There are several concepts on the question of the origin of money, but the main ones are rationalistic and evolutionary. The first concept, which arose in the time of Aristotle, prevailed until the end of the XVIII century and explained the origin of money as the result of an agreement between people. Some modern economists interpret money in a similar way. Thus, P. Samuelson considers money as an artificial social convention. J. Galbraith believes that the assignment of monetary functions to precious metals and other objects is the product of agreement between people.
The most consistent proponent of the second concept of the origin of money was K. Marx, who defined money as a product of the development of exchange and commodity production. According to this concept, before the advent of money, there were barters and various forms of value. Economic science distinguishes four forms of value:
1) simple, single or random;
(2) complete or expanded;
(3) universal;
4) monetary.
In a simple form of value, a single good A in relative form is opposed by only one random good, the equivalent of B; in the expanded form of value, commodity A, which is in the relative form of value, is opposed by many equivalent goods – B, C, D, D, with the universal form of value, all goods in the relative form of value are opposed by one equivalent commodity, but here the role of universal equivalent is performed by various goods (livestock, furs, fish, grain, etc.); in the monetary form of value, all goods that are in the relative form of value are opposed by a universal equivalent, whose social role is firmly intertwined with the use value of noble metals – gold or silver.
The transition from one form of value to another occurred gradually, as the social division deepened and the isolation of commodity producers intensified. The development of forms of value is both the development of the process of exchange and the process of the emergence of money. Moreover, money arises as a product of the spontaneous development of commodity production and exchange.
Before the advent of money, there was barter – an indirect exchange of one commodity for another. For example, a farmer exchanges 150 kg of grain for one sheep owned by a cattle breeder. With barter exchange, the number of market participants is limited. With the increase in market participants, the circle of economic entities, barter encounters serious difficulties. When a variety of goods enter the market and in large quantities, several intermediate transactions must be carried out to purchase the desired product. The advent of money resolves this predicament. The owner of the goods exchanges it for money, which he then spends on the purchase of the desired product.
Money is a special commodity that plays the role of a universal equivalent. They express the costs of social labor embodied in the commodity, and on this basis ensure their exchangeability. Like all goods, money has value and use value. The cost of gold lies in the fact that a large amount of socially necessary labor is spent on its extraction. Gold is one of the most labor-intensive in terms of metal mining. The use value of gold as a monetary commodity is bifurcated. On the one hand, it has the usual use value – it is used for technical purposes, the manufacture of luxury goods, dental prosthetics, etc. On the other hand, gold has a universal use value, i.e. is an object of universal need in the process of exchange.
Money is an absolutely liquid medium of exchange, i.e. a commodity that has the greatest ability to sell. Money is one of the most significant components in the economic life of society. They arose at a certain stage in the development of the economic life of society, but not as a product of an agreement between people or any legislative act of the state, but as a result of economic relations, the natural economic life of people.
Gold plays the role of money because it has a number of advantages in comparison with other goods: divisibility, preservation, qualitative homogeneity, portability (high value with a small volume), its relative rarity in nature.
Money performs a number of functions, in which their essence is manifested. Money serves as: 1) a measure of value; 2) a means of circulation; 3) the means of forming treasures; 4) a means of payment; 5) world money.
1) A measure of value. This is the main function of money. It is determined by the very essence of money, which is the universal equivalent. All other functions of money are conditioned by their function as a measure of value and are related to it. The function of money as a measure of value means that the value of all goods is expressed in money, they serve as a universal embodiment and measure of commodity values.
However, it is not money that makes goods commensurate. The basis of the commensurability of goods is the abstract socially necessary labor enclosed in them. A feature of the function of money as a measure of value is that this function is performed by ideal money, i.e. mentally represented, and not actually in the hands of commodity owners. Money can measure the value of all other goods only because they themselves are a commodity and themselves have value.
The value of various commodities is most often expressed in different quantities of gold. To compare these quantities of gold, i.e. to compare the prices of goods, one or another amount of gold is taken as a unit of measurement. A certain quantity of a monetary commodity adopted in a given country as a monetary unit is called the scale of prices. Different countries have different price scales. Each monetary unit is divided into multiple parts (for example, the mark – for 100 pfennig, the ruble – for 100 kopecks, the dollar – for 100 cents, the pound sterling – for 100 pence, etc.).
A strict distinction should be made between “measure of value” and “scale of prices”. There are significant differences between them. First, as a measure of value, gold relates to other commodities, expresses and measures their value. As the scale of prices, a certain amount of gold is taken as a unit. And these units (marks, rubles, dollars, etc.) measure any amount of gold that expresses the price of a commodity. Secondly, the measure of value is the social function of gold: behind the expression of the value of goods in gold is the reduction of all types of concrete labor to abstract labor. On the contrary, the scale of prices performs a purely technical function: it determines the ratio of one amount of gold to another, taken as a unit. Thirdly, as a measure of value, money functions spontaneously, independently of state power, and the scale of prices is set by the state in law and can be changed.
The functioning of money as a measure of value is associated with the formation of prices. The price is a manifestation of the law of value, i.e. the value of the goods is the basis of the price. Price is the monetary expression of value, i.e. the monetary expression of labor embodied in a commodity. If supply and demand are equal, the price of a commodity depends on the value of the commodity and the value of gold. Prices will go down if the value of a commodity goes down or the value of gold goes up. Prices will rise if the value of a commodity rises or the value of gold decreases. Consequently, the prices of goods are measured on average in direct proportion to their value and inversely proportional to the value of money. This is where the law of value applies.
2) Money as a means of circulation. With the advent of money, there are significant changes in the process of exchanging goods. The direct exchange of goods for goods is replaced by the process of circulation of goods through money. This process is carried out in the form of two metamorphoses: 1) the transformation of a commodity into money, i.e. sale, and 2) the reverse transformation of money into a commodity, i.e. purchase. If before the appearance of money, the exchange is carried out according to the formula T – T1 (one product was exchanged for another product), then with the help of money the exchange acquires the following form: T – D; or T – D – T1. With such an exchange, real, i.e. cash, is needed.
In commodity circulation (i.e., the exchange of goods with money), the transaction does not end with the transformation of the goods into money. The money received for the goods must be turned into another commodity, i.e. act T – D must be supplemented by act D – T. Two acts of commodity circulation (sale and purchase) are one, but at the same time they are independent, because they are separated from each other in space and time. This means that the continuity of the circulation process can be violated if the act of selling one product is not followed by the purchase of another product.
In connection with the function of money as a means of circulation, there is a possibility of breaking the acts of sale and purchase. This means the further development of the contradictions of the commodity economy, as well as the possibility of a crisis.
The circulation of money has its own characteristics: a) money does not return to its original point, but is constantly moving away from it; b) money is constantly in the sphere of circulation, while goods after their sale are usually excluded from the sphere of circulation and the sphere of consumption also passes.
The amount of money needed for commodity circulation depends on many factors. However, two of them play the most important role: (a) the sum of the prices of the goods sold; b) the speed of circulation of money. Each coin can change hands several times over a period of time. Therefore, for a certain period of time, one coin can realize the price of not one, but several goods. The faster the money is turned around, the smaller the amount of money required for circulation.
The law of monetary circulation states: the amount of money necessary for circulation is equal to the sum of the prices of goods divided by the number of turnovers of the monetary units of the same name. This can be expressed by the following formula:
where KD is the amount of money in circulation; SC – the sum of the prices of the goods to be sold; O – the average number of revolutions of the monetary unit.
In economic theory, the “equation of exchange” proposed by the American economist I. Fisher in the work “The Purchasing Power of Money” was widely recognized. The equation of exchange, or as it is sometimes called, the “Fisher equation”, is as follows:
MV=PQ,
where M is the value of the money supply in circulation; V — the average velocity of circulation of the monetary unit; P — price level; Q is the real volume of the national product.
This equation allows you to calculate each of its constituent parameters:
• Circulating money supply PQ/V;
• turnover rate of the monetary unit PQ/M,
• average price level MV/Q;
• The monetary value of the national product MV/P.
Fisher’s equation shows the dependence of the price level on the money supply. From the equation MV = PQ it is clear that the increase in the indicator M (with the immutability of V and Q) should be accompanied by an increase in P. This formula allows us to consider the phenomenon of inflation in the first approximation.
Initially, money acted as a means of circulation in the form of weight ingots of metal. In the future, coins began to be made of gold. A coin is a plate of metal, usually round in shape, the weight and fineness of which are certified by the state (ruler, monarch, etc.). The first coins were made in the XII century BC in China. In Russia, coinage began in Kiev in the tenth century AD.
Since money in the function of circulation is in constant motion and performs this function fleetingly (come and goes), their role can also be performed by defective money (for example, silver and copper), which are representatives of gold. This role can also be performed by paper money, which are signs of gold and act as a means of circulation. Paper money first appeared in China in the XII century, and in Russia – in 1796. The amount of paper money in circulation must correspond to the amount of gold needed for circulation. In this case, paper money will circulate at the value of the amount of gold that is indicated on them. Excessive issuance of paper money leads to their depreciation, i.e. inflation.
3) Money as a means of saving (the formation of treasures) is the third function of money. To buy the right product before the sale of his goods, the commodity producer must have a certain amount of money accumulated as a result of previous sales. In this case, there is a saving of money, i.e. their withdrawal for a certain time from the sphere of circulation. Money in such a situation seems to “petrify”, turn into treasure. You can store money in the form of treasures in unlimited quantities. In addition, performing the role of a universal equivalent, they always provide an opportunity to purchase the necessary goods. If the function of the measure of value is full-fledged (although ideal) money, and the function of the means of circulation is real (although inferior) money, then only full-fledged and only real money can perform the function of the formation of treasures.
4) Money in the function of a means of payment. Goods may not always be sold for cash. This is due to the fact that by the time one commodity owner appears on the market with his product, other commodity producers may not yet have cash, because the time of production of different goods is not the same. In this case, there is a need to buy and sell goods on credit, i.e. with a delay in the payment of money. The seller becomes the creditor and the buyer becomes the debtor. The transition of goods from the seller to the buyer is made here without the simultaneous transfer of money from the buyer to the seller.
The buyer, in exchange for the goods received, issues to the seller a debt obligation – a promissory note, according to which he undertakes to pay the cost of the goods within a certain period. Acting as a means of repaying a debt obligation, money performs in this case the function of a means of payment. In this function, they act when repaying other monetary obligations (for example, when returning cash loans, making rent for land, paying taxes, etc.). Thus, money acts as a means of payment in the event that its movement is not directly opposed by the movement of goods.
Taking into account the function of money as a means of payment, it is possible to clarify the law that determines the amount of money needed for circulation. It can be expressed by the following formula:
where KD is the amount of money needed for circulation; SC is the sum of the prices of goods and services; K is the sum of the prices of goods sold on credit; P — payments for which payment has come due; B — mutually repayable payments; O is the average number of revolutions of the eponymous monetary units.
The function of money as a means of payment increases the possibility of crisis phenomena. This is due to the fact that in the interval between the purchase of goods on credit and the payment of them, such an unforeseen phenomenon as a drop in the prices of his goods can occur. It may also happen that the sale of these goods will require more time than the borrower expected. In both cases, by the time the debt obligation expires, the borrower will not have the amount of money necessary to repay this obligation, i.e. his insolvency is revealed. And since many commodity owners buy goods from each other on credit, the insolvency of one causes the insolvency of the other, the third, etc.
5) Money in the function of world money. In circulation between different countries, money acts as the function of world money. The material prerequisite for this function is the exit of commodity exchange beyond national borders. On the world market, money dumps all its “national uniforms” (coins, paper and credit money) and acts in the form of precious metals. In world circulation, money functions primarily as a universal means of payment and a universal means of purchase, and the function of the means of payment prevails, since world trade is a large wholesale trade. Here, goods are sold and credit or, conversely, the buyer advances money to pay for the goods.
World money also acts as the universal embodiment of social wealth (when gold is moved from one country to another outside of purchase and sale transactions, for example, in subsidies, indemnities, cash loans, etc. operations). Wealth in the form of the universal equivalent of gold can easily migrate from one country and another. In addition, each country needs a reserve of gold for its international payments. Therefore, within individual countries, money in the form of treasure is the reserve fund of world money. They also perform this role in the conditions of paper and money circulation.
Currently, the currency of the largest countries of the world (the American dollar, the British pound sterling, the German mark, the Japanese yen, etc.) acts as world money. These are the so-called reserve currencies intended for foreign economic and domestic operations.
Note that some economists use other approaches to determining the functions of money. Thus, C. McConnell and S. Brew in the textbook “Economics” distinguish only three functions of money: a means of circulation, a measure of value, a means of saving.
E. Dolan in the book “Money, Banking and Monetary Policy” also identifies only three functions of money: the means of circulation (money used to purchase goods and services, as well as to pay debts); a measure of value (a monetary unit used to measure and compare the values of goods and services); a means of accumulation (an asset retained after the sale of goods and services and providing purchasing power in the future).
The study of the origin, essence and functions of money is the most important condition for understanding the internal mechanism of the modern evolution of money and their effective use in a market economy. In a market economy, the role of money increases significantly both in the process of pricing, regulation of commodity and money circulation, and in revenue management and the development of foreign economic relations. In a market economy, money facilitates the allocation of resources. People choose products and services through the placement of their resources, which are expressed in money.
The use of money provides a significant saving of social wealth, which society would be forced to squander as part of a natural exchange. Therefore, we can say that money creates the wealth of the nation. The more perfect the monetary system, the faster the build-up of social wealth.
Money experts suggest that in the future modern paper money will give way to the so-called electronic money.
In modern conditions, in many countries, the emission increases, which exceeds the actual needs of turnover. This leads to inflation – the overflow of the sphere of circulation with banknotes in excess of the real needs of the national economy and to their depreciation. During inflation, paper money depreciates against gold, commodities and foreign currencies, as a result of which there is an increase in the market price of gold in paper money in the first case; in the second, rising prices of goods; in the third – the depreciation of the national currency in relation to foreign monetary units.
Theories of money. There are various theories of money. One of them is metallic. This theory identifies money with precious metals. According to its supporters (mercantilists), gold and silver are money by nature, due to their natural properties. They recognize money only as a measure of value, treasure and world money, which are performed by precious metals.
Nominalistic theory considers money to be signs of value, conventional units of account. The most detailed nominalist theory of money is presented by the German economist G.F. Knapp in his book “The State Theory of Money”. In this book, the so-called state theory of money was put forward, according to which money was considered as a product of state power and legal relations. Paper money, in his opinion, is a legally established means of payment. Their purchasing power is determined by the state.
The quantitative theory of money is reduced to the fact that the value of money is inversely dependent on their quantity, i.e. the more money, the lower its value. Proponents of this theory state that before appearing on the market, money has no value, and goods have no price. And only here one or another ratio of the mass of gold and goods determines their value and price.
The theory of “regulated currency” is a combination of the basic provisions of the nominalistic and quantitative theory of money. Its representative, J. M. Keynes, praises paper money, seeing its advantage in the fact that the amount of money in circulation can be determined by the state. In regulating the amount of money in circulation, J. S. Miller was a member of the Country. M. Keynes sees a means of normalizing the level of commodity prices, wages, and eliminating unemployment.
If in the XIX century. the main questions in monetary theory were the nature of money, its functions, the choice of the scale of prices and the structure of the monetary system, now the main questions have become the role of money in reproduction, the mechanism of influence of the money supply on economic growth and state policy in the monetary sphere. If in the XIX century. scientists were concerned primarily with the qualitative aspects of monetary theory, then in the XX century. – mainly quantitative relationships.