The concept, functions and difference between money and finance

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:40

People tend to equate with each other or confuse different concepts. Especially those that are used in everyday life, in the mass understanding, are used on an equal footing, as if being synonymous. Similar confusion occurs, for example, with concepts such as money and finance.

At first glance, they are talking about the same thing. In fact, these are completely different terms. What is the difference between money and finance? In order to see this difference, it is necessary not only to familiarize yourself with the definition of these two terms, but also to highlight the features and functions they contain.

Deciphering the concept of "money"

This word in the interpretation of different languages of the world has been heard by people for several thousand years. Trade relations existed long before the appearance of coins in Lydia in the 700s BC, before the appearance of currency and a common equivalent. But how did trade take place without the means of payment familiar to modern man? From about the eighth millennium BC, people used natural products as money: goods were exchanged for goods, desired for desired. Gradually, barter, with the advent of currency and the concept of value, ceased to bethe only form of trade relations.

Thus, money has existed throughout the entire conscious history of mankind. This fact is one of the key differences between money and finance: the former appeared much earlier and are considered a larger category, and not a secondary one, like the latter.

Having come a long way from rice, s alt, spices, tobacco and furs, money is now both cash and non-cash. At the moment, in economics, money means a commodity that can be used to pay for products of a certain value, in which all kinds of costs (working time, resources, etc.) are invested. They can also be defined as a means that expresses the value of services and goods that take part in the economic life of the state and citizens.

Properties and functions of money

There is a third concept of money, which sounds like this: they are a means of exchange, which is characterized by such an important concept for the economy as liquidity (liquidus from Latin - liquid). It implies a measure that indicates the speed of the transfer of assets into cash. The faster and easier this process is, the higher the liquidity.

In the system of economic relations, it is money that is most liquid. Two of their important properties follow from this:

1. First, they can be exchanged for any product.
2. Secondly, they determine the value of a given product through its price. Essentially, price is a measure of value expressed in terms ofmoney.

The functions of money and finance are different. Because money is a broader category, it has more functions-five in all. Functions express the purpose and role of money in the economy.

Let's take a closer look:

1. A measure of value. In economics, on the scale of an individual economy, country and the world as a whole, money serves as a universal equivalent. Through their use, the cost of a particular product or service is determined. A quantitative definition of expenses and incomes, needs, debts, budget, as a result of the work of the Ministry of Finance, etc. is given.
2. Means of circulation. Money is constantly and continuously involved in the circulation of products, services, and various securities. Goods are exchanged for them, thereby carrying out the process of buying and selling.
3. Means of payment. Money is a means of payment when it comes to debts, loans, salary payments and advance payments. Paying off a debt or a loan, money becomes a means of payment, participating in the future in the payment of wages and advances.
4. Means of accumulation. In this case, everything is simple: a person, saving personal savings, illustrates a similar function of money.
5. Distribution. The distribution function of money is also distinguished in the economy. It is based on the principle of gratuitous (not implying an equivalent exchange) transfer of money to a certain subject. Thanks to this function, the budget of all countries of the world is replenished and social programs function.

Deciphering the concept of "finance"

Comparison of money and finance is impossible without defining the second key concept - finance. It arose relatively recently, closer to the New Age. The emergence of finance was due to the consolidation of the principle of private property, the emergence of legal norms in relations regarding property, the stratification of society into different groups, the emergence of taxes. This category arose when the level of income of certain groups of the population began to exceed the norm necessary to meet the minimum needs.

Thus, finance is a narrower concept than money. This is rather a secondary category that appeared relatively recently in history. One of the main differences between finance and money is that, not being in fact a universal equivalent, they are rather a tool. With the help of it, the distribution of GDP and GNP is carried out in order to solve the tasks set for the state.

Signs and functions of finance

Without money, there can be no finance, so one of the most important signs of the latter is the obligatory presence of a monetary basis. In the process of financial relations, the parties involved in them have different privileges, rights and powers. The state has exclusive rights, thanks to which it is able to form its own budget.

Receipts that provide a constant level of funds to the state budget are coercive. That is, every citizen mustpay taxes and other fees. Otherwise, government agencies will start working with him. Ensuring the compulsory nature of payments is possible due to the developed rule-making system and the activities of such state bodies as the Ministry of Finance.

As for the functions of finance, there are three most important of them:

1. Distribution. As mentioned above, finance serves as a tool for distributing GDP and GNP. All income movements occur through the financial system. Through it also go the redistribution of income following the distribution. The relationship of finance and money in this case is captured in the unity of goals, which consists in solving the problems of the state.
2. Control. It manifests itself in the creation of various monetary funds (both budgetary and non-budgetary) and further monitoring of their income and expenses, as well as adjusting the correctness of ongoing processes in terms of current legislation.
3. Stimulating. Due to the fact that finance means the totality of all monetary funds, loans are also part of finance, or rather part of the loan fund. In addition to issuing loans, stimulation of industries within the framework of this function of finance can be achieved through the provision of tax incentives.

Differences between money and finance

Many people make the mistake of saying that these two concepts are identical to each other. In fact, finance is more of a secondary category, derived from money. First of all, historically moneyappeared ten thousand years ago, while finance only with the advent of statutory rights regarding private property and others.

One of the most important differences between money and finance is that the former participate in all economic relations, and the latter only in those whose activities are related to various monetary funds, their formation and control of activities.

As it turned out, money and finance have different functions. The former play the role of a general equivalent, while the latter, being an economic instrument, control the budget and off-budget funds, and also distribute GDP and GNP. That is, they represent economic relations. All financial transactions go through funds, also meeting the needs of individual economic entities. It is also worth noting that finances cannot be touched, held in hands - this is an intangible thing, which cannot be said about money.

Differences in examples

Let's consider the differences between the two concepts using the example of borrowing money. On the one hand, the transfer of a certain amount to a person in debt can be considered as the transfer of an object, a thing from person to person. That is, one literally transfers a thing to another in the form of a bill or coin. Then such an action cannot be called financial relations. They begin only when two parties are clearly defined - the lender and the borrower. Some agreement is formed between them, a written document can be drawn up indicating the amount of debt, terms, interest, etc. Only in suchcase, we can talk about financial relationships.

General finance and money

And yet, these two concepts cannot but have something in common, given that among the people they are often used in the same meaning. Therefore, despite the differing functions and content of concepts, money and finance have something in common. This is the base, the foundation, namely the monetary basis. Finance is an economic relationship, the measure, the material component of which is money. They are the basis of all relations in the economy. Without money, the normal functioning of finances is not possible.

General conclusion

How do the concepts of "finance" and "money" relate? In the minds of many people, the attitude was fixed that this is the same thing, which in reality is not at all the case. The second mentioned concept has been familiar to mankind for about ten thousand years - furs, animals, and spices first acted as money. Finance appeared only in modern times. They are a tool that not only controls the budget and other funds, but also stimulates sectors of the economy and individual enterprises with their help.

Finance is intangible, it is intangible because it is a stream of income. Cash money can be touched, as it is embodied in banknotes, coins, checks. Their main difference from finance is that money serves as a universal equivalent. They can be used to buy goods and services. They also measure the cost of any product.