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From a financial and economic point of view, the invention of money is as significant an achievement as, for example, the invention of the wheel. Without money, it is unthinkable to imagine a full-fledged development of society, because money essentially acts as the circulatory system of the economy, thanks to it payments are made between buyers and producers, taxes are paid, savings are made, money has long gone beyond the national economies, which contributed to the development world trade, internationalization of production, etc. Let s try to figure out what is the essence of money?

The historical essence of money

The historical essence of money

Money appeared a very long time ago – several millennia ago, however, in modern economic science there is still no unequivocal opinion about how money originated. At the moment, there are two main theories of the origin of money: rationalistic and evolutionary.

Supporters of the rationalist theory believe that money arose as a result of an agreement between people, when they realized that a special (specific) tool was needed for the migration of values ​​in the exchange of goods.

Proponents of the evolutionary theory believe that money arose not as a result of an agreement, but as a result of the evolution of commodity exchange relations, when one of the many goods stood out, which began to play the role of money.

Despite the differences in theories of the origin of money, the essence of money is that money is a specific commodity that plays the role of a general equivalent

Initially, one product was exchanged for another. But in such an exchange a number of difficulties arose, in particular, it was necessary that the two parties to the transaction were interested precisely in the exchange of their goods. Otherwise, it was necessary to attract other interested parties to participate in the transaction and build long chains of exchange. In addition, the problem arose of the equivalence of the exchanged goods (for example, how to exchange an ax for a horse? – after all, they have different values).

Therefore, “intermediary goods” soon began to appear, in the role of which various objects were used: fur (animal skins), salt, livestock, jewelry, etc. Later they were replaced by metals: copper, bronze, gold, silver. Initially, gold and silver were used in the form of powder (sand) and ingots, but soon this stage was replaced by the minting of coins from precious metals. Further evolution of forms and types of money led to the emergence of paper money, and at the present stage of development of society – to the emergence of credit and electronic money.

Thus, money has come a long evolutionary path, its forms and types have undergone significant changes, nevertheless, the essence of money has remained the same – this is the general equivalent of value.

The modern essence of money

The modern essence of money

From the moment of the abolition of the gold standard, or, say, from the moment of the abolition of the exchange of paper money for gold, money has lost its intrinsic value, since the value of money was determined by the value of the metal from which this money was made, i.e. before their intrinsic value corresponded to par. The denomination of modern money significantly exceeds the cost of their manufacture (for the manufacture of a hundred dollar bill, the costs are less than 10 cents).

In modern conditions, the essence of money lies in the functions that money performs:

  1. Measure of value. The essence of money is that it is a tool for measuring the value of goods, works, services. Thanks to money, we can estimate how much a particular product is worth, we can calculate its cost, determine the final selling price, etc.
  2. Means of circulation. The essence of money is that it acts as an intermediary in the exchange process. In this case, various types of money can be used: paper, electronic, credit (such as bills of exchange, checks).
  3. Instrument of payment. The essence of money lies in the fact that they go beyond the scope of commodity circulation and carry out an independent movement, i.e. they are used for payments without returning the goods (for example, for paying taxes, paying interest on a loan, etc.).
  4. A store of value. The essence of money lies in the fact that it is used to form savings, which are an important element of the monetary system in terms of redistributing cash flows from those who have a surplus of funds to those who need funds.
  5. World money. The essence of money lies in the fact that they, embodying all the previous four functions, participate in international relations.

The psychological essence of money

So, we examined what money is from an economic point of view. But, in fairness, it should be noted that all modern money is based on trust and guarantees. Indeed, in the era of fiat money, unlike full-fledged money, money does not have an intrinsic value (the cost of a banknote is determined by the costs of its production, the cost of electronic money is generally abstract), therefore, the denomination of a monetary unit is primarily an element of trust. Confidence on the part of people that the monetary unit has value, and guarantees from the state that the monetary unit is used as legal tender throughout the country (as well as outside of it when it comes to international settlements).

What money is for people – everyone decides for himself. For someone it is the key to well-being and prosperity, for someone it is a means of realizing the most cherished ideas, and for someone it is the goal of a lifetime.

I really hope that many of you will realize the fact that the essence of money is that money is not an end, but only a means

Good luck to you, goodness and dough ☺!

Post Author: Rachel Reinbauer

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