Money has extended the Field of Soc
money essentiallY. flow~ from its beiortance of Freedom.i) Un
between the present and th~ future." ng a link der the barter system, wages were
paid to the wor~ers in terms of goods. The
ial

(x) Money has made Future Transactio thus, no }?etter than slaves. The wo y were,
Possible•. Fu!ure tran$8ctions·have a special ns accept whatever goods were offered to had to rke rs
in a capitalist. setup. In future transac pla ce lieu of wages. But with the-invention them in
prices are. settled ~ th~ present, but
tion s the wag~ are paid now not in terms of gooof money,
are made· 1n the futlµ'e. This is done bec pa~ ent s tc ~ of money. With wages paid in mods, but in
all the commodities, money is the most aus e of workers can buy with them goods and· serv ~ey, the
value. The parties to a future transaction stab l~ in their own choice. Money has, thus, ices Qf
that the value· of money will not change kno w workers from their traditional slavery. hoerated
course of time. Hence, future transac mu ch in
tions are (xvii} Promotion of Natipnal Unity. Mo
concluded in terms of-money. has served to promote national uni ney
country. The invention of money has ty in eve ry
(xi) Importance in Distribution. As we kno less ene d
the rewards to the various factors of pro w, social isolation in a country. Mo
duc tion encouraged .trade and commerce ney has
are distributed in terms of money. Rent,
wages and profits·· are alf determined and inte res t, resi ding in distant regions meet each. othPeople
factors· of production in terms of paid to co~mercial. p~poses. This serves to stre er for
ngthen
Furthermore, equitable distribution of money. nattoqal umty m the country.
•
income in society is attained ~th the national (xviii) Money
help of Possible: The basis ofmakes Material Progress
money. modern material progress
(xii) Significance in Public Finance. is ind ustr iali7.ation , but this industriali7.ation is
As is not possible without capital accum ulation. And
well known, the government plays a pre capital accumulation is possible onl
role in the functioning of a modern dominant help of money. y with the
The government receives its income ineconomy.
of ta,ces (direct and indirect), fees, pricthe form Conclusion. As pointed out earlier, mo
ney
and utilizes this income for administrates, etc., is an inseparable part of a modem eco
nom y. A
developmental purposes. Without mo! ive and modern economy .cannot function
smo oth ly
administrative and develppmental functio 1ey, the without money. In fact, the importance
of mo ney
modern state would become difficu ns of a can be adequately realized o~ in its
abs
impossible. Furthermore, the incurring
lt, if not Ac cording to Prof. Robe~son, all dec ence.
isions
~ebt and deficit financing t~_would be of public concerning production are made with
the aid of
ruled out money. What to produce,· and how
ltl the absence of money. In fac mu ch to
t, fis m~ ge -
Illent by the government would be an ~ imposStble
pro duc e- all these decisions are made
wit h the
help rendered by money. Money also
task without money.
. indispensable role in satisfying the wa- plays an
, (xiii)~oney makes Efficient Accoun con nts of the
8Udgeting Possible. Wi ting f!11d sum ers. The eco nom y of a cou
thout money, effiaent influenced by the nature of the monetary ntry is
system.
 32 tu t £~o~ hn •
O F MONEY ie
.~ e contrary, 1•t uc . a es . 1t
fl

r fl
h e o c c a si o n a l. uctuationth
.
e a ev ec oa d e e p u n p a c t o n . e national economy.
Th inf1
FU N C T IO N S
s in th <: value o f money stable. Onhemmain cause '! f the mstabi1 0 ~ey on
to time. T
value o f m o n ey is th
hen mor~ p.a ape
e r D?
e isswng o frpmaopn~y ts 1.ssu~
y ID th e

eco n se q u e n c e s o fc h inattolnn o r deflation in nthoet a Jarge scale.ryW m . state o f inflatios are

n lJl
visU:f. 111Y a re fa r- re a . . g.
. . •ze a in w e ll -o r
~ ar uze~ social, ec
short, we canand
onomic
sa , it re su
than neces Prices st a rt nsmg. Consu hand
lt s
the economy. sary hardships. O n the o theecr e s ~ '
•A
m er

POliticaJ li fe
~ e rn tim ~ s with t money~ tic
o u p u t to unnecaes m o n ey is JSsued th a ~ e c ~
nn
m o n e y le ss eis con
ould, indeeerdal , be a chao d when Je ss p p e r
s s t~
. It tr u y w defects an to d ef lation. Price us, this mstabilth ity
economy s • e, th e re a re sev it ie
ts ad s
to :J o ss es . T h r e
drawback n ey . B u~ d es pite these defeeco f u t
Producers a reopf money proves harmful trfoy.
m o u rc
a n d d ra w ba t:k ~, m o n e y JS the sole dso amised in the value ade a n d indus_try in a coun
m o d e rn m
~ g re ss . It h as yn progress .of tr ~n! CaP_italise m. Still
al _ P ~ J. K . st re ng th ~ens
m o d e rn e c o n en
o ~ c u te . In rme, Prof. king (d ) M o n ey
o f m o
ti
ney JS th a t 1t sknown, ·it is
G a lb ra it h h remar w b ac k
a s ~ c h e d th e issue by mobiles, ariother dra es capitalism~ A s is weU is on
th a t · " t th in g s in life - au to
to those and reinforc has given birth to credit. It can
misb"es moSc a n c e r - a re important only money wh
ually
ic h sinessm
dit th a t rich "u panding their
en
h h sses, m . Money, in contrast, is eq who acco u n t o f th is c re ex
: i O a v e th e o se w h o have it and tho~e ed funds fo r "get
th obtain ·borrowo th e r words, th e ri c h people•gets
d o ~ ~ ~ ~ F t to enterprises. In pitalist economy: Capita se to l
ude that
· •
th e ab o v e st udy, we conclle in the richer in a ca .th e ir hands. This gives ri e
. _I]q,in. vital a n d signif.
icant ro concentrated in s in th e ·distribution o f inco m
n ~ j p la y s a u al it ie se gl ar :i, Jg
mo m y o f a countr
y glaring ineq in the economy. , T h e su f( in
modc,r_,i e c o n o VILS OF MONEY . and . wealth c o u rs e o f time, re Soviet
E m ay , in
I
I
ed blessing. It has n inequalities
its
n s· as h a p p e n e d
in th e
t a n u n m ix t re v o lu ti o
I M o n e y is n o h e various evils o f money ca : violen #

ina.
.Union and Ch
•
•

ell. T eads er', ,n.aji,fJt

d a rk _side as dw u n d e r the fo ll o ~ g two .h ,urchrµ{ng_Pq.;,
'l! ey' . ~~
,

~ '" !' ~
b e d is c u ss e ic Evils, a n d (2) Social Evils . ( eJ,'! J o n
rd io _a J~ly" -.•'mon~
(1 ) E c o n o m the o ~ . O p·e,,wn
c E v ils. T h e following a re ~tr~ •...~Y!'f!nym w e r' a re _ sy n o n ~ o u s... If
o ing
lly ~ .'pur~hassi n g
J
.1~ ~ o n 9 m ey : p u rc b a ~ ~ p to m a ti c a
econom ic evil..s o f ,mon
. . to Tra(/e Cycles. Aeeps has .'~oney', h~
s is ~ u
ney, P?Sse.ssesrcumstances
p u rq ia
g iv es B i, th k b ~ u s e m o
. (-a} M()ney e. trade· cycle always power., d e r e x tr a o rd m
a ry ci t bi
th
w e ll known, a •capitalist economy. A slpu. ·This
mp ispower. B u t u n ~ c h a s ~ g J)Qwer' m~y ·n~have
o p e ra ti n g ina boom a n d boom by ~ slum sult o f 'money' a n d 'p1s poss1~Je,: a p e rs o n m a y er'.
fo ll o w e d by y ·to the economy, ~ a re y a re synonymous. lt s.~#1 Jack .'purchasing pow the
y er
gives· instabilitnt sections- o f the communit fact, 'm?ney' but ~tJation a ro se in G e rm a n y a ft re a t
w h ic h differe ties and inconvenjences. Ino f the Thi~ type o f Slt ar. A s a re su lt o { th e G igh
p u t to diffic~onsible for the •operation is n o First . W~r1d Wr ~ y , p ri c e s h a d ri se n sky-h ost
m o n e y is· resp a moneyless economy, there e
lnflation m G o ( th e G e rm a n M a rk ·&ad alm ad
tr a d e cycle. In ther boom n o r slump. a n d ,the val u e
h th e G e rm a n p e o p le the
h
tr a d e cycle, nei Over-capitalizatiing
on
fa lle n t? zero
: T h o u g Jacked
en co ur ag es
orrow p ~ ss es sion, y e t th e y a ti o n like
(b ) Money the Economy. Bwith the money m th e u In a si tu
a n d Ove r- l!ro du ct io n in
litate d ss ar y p ~ rc hasmg power. a blessing actuaHy
ave been faci n
and ~ ce
e a d o f being
~nd ,l~ndmg h ney. This ease o f borrowing .of tlus, money mrsste.
1.nve~tion o f D!o n rise to the twin problem s
becomes a cu
g iv ~
lending ~as. at1on and over,..produ ction . In
t ei n g a ·s er va n t, M o n e y tends
over-cap1t al iz
in d u st
ca
ries utilize nmoreresults in
p it al (t ) ln S e a d o f b . S o Jong a s m o n e y is kept
~ m e th M_aster l for
other words ,
v~r-capitalizatio to become e t! p ro v e s to b e b e n e fiuc ia
than necess~y. O:I'his over-production gene..l unde~ control,c ti o n s a s m a n 's servant. B
t w hen
over-productfoty n. ve fata rm fu l for
ai n an d in st a bility which pro mankind. It f~ n tr o l it p ro v e s h a e n the
rates unce~ progress,. ~ o ~ e y ~oes o u t o f c o wh
for economic e o f Mon m y . In o fh e r words,m d, tbe
ility in the VtJJu !u ;p ~ :t ~ e :n o it s d e
. (c) L a c k o f S ta b
ue o f inoney is se ld
o ': o n e y exceeds ,
an
n, th e v al
A s is well know . .
. e it Came, Whe re tt Went (1975), p. 5
., M on ey : Whenc
1 Galbraith, J. K