People tend to equalize with each other or confuse different concepts. Especially those that are in everyday use, in the popular sense, are used on an equal footing, as if being synonymous. Such confusion occurs, for example, with concepts such as money and finance.
At first glance, they are talking about the same thing. In fact, these are completely different terms. What is the difference between money and finance? In order to see this difference, it is necessary not only to familiarize yourself with the definition of these two terms, but also to highlight the signs, functions embedded in them.
Explanation of the concept of "money"
This word in the interpretation of different languages of the world has been heard by people for several thousand years. Trade relations existed long before the appearance of coins in Lydia in the 700s BC, before the advent of the currency and the general equivalent. But how did the trade happen without the means of payment familiar to the modern person? From about the eighth millennium BC, people used natural products as money: goods were exchanged for goods, desired for desired. Gradually, barter, with the advent of the currency and the concept of value, ceased to be the only form of trade relations.
Thus, money exists throughout the entire conscious history of mankind. This fact is one of the key differences between money and finance: the first appeared much earlier and are considered a more extensive category, and not secondary, like the second.
Having come a long way from rice, salt, spices, tobacco and furs, money is now both cash and non-cash. At the moment, in economic science, money means a commodity that can be used to pay for products of a certain value, in which all kinds of costs are invested (working time, resources, etc.). They can also be defined as a means that expresses the value of services and goods involved in the economic life of the state and citizens.
Properties and functions of money
There is a third concept of money, which sounds like this: they represent a medium of exchange, which is characterized by such an important concept for the economy as liquidity (liquidus from Latin - liquid). It implies a measure of the speed at which assets are transferred to cash. The faster and easier this process is, the higher the liquidity.
In the system of economic relations, it is money that is characterized by the greatest liquidity. Two important properties follow from this:
- Firstly, they can be exchanged for any product.
- Secondly, they determine the value of a given product through its price. In essence, price is a measurement of value expressed in money.
Functions of money and finance are different. Due to the fact that money is a more extensive category, they have more functions - only five. Through the functions, the purpose and role of money in the economy is expressed.
Let's consider in more detail:
- The measure of value. In economic science, on the scale of an individual economy, the country and the world as a whole, money serves as the universal equivalent. Through their use, the value of a product or service is determined. A quantitative definition of expenses and incomes, needs, debts, budget, as a result of the work of the Ministry of Finance, etc.
- Medium of circulation. Money constantly and continuously participate in the circulation of products, services, various securities. They exchange goods, thereby carrying out the process of sale.
- Instrument of payment. Money is a means of payment when it comes to debts, loans, salary payments and advance payments. Paying off debt or credit, money becomes a means of payment, participating in the future in the payment of wages and advances.
- Means of accumulation. In this case, everything is simple: a person, putting off personal savings, illustrates a similar function of money.
- Distribution. Also on the farm allocate the distribution function of money. It is based on the principle of gratuitous (not implying an equivalent exchange) transfer of money to a specific entity. Thanks to this function, the budget of all countries of the world is replenished and social programs are functioning.
Explanation of the concept of "finance"
Comparing money and finance is impossible without defining a second key concept - finance. It arose relatively recently, closer to modern times. The emergence of finance was due to the consolidation of the principle of private property, the emergence of legal norms in relations regarding property, the stratification of society into different groups, and the appearance of taxes. This category arose when the income level of certain groups of the population began to exceed the norm necessary to meet the minimum needs.
Thus, finance is a narrower concept than money. It is rather a secondary category that has appeared in history relatively recently. One of the main differences between finance and money is that, although they are not, in fact, the universal equivalent, they are more likely a tool. With the help of it, the distribution of GDP and GNP takes place with the aim of solving the tasks set for the state.
Signs and functions of finance
There can be no finance without money, so one of the most important signs of the latter is the mandatory availability of a monetary base. In the process of financial relations, the parties involved in them have different privileges, rights and authorities. The state has exclusive rights, thanks to which it is able to form its own budget.
Revenues that provide a constant level of cash to the state budget are mandatory. That is, every citizen must pay taxes and other fees. Otherwise, government agencies begin to work with him. Ensuring the compulsory nature of payments is possible due to the developed rule-making system and the activities of such state bodies as the Ministry of Finance.
As for the functions of finance, there are three most important of them:
- Distribution. As mentioned above, finance serves as a tool for the distribution of GDP and GNP. All income movements occur through the financial system. The redistribution of income following the distribution also goes through it. The interrelation of finance and money in this case is captured in the unity of goals, which consists in solving the tasks of the state.
- Control. It manifests itself in the creation of various monetary funds (both budget and off-budget) and further monitoring of their income and expenses, as well as adjusting the correctness of the processes from the point of view of the current legislation.
- Stimulating. Due to the fact that finance implies the totality of all monetary funds, loans are also part of the finances, or rather part of the loan fund. In addition to issuing loans, stimulation of industries within the framework of this financial function can be achieved through the provision of tax benefits.
Differences between money and finance
Many people make the mistake of saying that these two concepts are identical to each other. In fact, finance is more likely a secondary category derived from money. First of all, historically, money appeared ten thousand years ago, while finance only came with the advent of statutory rights regarding private property and others.
One of the most important differences between money and finance is that the former participate in all economic relations, and the latter only in those whose activities are connected with various monetary funds, their formation and control of activities.
As it turned out, money and finance have different functions. The former play the role of the universal equivalent, while the latter, as an economic instrument, control the budget and extra-budgetary funds, and also distribute GDP and GNP. That is, represent economic relations. All financial transactions go through funds, also satisfying the needs of individual economic entities. It is also worth noting that finance is impossible to touch, hold in your hands - this is an intangible thing, which can not be said about money.
Differences in Examples
Consider the differences between the two concepts on the example of borrowing money. On the one hand, the transfer of a certain amount to a person in debt can be considered as the transfer of an object, a thing from person to person. That is, one literally transfers to another thing in the form of a bill or coin. Then this action cannot be called financial relations. They begin only when two parties are clearly defined - the lender and the borrower. Some agreement is formed between them, a written document can be drawn up indicating the amount of debt, terms, interest, etc. Only in this case can we talk about financial relations.
Total finance and money
And yet, these two concepts cannot but have something in common, given the fact that they are often used in the same sense among the people. Therefore, despite the differing functions and content of concepts, money and finance have something in common. This is the base, foundation, namely the monetary basis. Finance is an economic relationship, a measure whose material component is money. They are the basis of all relations in the economy. Without money, the normal functioning of finance is not possible.
General conclusion
How do the concepts of “finance” and “money” relate? In the minds of many people, the attitude was established that this is one and the same thing, which in fact is completely different. The second mentioned concept has been familiar to mankind for about ten thousand years - at first, furs, animals, and spices acted as money. Finances, however, appeared only in modern times. They are a tool that not only controls the budget and other monetary funds, but also with their help stimulates the economy and individual enterprises.
Finances are intangible, they are intangible, because they represent income streams. Cash can be touched, as it is embodied in banknotes, coins, checks. Their main difference from finance is that money serves as the universal equivalent. With their help, you can buy goods, services. They also measure the value of a product.