The essence of money in the modern world. The concept of cash flow

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:47

Money is an important link in all production relations. They, together with the goods, have a common essence and a similar origin. Currency is an inseparable part of the market world and at the same time opposes it. If goods are used in circulation for a limited period of time, then the essence of money is so important that this area cannot exist without finance.

Commodity-money relations

Money is a special kind of commodity, while acquiring a unique value. If we consider them separately, the essence of money and its function is that it is an intermediary in the exchange of market values.

The need for the existence of commodity-money relations (and hence such concepts as finance, credit, etc.) is determined by the presence of various forms of ownership. Also, great importance is attached to the strictest accounting and control over the volume of labor and consumption.

Complete accounting and control of various types of specific work just physicallyis impossible due to its socio-economic heterogeneity, which manifests itself as follows:

1) Physical and mental labor are very different from each other.

2) Skilled and unskilled work performance are also polar categories.

3) There is a relationship between harmful and easy work.

Accounting and control are carried out by reducing different types of specific work to a homogeneous abstract concept. The essence of money is to distribute the products of labor, depending on its quality and quantity. In addition, they participate in the exchange of goods between organizations and enterprises of various forms of ownership.

From the need for finance follows the essence of money and money circulation. They perform the role of a mass commodity equivalent, which is used to express, measure and control social labor, organize the exchange of goods, distribute the products of work among employees and provide material incentives.

The product is the unity between its cost and value for consumers. Therefore, it became necessary to keep records of it both in kind and in estimated manifestations.

Basic functions of money

The following functions of money have been formed in modern society:

1) The essence of money in the modern world is that it is a tool for intensive control of financial units. That is, the consumer supervises the producer, the payer - over the supplier, and vice versa,the bank checks the process of issuing and repaying loans to customers, etc.

2) Play a key role in the organization of settlements on the farm (the need to maintain a balance between income and expenses and ensure that the former regularly exceeds the latter).

3) Are the main criterion for the distribution of the quality and quantity of labor (avoiding equalization, using a wide range of pay for work performed, stimulate employee productivity).

4) It is an integral part of the trading process (each worker spends his money to buy things that contribute to satisfying his needs).

5) The essence of money in the economy is their function as a means of organizing relations between agriculture and cities, other forms of ownership.

6) Contribute to the distribution of various types of society products.

The totality of mankind's products is manifested in two forms: commodity and monetary. This provision is relevant both in the definition of this concept and in the distribution of its components. Due to the components, a so-called compensation fund is formed. Its main task is to cover production costs. Also, on this basis, the national income is formed, which includes savings, insurance reserves, management expenses, funds for defense and social and cultural events.

Maintaining the currency balance

What money is there? To ensure the stability of the currency, not only gold is used, but also huge volumes of goods thatthe state has. They contribute to the stabilization of the financial masses due to the fact that they are based on concrete social labor.

It is extremely important to maintain a balance between the volume of money in circulation and the goods that enter the shelves. This fact explains why banknotes are issued only when there is a real need for them.

Gold plays the role of an international means for buying and selling, because the state reserves of this precious metal occupy a special place in the process of ensuring the stability of the currency. Thanks to them, it becomes possible to increase the level of imports and lower, respectively, exports. This method is used to expand domestic trade and increase material support for the currency.

How to make money? The lion's share of ensuring the stability of national finances falls on the foreign exchange reserves that foreign countries invest in our country.

So, in short, the functions of money are as follows:

1) Determining the measure of value and price scale.

2) Medium of exchange.

3) Object for savings and savings.

4) World money.

Let's look at each of these points in more detail.

What is a measure of value

A measure of value is an indicator by which, in fact, the price of a commodity is determined. It is an expression of the quality and quantity of work that went into making it. In practice, there are many differencesspecific types of labor, which is measured in terms of money.

Labor materializing in commodity objects, more precisely, its value, is determined in the form of the price of production, but it, as a rule, differs from its value, since it often deviates from it.

In order to increase the purchasing power of money, you need to lower prices. But this can lead to profit losses. And their increase will have a negative impact on the purchasing power of the currency. This is another aspect that reveals the essence of money, the modern aspect of which has many facets.

Often the requirements that apply to the price of products contradict each other. In order to fix this problem, you need to take the following measures:

- engage in increasing real incomes of the population;

- minimize the consumption of a product that is harmful;

- organize incentives for the purchase of products for segments of the population that are considered unprotected.

The measure of value is the basis for controlling the national currency according to the scheme “there is money, there is no money.”

Regulation of the measure of value

In order to reduce individual costs to the level of need that society needs, the following measures should be taken:

1) Properly plan current prices.

2) Adjust cost.

3) Set adequate rates.

4) Control rates.

These stepswill be able to create incentives for legal entities to engage in cost reduction and start increasing labor productivity.

To compare the prices of goods, you need to equalize them within a single scale, which is defined as the weight of gold that is used in a particular country in order to determine prices. This is another facet in which the essence of money is manifested.

Another significant stage in the increase in the scale of production is the fulfillment by banknotes of the function of a medium of exchange. In this case, there is an interaction between the turnover of goods and finance. That is, the currency plays the role of an intermediary involved in the exchange of products. In this case, one type of goods is exchanged for another.

The essence of money also lies in the fact that they are constantly in motion. They cannot be removed from the process of market relations completely. While products for sale come and go, the currency remains in circulation and continues to function indefinitely.

As a medium of exchange, money is controlled by the consumer. He spends them only on those products that meet his needs. After ensuring the next cycle of trade, the currency is returned back to the bank, but a certain part of it can be withdrawn from circulation in order to perform other functions.

Money as a means of payment

The function of money as a means of payment was formed as a result of the process of commodity circulation, that is, thanks to it, the currency acquired the status of a medium of circulation. Financebecome solvent at the moment when the goods are purchased without making payment for it right now. Based on this task, obligations and rights of claim are formed, which are of a long-term nature.

Relationships based on the function of money as a medium of exchange are fleeting. But the work of the currency as a means of payment is carried out in the process of long-term relationships, which, for example, include the payment of salaries, the repayment of loans, the payment of taxes. On its basis, conditions are formed that contribute to saving cash during payments using cards, when material resources replace account entries. That is, there is money, there is no money.

Finance as a means of accumulation and savings

Fulfilling the role of a means of accumulation and savings, money makes it possible to store value in its mass form. In this scenario, it can at any time become part of the circulation as a purchased means of payment.

When finances play the role of a medium of exchange and payment, they are a kind of substitute for gold, that is, they become signs of value, a manifestation of what money is - national banknotes.

Accumulation from foreign currency ceases to be an end in itself in those cases when they act as one of the forms of creating funds when expanding production. For businesses, they become profits, economic stimulus funds, bank account balances.

As a means of accumulation, the currency differs from the object of circulation in that it does not function asfleeting equivalent form, but as a representative, in its own words, of value, which personifies it over a long period of time. Therefore, it is very important to determine whether the money will inflate, to ensure its stability so that it can fulfill its tasks of accumulation, which otherwise becomes meaningless.

World money

In connection with the existence of a constant development of commodity relations between countries, such a thing as world finance has appeared. This is another essence of money. Money as money and money as capital are part of the global financial turnover. Within each country, they operate in the form of signs approved by law. At the same time, they have both the ability to buy and the power of solvency.

Outside their state, money lives in the universal form of ingots of precious metals, that is, it is expressed in the general commodity equivalent. In the course of the history of international settlements, in order to preserve national currencies between the former CMEA members, it was decided to establish a financial exchange in the form of clearing. For its base, a transferable ruble was chosen, which has a gold content, but does not exist. Its face value was slightly less than 1 g of valuable metal, which was used to determine the price scale in world mutual settlements.

What is cash flow

When the process of purchase and sale occurs during commodity-money relations, payments and settlements appear. They also take place during the distribution of financialmeans, which is the essence of money. The concept of cash flow includes the totality of all payments.

Under these conditions, people and businesses are connected to each other through two market groups. People use earned income to purchase consumer goods. Enterprises, in turn, are engaged in selling their products to the people, as well as to other organizations in order to receive proceeds for further production processes.

The resource market offers companies a wide variety of goods (material, energy, labor, natural) that are required for production. If we depict the interaction of resources and payments in the form of a clockwork, then the former will move in the direction of the arrow, and the latter in the opposite direction.

Among all flows, the most important role belongs to the national (total) product. It represents the total value of goods and services produced, from which the essence of money and credit follows. It also includes national income, which is formed from all the funds received by the population (including salaries, rents, interest payments and profits).

In order to quantify commodity flows, finance is used. Figuratively speaking, the movement of goods is pipes, and circulating money is the liquid that flows through them. The national product takes the form of an estimate of the flow rate of this "fluid", and the amount of currency is expressed in its volume.

In caseif investments and savings join the circuit, two paths are formed for the passage of funds from the objects that act as their owner to the markets for the sale of products:

1) Costs are specifically for consumption. This is the direct path.

2) Funds move through savings, investments and financial markets - the so-called indirect route.

Intermediaries have a significant influence on the circulation of money and goods. Since they are part of the financial system, these people are involved in redirecting funds from lenders to borrowers. Often they use these financial resources not for the state, but for personal interests.

Cash management

Purchasing and borrowing by the country should be included in the list of public sector facilities to further analyze how products and incomes are cycled.

The expenses that the population makes when paying taxes to the state budget are partially compensated by them through the payment of funds in the form of transfer payments. Without taking them into account, we will get the amount of taxes in its pure form.

When there is a budget deficit, the state covers it in the financial markets through loans. That is, it sells securities to both financial intermediaries and the general public.

If taxes are lowered, this will provide an incentive to increase savings and consumption, and this, in turn, will have a positive effect on the growth of the national product. An increase in government purchases also serves as an incentive for him, since it raises the level of income from the sale of goods andservices (in the event that wages increase).

Among the instruments of government influence on the circulation is monetary policy. It generally means the actions of the authorities aimed at changing the amount of money that is in circulation.

The cash flow model is a closed economic system that does not show connections with the outside world. It will have a much more complex structure if monetary relations are added to its elements, which are based on international relations: exports and imports of services and goods, loans and credits conducted between countries, purchases and sales of financial assets on an international scale.