Cox: Anything which changes hand from one to another, and is readily acceptable for payment of debts and financial obligations is known as money.
Amacher, Ulberich, Chandler, Goldfield: An exchange commodity or medium of exchange for payment of goods and services
Friedman: Money is cash which people hold in their wallets (Empirical definition). A store of purchasing power (Practical)
Approach to define money
Conventional appraoch:
medium of exchange (solve barter)
measure of value (the goods and services, easier to compare the goods and items)
Chicago approach:
"Free market is the best way to allocate resources"
Monetary policy?
Gurley and Shaw Approach
Liquidity (basis of degree of substitutatbility)
Money is a stock of assets
Transactional
Precautionary
Speculative
Central Bank approach (advanced)
Check on currency supply
Fix interest rates
threshold on statutory reserve
...
Characteristics of Money
Homogenous: each unit is identical and interchangaeble ($100 = $100 notes). Widely accepted without any need for further verification
Universal Acceptance & Recognition: Strengthened by Govt Legal tender \(\to\) Trust and confidence
Portability: each to carry and transfer
Divisibility: Need to be fragmented into smaller unit, to cater to different nature of different types of transactions ($10, $100, $1 etc)
Recognizability: Design, Watermark, Holograms (similarity in each unit to bring trust)
Relative Scarce: Money is also scarce \(\to\) Circulation > Demand creates huge problem. (If so, it will not preserve its value... inflation \(\to\) worsens the econ)
Stability in Value: Money can be used as a store of value. Any Fluctuation in this value will worsen this feature.
Durability: Withstand wear and tear
Functions of money:
Primary
Medium of Exchange
Standard measure for valuing goods and services (solves the subjective valuation of barter)
Secondary
Standard for deferred payments (debts, due in the future. Purchase today, pay tomorrow)
Store of value (save and retrieve in the future, without losing its purchasing power. Save or spend)
Means of value transfer: Trade is made easy. Enables international trade and investments
Contingent
Highly liquid asset
Key of credit system
Banks led out a portion of their deposits
Create credit
Equalizer of marginal utilities and productivities
e.g. Price => Marginal utility of any product
Money used for payment of wage, rent and interest
Brings efficiency in the allocation of resources
Measurement and distribution of national income
A base for calculating value.
All components of national income (wage, profits, rent, interest) are expressed in terms of money.