Define Money and Discuss its Functions

Money and its Functions




By R.P Kent


“Money is anything which is commonly used and generally accepted as a medium of exchange or as a standard of value”


By Marshall


“All those things which are, at any time and place, generally current without doubt or special enquiry as a means of purchasing commodities and services and of defraying of expenses”



By Geoffrey Crowhter


“Anything that is generally acceptable as a means of exchange (i.e. as means of settling debts) and at the same time acts as a measure and as a store of value”



Functions of money


Primary Functions


Medium of exchange


Now a day’s money is used as a medium of exchange. With the help of money we purchase goods and commodities according to our demand at any time. And money also used for the payment of goods and services. We can simply say money act as medium of exchange between purchaser and seller.



A standard of value


Money used as standard value; we can measure the units in terms of money. Only specific goods can not measured like love, care, and respect etc, other wise every thing is measured in term f money.


Price can be settled of good and services with the help of money A store of value

To store the perishable commodities for a long p riod of time is very difficult. Now a day’s money has remov d this problem. We can easily store for a long period of time.

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A standard of deferred payment


Money provides the facility of future payment, but in barter there is no facility of credit. Because there is no standard value for payment of credit. But money has removed this problem and we can pay future payments. As well as credit transactions also possible with money.


Secondary functions


Facilities productions



With the help of Money we can ensure the availability of factor of productions. If a person wants to start a business then with through money all factor of productions (land, labor, and organizations etc) available easily.


Easy consumptions


In barter system the main problem of consumption goods according to demand of peoples, because it require double coincidence of wants. Money removed this problem, and every can easily purchase commodities according to his demand,


Promotes savings and investment


It is easy to save and invest in terms of money. The establishment of big projects absorbing huge investment can be possible only due to the dynamic role of money.


Enhance trade activates

Money promote trade activates by serving as a medium of exchanging making exchange of goods easy.

Facilitates distributions of rewards


With the help of money we easily distribute the rewards. Its helps us in finding the correct value of goods produced and the contribution of each factor of production to the production process. It thus becomes a base for the disturbing for rewards among the contributing factors.

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Enhance capital function


Injecting more and more funds in the form of money can increase capital formation required for the development of an economy.


Ensure fair distribution of income


Money ensures fair distribution of income through progressive taxation system, which can only be implemented in money economy.


Easy borrowing and lending


Borrowing and lending activities have become easy which easy which otherwise were diff cult in barter economy. Banks create credit on the basis of money deposits they receive



Contiegent functions


Distribution of national income



Money helps us in the fair distribution of national income among factors of production.


Credit creation & contraction


The process of credit creation and contraction by commercial banks depends upon cash reserve, which they maintain from money deposits of the accounts holders.



Equalizer of marginal utilities and productivities


Money enables consumers to get maximum satisfaction through the law of equi-marginal utilities. Similarly the producer can get maximum profit by equalizing the marginal productivities of different factors of productions.


A liquid asset


Because of having the quality of general acceptability, the households and businessmen keep it with themselves to meet the current domestic and business requirements. Further, it is easy to hold it and the holder faces no problem of its depreciation as in case of goods. So it serves as a liquid asset.

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A Guarantor of solvency


A trader always keeps sufficient ready cash to meet the obligations. If a trader or a company fails to meet the obligation, when fall due, it is said to be insolvent irrespective of its asset and liabilities statement. Similarly, banks keep cash reserves to pay their depositors usually at a moment notice. Therefore, we can say that it serves as a guarantor of solvency.





In barter economy there were so many problems f exchange and transaction according to consumer wants, because their was no any standard value of measurement. But money has removed all the problems and as well as facilities the consumers. Businessmen can exchange goods and services according to th ir customers demand. After this when consumer is satisfied on the behalf of supplier then economic growth is starting day to days.


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