What is Money and What Important Function Does it Perform

Money and its Function


Definition of Money

According to R.P Kent


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


According to D.C Colander


“Money is a fanatical asset that makes the real economy function smoothly by serving as a medium of exchange, a unit of account and a store of wealth”



According to coulborn


“Money is a means of valuation and of payment”


As we read in definitions money used as medium of exchange and standard for measuring value for the economy. The economic development, which we see in different sectors like trade, commerce, industry, is possible only due to the presence of money.


The modern economists fully recognize the significant economic role of money in the capitalist c a d centrally controlled economy.


Role of money in Capitalistic economy


1. Increase consumption


With the he p f money the consumption process famous in the market, because with money human being are able to buy and sell goods according to their needs and wants, after the utilization process human want become satisfied. On the other hand there is facility of consumption according to human wants in barter system.

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2. Easy Production


In barter economy the production of goods so much difficult, because problem of raw material, hiring labour, and after it selling output of the goods. But now with the evolution of the money production process is easy, with money availability of factor of production (land, labour, capita, and organization) is possible.And finding out the cost of goods in term of money no more problems.


3. Facilitates exchange Transaction


In barter system exchange of goods according to demand of different people so much difficult, due to lack of common measurement. But now with the help of money these problems removed. Now goods are exchanged according to demand of the user with the process of sale and purchase.


4. Equal distribution of national income .


In barter economy there is no concept of distribution of national income because people are produ ed good as per their need and no concept of saving and income etc. now currently we can check equally share of four factor of production i.e. rent of land, wag s for labour, interest on capital, and profit on entrepreneur is paid in term of money.

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5. Public finance


Money is an important tool in the field of public finance; with the help of it people can invest their finance in different sectors, after it human activities increase due to this financer got the benefit in the shape of profit after increasing the level of product in according to consumer needs.



6. Developed Banking system


With the help of money, economy is able to develop the banking sectors. Due to this peoples enhance their saving and got the interest on their saving from the banks. On the other hand in barter economy there is no concept of saving and investing.



7. Determination of prices.


The capitalistic economic system, which is followed by a large number of countries, is based on price mechanism and price mechanism depends on the existence of money. The prices of any commodity easily calculate with the help of money.



8. Enhance saving and investment


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When different person receive their income from different sectors in the form of money. After spending the money on their basic needs some person save there income for future condition, as well as some of them invest it to their business. After it they got the benefits in shape of profits. On the other hand in barter economy there is no concept of saving and investment.



9. Capital formation


It is a process of increasing physical and human capital of a country through best utilization of resources. With the help of money we can increase the quantity of capital, as per industry needs.


10. Monetary policy


The monetary policy gives momentum to the economic activities. It can only be formulated and implemented in money economy.


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