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Money Functions Lecure (1)

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2 views

Money Functions Lecure (1)

Uploaded by

Yash Dubey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 32

“The most difficult subjects can be

explained to
the most slow-witted man if he has not
formed
any idea of them already; but the
simplest thing
cannot be made clear to the most
intelligent man
if he is firmly persuaded that he knows
already,
“Labour was the first price, the
original
purchase - money that was paid for
all things. It
was not by gold or by silver, but by
labour, that
all wealth of the world was
originally
purchased.”
Money is an information system
we use to deploy human effort.
Michel Linton
What is money?
Cowrie Shell or Money?

● Is this an image of a cowrie shell or money?


● The answer is: Both.
● For centuries, people used the extremely durable cowrie shell as
a medium of exchange in various parts of the world.
What the world would be like without money?

Barter - trading one good or service for another, without using money.

Double coincidence of wants - a situation in which two people each want some good or service that the other person can
provide.
Amber Leather
Breads Mats
Cowries Nails
Drums Oxen
Eggs Pigs
Feathers Quartz
Gongs Rice
Hoes Salt
Ivory Thimbles
Jade Umiaks
Kettles Yarns
Zappozats
Money as a “thing”..

Money is what money does

Money as a social phenomena


Money is any item or verifiable record that is
generally accepted as payment for goods and
services and repayment of debts in a particular country
or socio-economic context, or is easily converted to
such a form.

The main functions of money are distinguished


as: a medium of exchange; a unit of account; a
store of value; and, sometimes, a standard of
deferred payment. Any item or verifiable
record that fulfils these functions can be
“..the God of all commodities.”

Karl Marx
“Money is not a commodity because it has no necessary physical
properties. But because of its utility as a measure of value and by
artificially constraining access to it, we are easily led to perceive it as a
scarce thing or commodity.

Money is not a store of value because it cannot “store” the physical


properties that give goods and services their value. But because of its
function of annotating value, it can be used in agreements and
obligations that serve to measure goods and services to be redeemed
in the future.

Money is not a physical “medium” of exchange because it has no


inherent physical functions. But because it is a record of value it can
facilitate the realisation of certain transactions.”
 Money as a medium of exchange
 Money as a standard of value
 Money as a unit of account
 Money as store of value
 Money as a standard of deferred payment

Greco, Thomas (2013), money, understanding and creating alternatives to legal


tender, Chelsea Green Publishing CO

Money can only record a measure of value but it can never be the
value it records.
Money VS currency?
What is currency?
Greek drachma of Aegina. c.700 BCE.
Money VS Currency?
Money Currency
All functions (namely store of Exchange function
value)
All currencies (past and Money in current circulation
present) and all units of (etymology)
account and stores of value
Legal tender All types
A currency is a system of money, in any
form, when in actual circulation as a mean
of payments.

Currencies can take the form of:


 Complementary currencies
 Local currencies
 Alternative currencies
 Official currencies (legal tender)
Who issues and controls What backs Positive Money UK
the money supply? money? vision

People
Commodity Cash (notes
Powered
Money money and coins)
State/Gov.
Credit (Fiat) Central bank
Powered
Money money reserves
Privately
Acknowledge Commercial
Powered
money money money
Commodity versus Fiat Money
● Commodity money - an item that is used as money, but which a

● Commodity-backed currencies - dollar bills or other currencies

● During much of its history, gold and silver backed the money sup
Commodity versus Fiat Money

● Now, by government decree, if you owe a debt, then legally spe

● Fiat money - has no intrinsic value, but is declared by a govern

● The only backing of our money is universal faith and trust that t
A Silver Certificate and
a Modern U.S. Bill

● Until 1958, silver certificates were commodity-


backed money - backed by silver, as indicated by
the words “Silver Certificate” printed on the bill.

● Today, The Federal Reserve backs U.S. bills, but as


fiat money (inconvertible paper money made legal
tender by a government decree).
“GOOD MONEY MUST HAVE SEVEN
CHARACTERISTICS”
(1) It must be durable, which is why we don’t use wheat or corn
or rice.
(2) It must be divisible, which is why we don’t use art work.
(3) It must be convenient, which is why we don’t use lead or
copper.
(4) It must be consistent, which is why we don’t use real estate.
(5) It must possess value in itself, which is why we don’t use
paper.
(6) It must be limited in the quantity that is available (scarce),
which is why we don’t use aluminum or iron.
(7) It should have a long history of acceptance, which is why
we don’t use molybdenum or rhodium.
The new characteristics of
“good/positive money”

(1) Democratically designed and managed


(voluntary acceptance)
(2) Grounded and connected with the real
economy and a fair sense of value
(3) It must be convenient
(4) It must be stable and speculation-proof
(5) Sufficient, neither scarce nor abundant
(6) Adequate/fit for its functions
(7) Appropriate scale
Functions of Money
• Money Supply Measures

Common money supply measures are:


The Monetary Base
M1
M2
M3
Functions of Money
• Money Supply Measures

The monetary base is:


Bank reserves + Currency in the Hands of
the Non-bank Public.
Bank reserves are funds held by banks that
can be loaned out.
Currency includes paper money and coins.
Functions of Money
• Money Supply Measures

M1 = Currency + Traveler’s Checks +


Demand Deposits + Other Checkable Deposits.

M1 contains forms of money that you can use


to buy common products at groceries,
department and other stores.
Functions of Money
• Money Supply Measures

M2 = M1 + MMMFs + Short Term CDs + Small


Time Deposits

MMMF = money market mutual funds (a form of


savings).
CD = certificate of deposit (savings with a fixed
interest rate)
Small time deposits = money in small savings
accounts.
Functions of Money
• Money Supply Measures

M3 = M2 + Large Time Deposits + RPs + Eurodollars +


Institution held MMMFs

Large time deposits = money in large (corporate) savings


accounts.
RP = repurchase agreements (savings with collateral in
the form of bonds).
Eurodollars = dollar savings in foreign countries.
Topic for debate. Comment on the following
sentences:

“Evil is the root of all money”, Nobuhiro


Kiyotaki and John Moore

“..the love for money is the root of all


evil.”, New Testament

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