Primary Functions of Money
Primary Functions of money
The following are the primary functions of money which it has to perform: —
1. Medium of Exchange. Under the barter economy, people felt many difficulties and inconveniences. Money has solved all these difficulties. There is no necessity for a double coincidence of wants in a money economy. Money serves as a very convenient medium of exchange. Under money economy, a worker sells his services and a producer his goods. Both get money which is a general purchasing power. With this money, they can buy the commodities that they need and for which they can afford to pay.
2. A Store of Value. Money serves as a store\)f value or, in other words, it enables a person to keep a portion of his assets liquid. Liquid assets are those which can be used for any purpose at any time one likes. Most persons in the modem world have to keep currency notes in their pockets or at home, or they may keep current accounts with the banks withdrawable by cheque. This necessity arises from the fact that the stream of income and that of expenditure do not keep time with each other. Money incomes are being earned and money is being spent every moment, but the two are not necessarily equal. The earning time and the spending time do not coincide. Hence, something has to be kept as a store of value which can be used for emergency purposes. 'Nothing can be more suitable for the purpose than money, which represents a general purchasing power.
3. Standard Measure of Value. Under barter economy, there was no common measure of value in terms of which other values could be expressed and accounts kept. Money removes this difficulty too. In a money economy, it is easy to compare the relative values of commodities and services. They are in proportion to their respective prices. In matters of exchange, a common standard of value makes transactions easy and also fair.
4. Standard of Deferred Payments. In the world of today, borrowing and lending are very essential. But, it should be so arranged that neither the borrowers nor the lenders should suffer any undeserved loss or should make an unexpected gain. If a loan were taken in oxen and has to be repaid in that very form, we can imagine the difficulty. By the time, the oxen have to be returned they perhaps would have grown old. If a loan is taken in the form of money and repaid in money, then we give back practically what we borrowed, for money has comparatively a stable value.
5. Money Transfers Value. With the help of money, it is very easy for a person to shift his movable and immovable property to a different place. He has simply to dispose it off and with the sale proceeds buy similar property in the place where he wants to settle down.
The functions of money are summed up in the following couplet: — "Money is a matter of functions four: A medium, a measure, a standard, a store."