Rajasthan Board RBSE Class 12 Economics Notes Chapter 17 Money: Meaning, Functions and Importance
- The exchange of goods against other goods without the use of money is called barter system.
- In barter system, people used to exchange goods for fulfilment of their needs.
- Many difficulties were faced in exchanging goods/services through barter system.
- To overcome the difficulties of barter system, money was invented as a common medium of exchange.
- Invention of money is thought to be the most important among the inventions of human civilization.
- After the invention of money, the difficulties of exchange of goods through barter system were removed.
- After the invention of money, all types of exchanges took place through use of currency.
- Now, money began to be accepted as a medium of exchange and a measure of value.
- Money also functions as a tool for accumulation of value and unit of accountancy.
- There are many definitions of money. In simple words, money is accepted as a medium of exchange and acts as a measure and a store of value and basis of deferred payments which is accepted by the people in an independent, extensive and general form.
- With the help of money, a person can easily transfer his purchasing power to another person. It is a basis of credit.
- Money provides liquidity to capital or wealth.
- In the present time, mone;/ has become an important component in economic field.
- Money is a basis of market system and a key to measure economic development-
- Money has made conversion of savings into investment easier.
- Money is also a basis of social prestige.
- Money has made possible the division of labour and specialisation in the industrial world.
- It is necessary to keep proper control on money, otherwise it can become a reason for inflation.
- It is a correct saying that “Money is a good Servant, but a bad Mistress”.
- Demonetization is a process through which the central bank of a country seizes legality of currency in circulation to put out of circulation black money and fake currency, and issues new currency.
Important Definition of money
- According to Hartley Withers, “Money, is that commodity through which we sell and purchase goods”.
- According to Walker, “Currency is that which does the work of a currency”.
- According to Knapp, “Anything which is declared by the state as money, becomes money”.
- According to Seligman, “Money is one thing that possesses general acceptability”.
- According to Kinley, “Money is such commodity which is generally used and accepted as a medium of exchange and measure of value.”
- According to Marshall, “Money includes all these commodities which are generally accepted without investigation and doubt for purchase of goods and services and as a means to pay for expenses at a specific place and time.”
Important terminology
- Barter system : In this system, people fulfil their various needs through exchange of goods.
- Money : Money (currency) is any such thing which is readily accepted as medium of exchange, measure of value, and value transfer and value storage.
- Store of value : Store of value implies store of wealth as currency for future use.
- Legal Money : Legal money implies such currency the acceptability of which is legally binding on common people.
- Deferred payment : Deferred payments refer to those payments which are not made immediately, but are made at some time in the future.
- Double Combination : Double combination of wants implies that the two individuals are in possession of such goods which they are willing to exchange for the satisfaction of their wants.
- Indivisible Commodity : Indivisible commodities are those whose value becomes much lesser or zero if divided into parts. Example – Buffalo, Cow, etc.
- Ability to pay : If someone is in a position to pay back his loans it is called his ability to pay.
- Liquidity : Money can be used immediately for any purpose at any time. This feature of money is termed as liquidity.
- Accounting unit : When various transactions are accounted in terms of money then it works as an accounting unit.