Money is an important link in all industrial relations. They, together with the goods, have a common essence and a similar origin. Currency is an integral part of the market world and at the same time confronts it. If goods are used in circulation for a limited period of time, then the essence of money is so important that without finance this area cannot exist.
Monetary relations
Money is a special kind of product, while acquiring unique value. If we consider them separately, the essence of money and their functions are that they are an intermediary in the exchange of market values.
The need for the existence of commodity-money relations (and, therefore, such concepts as finance, credit, etc.) is determined by the presence of various forms of ownership. Great importance is also attached to the strictest accounting and control of the volumes of labor and consumption.
Full accounting and control of the most diverse types of specific work is simply physically impossible because of its socio-economic heterogeneity, which manifests itself as follows:
1) Physical and mental labor is significantly different from each other.
2) Skilled and unskilled work is also a polar category.
3) There is a relationship between harmful and light work.
Accounting and control are carried out by reducing different types of specific work to a homogeneous abstract concept. The essence of money is to distribute the products of labor, depending on its quality and quantity. In addition, they participate in the exchange of goods between organizations and enterprises of various forms of ownership.
From the need for finance, the essence of money and money circulation follows. They play the role of the mass commodity equivalent, which is used to express, measure and control social labor, organize the exchange of goods, distribute the products of work between employees and carry out material incentives.
The product is a unity between its cost and value to consumers. Therefore, there was a need to keep a record of it both in kind and in evaluation.
The main functions of money
In modern society, the following functions of money have formed:
1) The essence of money in the modern world is that it is a tool for intensive control of financial units. That is, the consumer oversees the producer, the payer over the supplier and vice versa, the bank checks the process of issuing and repaying loans to customers, etc.
2) Perform a key role in organizing settlements on the farm (the need to maintain a balance between income and expenses and to ensure that the former regularly exceed the latter).
3) They are the main criterion in the distribution of the quality and quantity of labor (exclusion of equalization, the use of a wide range of payment for the work performed, stimulate the productivity of employees).
4) This is an integral component of trading processes (each employee spends his money on the purchase of things that contribute to the satisfaction of his needs).
5) The essence of money in the economy is to fulfill their function as a means of organizing the relationship between agriculture and cities, other forms of ownership.
6) Promote the distribution of different types of products of society.
The totality of human products is manifested in two forms: commodity and money. This position is relevant both in the definition of this concept, and in the distribution of its components. The components form the so-called reimbursement fund. Its main task is to cover production costs. Also on this basis, national income is formed , which includes savings, insurance reserves, management expenses, defense funds and social and cultural events.
Saving the currency balance
What kind of money is there? To ensure the stability of the currency, not only gold is used, but also the huge volumes of goods that the state possesses. They help stabilize the financial masses due to the fact that they are based on specific social work.
It is imperative to maintain a balance between the volume of money in circulation and the goods that arrive at the shelves. This fact explains why bills are issued only in case of a real need for them.
Gold plays the role of an international tool for purchases and sales, therefore, the state reserves of this precious metal occupy a special place in the process of ensuring currency stability. Thanks to them, it becomes possible to increase the level of imports and lower, respectively, exports. This method is used to expand domestic trade and increase material support for the currency.
How to make money? The lion's share of ensuring the stability of national finances falls on foreign exchange reserves that foreign countries invest in our country.
So, in short, the functions of money are as follows:
1) Determination of the measure of value and price scale.
2) Means of turnover.
3) An object for savings and savings.
4) World money.
Let's consider each of these points in more detail.
What is a measure of value
A measure of value is an indicator that determines, in fact, the price of a product. It is an expression of the quality and quantity of work that was required for its manufacture. In practice, many specific types of labor are distinguished, which are measured in monetary terms.
Labor materializing in commodity objects, more precisely, its value, is determined in the form of the price of products, but it usually differs from its value, since it often deviates from it.
In order to increase the purchasing power of money, you need to lower prices. But this can lead to the emergence of shortfalls in profit. And their increase will suffer a negative impact on the purchasing power of the currency. This is another aspect that reveals the essence of money, the modern aspect of which has many facets.
Often the requirements that apply to the price of products contradict each other. In order to fix this problem, you need to take the following measures:
- tackle the increase in real incomes of the population;
- minimize the consumption of goods that are harmful;
- organize incentives for the purchase of products for segments of the population that are considered unprotected.
The measure of value is the basis for exercising control over the national currency according to the scheme "there is money, there is no money."
Cost Measurement Regulation
To reduce individual costs to the level of the need that society needs, the following measures should be taken:
1) Correctly plan current prices.
2) Adjust the cost.
3) Set adequate tariff rates.
4) Monitor the rates.
These steps will be able to create incentives for legal entities to engage in cost reduction and begin to increase labor productivity.
In order to measure the prices of goods, it is necessary to equalize them within a single scale, which is defined as the weighted amount of gold that is used in a particular country in order to determine prices. This is another facet in which the essence of money is manifested.
Another significant stage in increasing the scale of production is the fulfillment by banknotes of the function of a medium of circulation. In this case, the interaction of the circulation of goods and finance occurs. That is, the currency plays the role of an intermediary involved in the exchange of products. In this case, one type of product is exchanged for another.
The essence of money also lies in the fact that they are constantly in motion. They cannot be completely removed from the process of market relations. While the products being sold come and go, the currency remains in circulation and continues to function indefinitely.
As a means of circulation, money is controlled by the consumer. He spends them only on products that meet his needs. After ensuring the next cycle of commodity circulation, the currency is returned back to the bank, but a certain part of it can be withdrawn from circulation in order to perform other functions.
Money as a means of payment
The function of money as a means of payment was formed as a result of the turnover process, that is, thanks to it, the currency acquired the status of a medium of circulation. Finance becomes solvent at the moment when the goods are purchased without payment for it at this very moment. On the basis of their task, obligations and rights of claim are formed, which are of a long-term nature.
Relationships that are based on the function of money as a medium of circulation are fleeting. But the work of the currency as a means of payment is carried out in the process of long-term relations, which, for example, include salary payments, loan repayments, taxes. On its basis, conditions are formed that contribute to the saving of cash during payments using cards, when tangible assets replace records on accounts. That is, there is money, there is no money.
Finance as a means of accumulation and savings
Acting as a means of accumulation and savings, money makes it possible to maintain value in its mass form. In this situation, it can at any time become part of the appeal as a purchased means of payment.
When finances play the role of a medium of circulation and payment, they are a kind of substitute for gold, that is, they become signs of value, a manifestation of what money is — national banknotes.
Savings from the currency cease to be an end in themselves in cases where they act as one of the forms of creating funds with the expansion of production. For enterprises, they become profit, funds for economic stimulation, balances on bank accounts.
As a means of accumulation, the currency differs from the object of circulation in that it functions not as a fleeting equivalent form, but as a representative, in its own words, of value, which personifies it over a long period of time. Therefore, it is very important to determine whether there will be inflation of money, to ensure their stability, so that they can fulfill their tasks of accumulation, which otherwise becomes meaningless.
World money
In connection with the existence of a constant development of commodity relations between countries, a concept such as world finance has appeared. This is another essence of money. Money as money and money as capital are part of the global financial turnover. Within each country, they operate in the form of signs approved by law. At the same time, they have both the ability to purchase and the strength of solvency.
Outside of their state, money lives in the universal form of bullion of valuable metals, that is, is expressed in universal commodity equivalent. In the course of the history of international settlements, in order to preserve national currencies between former CMEA participants, it was decided to establish a financial exchange in the form of clearing. For its base, a transferable ruble was chosen, which has a gold content, but does not exist. Its face value was slightly less than 1 g of a valuable metal, which was used to determine the price scale in global settlements.
What is cash flow
When a purchase and sale process takes place during a commodity-money relationship, payments and settlements appear. They also take place during the distribution of funds, which is the essence of money. The concept of cash turnover includes the totality of all payments.
In these conditions, the population and enterprises are connected with each other through two market groups. People use earned income to purchase consumer goods. Enterprises, in turn, are engaged in the sale of their products to the people, as well as to other organizations, in order to receive revenue for further production processes.
The resource market offers companies the most diverse types of goods (material, energy, labor, natural) that are required for production. If we depict the interaction of resources and payments in the form of a clockwork, then the former will move along the arrow, and the latter will move in the opposite direction.
Among all flows, the most important role belongs to the national (aggregate) product. It represents the total value of goods and services produced, from which the essence of money and credit follows. It also includes national income, which is formed from all the funds received by the population (including salary, rent, interest payments and profit).
In order to quantify commodity flows, finance is used. Figuratively speaking, the movement of goods is pipes, and the circulating money is the fluid that flows through them. The national product takes the form of assessing the flow rate of a given “fluid”, and the amount of currency is expressed in its volume.
If investments and savings join the circuit, two ways are formed for the passage of funds from objects that act as their owner to the markets for products:
1) Costs are intended specifically for consumption. This is the direct path.
2) Funds move through savings, investments and financial markets - the so-called indirect path.
Significantly affect the turnover of money and goods have intermediaries. Since they are part of the financial system, these people are involved in redirecting funds from lenders to borrowers. Often they use these financial resources not in state, but in personal interests.
Cash management
In order to conduct a further analysis of how the product and income circulation takes place, it is necessary to include purchases and loans that the country holds in the list of public sector facilities.
The expenses that the population makes when paying taxes to the state budget are partially compensated for by the payment of funds in the form of transfer payments. Without accounting, we will receive the amount of taxes in pure form.
When a budget deficit appears, the state covers it in the financial markets through loans. That is, it sells securities to both financial intermediaries and the general public.
If you reduce taxes, this will provide an incentive to increase savings and consumption, and this, in turn, will positively affect the growth of the national product. An increase in public procurement also serves as an incentive for him, since it causes an increase in the level of income from the sale of goods and services (in the event that wages increase).
Among the tools of the government’s influence on the circuit is monetary policy. In general, it means actions of the government aimed at changing the amount of money in circulation.
The cash flow model is a closed economic system, on which links with the outside world are not visible. It will have a much more complex structure if monetary relations based on international relations are added to its elements: export and import of services and goods, loans and credits held between countries, purchases and sales of financial assets on an international scale.