Money as a medium of circulation

About money as a medium of circulation, few can say anything intelligible. What are they in this role? What functions do they perform from this point of view? What economic categories can they influence? Here is an incomplete list of issues that will be addressed in this article.

Designation

Let's look at what a medium of circulation is. This is the name of the function in which money (D) is an intermediary during the exchange of goods (T). Thanks to this, their circulation is ensured. In this case, this function works as follows: T-D-T. In comparison, barter looks like a TT. Thanks to the availability of money, this commodity metamorphosis receives a fundamentally new quality: it splits into two processes that are separated from each other: sale and purchase. And many often have the question: how is this possible? Doesn’t a person come to the store when they become their simultaneous participant? No, that first impression is misleading.

Sale and purchase

Let's digress and pay attention to these processes in order to better understand money as a medium of circulation. First, a person works and creates a specific product or service. For it, he receives a certain amount of monetary units. Thus, at first he becomes a participant in the process in which he initially sells his labor. As a confirmation of this, a person receives monetary units. Then he goes to the store, where he buys himself food and other necessary things, while presenting evidence that he can claim them. The seller has goods or provides services and, in order to earn a living, sells his product. This explanation is, of course, simplified, but can nevertheless be considered as a simple example.

The implementation of commodity metamorphosis

So, we continue to talk about how money performs the function of a medium of circulation. First, let's focus on barter. With it, commodity metamorphosis is carried out completely. After all, both participants in the interaction achieve their goals - they receive the necessary consumer value. Whereas money is a measure of value, a medium of circulation, and their use means that not a single owner of the goods has achieved his goal. There is potential, but when it will be realized is a big question. There are also risks here that one seller will not buy anything from the second, and commodity metamorphosis will not take place at all. This may serve as prerequisites for a possible marketing crisis. But nevertheless, due to the fact that commodity metamorphosis is divided into two independent processes, there are several positive nuances that indicate the usefulness of this mechanism. Here we will consider them now.

Money as a Means of Circulation / Exchange of Goods: Benefits

If we carry out the detailing, then many points could be cited. But for an informational article, they were generalized. Therefore, we suggest that you familiarize yourself with three points where the main advantages are indicated:

1. There is an opportunity to retain money, which leads to a heap of value in its absolute form. Due to this, production is expanding, which goes beyond simple commodity exchange. This, in turn, has a positive effect on the development of the economy.
2. Eliminate the narrow boundaries that barter has. So, the owners of goods with him there are certain problems with the implementation. They lie in the difficulty of selecting the necessary products, as well as their quantity. So, for example, a blacksmith could exchange a horseshoe for a bag of grain. But he wants it to have 100 kilograms, and people have only 75. And until a consensus is found, a lot of time will pass. And we have money - a means of circulation / means of payment. Thanks to them, we can choose the necessary goods on an alternative basis. Such a mechanism helps to promote competition between different producers.
3. Money allows us to transfer our purchasing power to other markets or save them for the future. In general, they can be used for any desired purpose. Thanks to this, the development of entrepreneurial activity is stimulated, market relations are improved, and a number of other positive aspects arise.

How are the funds perceived?

They are the real embodiment of exchange value. So, the seller gives the goods, and in return receives money from the buyer. Note that it is not important in what form they are presented! So, money can be full (silver and gold coins), bills, in the form of checks, bills and so on. The important thing is that money is a medium of circulation. A means of payment of this type ensures the passage of goods or services from the producer to the consumer, after which they leave the sphere of exchange. But the money continues to participate in it!

Communications

So, money is a medium of circulation and helps to establish interaction. In the context of this, it is necessary to understand that a certain mass of them is always in circulation. It resists the amount of goods and services that can be sold on the market. Ideally, when considering this ratio at an arbitrary point in time, it will be possible to see that the mass of money in the amount is approximately equal to prices. If the situation is considered in a certain interval, then it is more complicated. So, it is desirable that the mass of money that is currently in circulation is less than the sum of the prices of goods sold. This parameter allows us to talk about economic activity and the financial situation of the country. For this, the coefficient of the velocity of money is calculated. The norm is considered if one unit for a year is spent several times. The higher the coefficient obtained, the better is the economic situation in the country.

Developmental role

Money as a medium of circulation contributes to the more rapid development of market relations. This, in turn, leads to qualitative changes in the mechanism of their implementation. When diverse and constant exchange relations are formed between various producers, this allows you to create the “backbone” of the economy. The presence of banks in this chain leads to an increase in mutual trust, and a qualitative improvement in ties leads to an increase in dependence. Therefore, no man-made shocks will occur abruptly and suddenly. Also, such a mechanism allows you to work on credit, so that the economy can longer maintain itself in a state of tone. At the very beginning of the article, a TD-T scheme was given. Now the TKT model is also very popular, where K is a loan. But this entails certain difficulties, which we will talk about now.

Modern problems of means of circulation

Initially, it should be noted that the greatest problems are created by the inability to rationally use the available resources. So, initially loans were created as a way to increase production when there is potential, but there is no money for its implementation. But those times are already in the distant past. Now loans are used to satisfy even the simplest requests. So, they can be issued on the phone at 10 thousand rubles or on some kind of instrument. In general, the amount could be collected in a month or two. But people refuse to follow this path, despite the fact that they have to overpay. This ultimately leads to what is called a crisis of overproduction. Indeed, at one point, the population simply does not have enough money to actively buy, and manufacturers have “bloated” production. Potentially, this can be avoided by educating citizens about financial literacy. And to demand from them (us) the highest quality of knowledge and the ability to apply them.

Where can I observe the active use of the function in question?

It is usually possible to meet a citizen in practice with the question considered in the article in retail, wholesale or international trade, while providing services to the population and other similar processes. But thanks to the gradual and confident penetration of loans, the role and influence of money is decreasing. This can be seen especially well in countries that have developed market economies. Regarding the Russian Federation, it can be said that due to the imbalance of the financial sector (high interest rates on the same loans, bureaucratic features), this is still rather weakly manifested. Also, the instability of the economy (an indicator of which inflation is) has led to the fact that commodity exchange is used quite actively. This is a step backward when considering the development of the functions of money.

Political Economic Nuances

If you look at the TD-D scheme, as well as at the practical implementation, you can see that money behaves as a special product. This consists in the fact that all products and services, after completing the purchase and sale process, leave the sphere of circulation. But the money - no. They continue to serve counterparty transactions. So that they do not lose their function as a means of circulation, they must constantly participate in transactional operations. If you do not use money as a measure of value, then they will also lose their importance. As a universal product, they allow you to evaluate the cost of services and goods from the position of both the buyer and seller.

Benefits and Limitations

Thanks to the use of this scheme, the social division of labor is deepening, because it becomes easier to overcome individual, temporal and spatial boundaries in matters of exchange of goods. It also allows business entities to reduce their transaction costs. This is possible due to the freedom of choice of location, as well as the time of the transaction. Thus, with the expansion of the range of goods that are on the market, the functional role of money as a means of circulation will increase. True, this process has objective constraints. One of them is inflation. Its high pace leads to an increase in the number and volume of barter transactions concluded by economic counterparties. Indeed, in this case, the money depreciates and can no longer provide equal purchasing power. Other restrictions are created during the formation and implementation of social policy in the territory of a particular state, when the aim is to rationalize consumption.

How does the function succeed?

How efficiently banknotes are used as a medium of circulation, as well as the degree to which tasks assigned to them can be implemented, can be judged by a number of factors:

1. Inflation rate.
2. Frequency of salary payment.
3. The level of development of cashless payments.
4. Forms of banknotes.

They all exert their influence. So, if the country has very high inflation, this leads to the fact that money is no longer used as an intermediary in the exchange of goods. In this case, the revival of barter seems logical. The contribution, development and implementation of cashless payment systems in all spheres of life is contributing here. They reduce distribution costs, thereby reducing the scope of application of money. Due to the fact that the population does not buy services and goods for cash, but using plastic cards, they already act as a means of payment here.

Conclusion

In conclusion, I want to pay a little attention to distribution costs. The use of the exchange mechanism considered in the article allows us to reduce time and also save effort. This is achieved due to the fact that there is no need to negotiate an exchange rate. This, as well as the possibility of standardization, led to the emergence and use of money as a medium of circulation. Of course, realities have a number of inaccuracies, and there are many problems, but gradually, as the social mechanism improves, they will all be eliminated and solved. In the future, we should expect that money will lose its value as a medium of circulation and will be of interest to us as an element of payment, which is simply impossible to do without (this function will probably never disappear). We can only wait, while making every effort that depends on us, so that this moment comes faster. Now money is a medium of exchange, a measure of value, a means of accumulation.