Means of circulation Is a function in which money acts as an intermediary in the exchange of goods and ensures their circulation.
The exchange of goods using money in this function is carried out according to the “Goods – Money – Goods” scheme, in contrast to the barter exchange of goods according to the “Goods – Goods” scheme. The money that takes part in the purchase and sale transaction gives the classic scheme “Product – Money – Product” a fundamentally new quality: it is divided into two sub-transactions – sale (“Product – Money”) and purchase (“Money – Product”), which can be separated both in space and in time. With barter exchange, a complete commodity metamorphosis is immediately carried out, when both participants in the operation achieve their goals – each of them receives the desired consumer value. In the metamorphosis “Commodity – Money – Commodity”, the sale (“Commodity – Money”) does not mean the achievement of the exchange goals by any of the owners of the goods being exchanged. Moreover, the seller of one commodity may not buy another commodity at all, and then a complete commodity metamorphosis will not occur, which, in fact, conceals the abstract possibility of a sales crisis.
At the same time, the rupture of commodity metamorphosis thanks to money for two independent acts has a positive significance for the development of exchange and the economy as a whole.
First, it becomes possible to hold back money and accumulate value in its absolute form, which expands the goals of production, takes them beyond the limits of simple commodity exchange and gives new impulses for the development of production.
Secondly, the narrow limits of barter exchange are being broken. The owner of the goods can sell it not to the one who currently has the goods he (the seller) needs, but to the one who needs it. For the money received, he has the opportunity to choose on an alternative basis the necessary product, which contributes to the development of competition among producers.
Thirdly, the owner of the money can transfer the purchase of another product to the future or to another market, or even use it for another purpose. All this stimulates the development of entrepreneurial activity of commodity producers, the deepening and expansion of market relations, expands the forms of commodity-money relations in principle.
An important feature of money as a medium of exchange is that it is the real embodiment of exchange value: the seller gives his goods to the buyer and receives money in return. At the same time, it does not matter at all in what form they appear – full-value money (gold or silver coins), exchange or non-exchangeable banknotes (cash), or simply in the form of entries on bank accounts (deposit money). The only important thing is that money as a medium of circulation ensure the movement of goods from the producer to the consumer, after which the goods go out of circulation. However, the money itself remains in circulation, passing from one subject to another.
This feature of the medium of circulation determines the nature of the connection between the circulation of money and goods. So, in circulation there is always a certain amount of money that opposes the mass of commodities to be sold. If their ratio is considered at some point, then the mass of money should be approximately equal to the sum of commodity prices. If it is considered for a certain period of time, then the average mass of money in circulation should be less than the sum of prices of goods sold by an amount determined by the speed of circulation of money. Each monetary unit during this time can provide the sale of several goods. The specified relationship between the mass of money in circulation and the sum of commodity prices is the economic law of money circulation.
Money performs the function of a medium of circulation instantly, which makes it indifferent to the form of money, but not to the constancy of its value. After all, instantaneousness is characteristic of money as a means of circulation only in one commodity metamorphosis. After its implementation, money does not go out of circulation and goes into the second metamorphosis, then into the third, etc. Therefore, the more stable the value of the monetary unit, the stronger the internal unity of commodity metamorphoses and the ties of commodity producers, the more favorable conditions for the development of social production. The depreciation of a monetary unit causes money owners (potential buyers) to mistrust its purchasing power and a desire to get rid of money faster by purchasing goods, thereby stimulating a rush demand. At the same time, commodity producers consider it expedient to switch to barter transactions than to sell their products for money that may depreciate. And in this case, the entire system of commodity-money relations is violated.
A number of requirements are put forward for money as a medium of exchange on the part of the market (see Properties of money), which are associated mainly with the organizational and technical aspects of their functioning. They must be portable, economically divisible and homogeneous in their entire mass, relatively strong, cheap to manufacture and capable of rapidly reproducing any quantity necessary for their circulation, etc.
With the development of market relations and the sphere of using money as a medium of circulation, the requirements for them developed and expanded, and the new requirements often turned out to be incompatible with the previous ones and denied them. Thus, the low cost of manufacturing and the ability to quickly reproduce the amount of money required for circulation turned out to be incompatible with the high and constant value of the monetary unit. If this last requirement was better satisfied by gold money, then the first was banknotes, first paper, and then simple entries in bank accounts. This contradiction was ultimately resolved in favor of the latter requirement, and banknotes of various forms began to perform the function of a medium of circulation.
The rapid development of market relations, including thanks to money as a medium of circulation, creates the preconditions for narrowing the scope of this function and for a qualitative change in the mechanism of its implementation.
The formation of versatile and permanent exchange relations between commodity producers with the active servicing of them by banks leads to an increase in mutual dependence and trust between market participants. Therefore, the sale of goods is increasingly carried out on credit. For a complete commodity metamorphosis, the presence of money turned out to be not necessary: the commodity producer sells his commodity and buys another on credit, and the commodity metamorphosis itself takes the form of “Commodity – Credit – Commodity”. The replacement of Money in it for Credit had significant positive consequences for the entire sphere of commodity-money relations.
In particular, the sphere of using money as a medium of circulation narrowed and there was a need for money to pay off debts, but this was their other function – the function of a means of payment, the scope of which is constantly expanding. In addition, from the credit relationship (Credit) in the commodity metamorphosis, a promissory note (bill) appeared as the embodiment of the exchange value of the goods sold, which gave it the properties to perform the functions of money, in particular, purchase and payment. A fundamentally new form of money has emerged – credit.
In modern conditions, the use of money as a medium of circulation is carried out mainly in retail trade, in the provision of services to the population, in international trade, etc. However, in these areas, the use of the function of a medium of circulation is gradually narrowing due to the penetration of credit relations here.