Contingent Functions of Money, Contingent Functions of Money
Contingent Functions of Money: Money is an important and indispensable element of modern civilization. In ordinary usage, what we use to pay for things is called money. To a layman, thus, in India, the rupee is the money, in England the pound is the money while in America the dollar is the money. But to an economist, these represent merely different units of money. check out Contingent Functions of Money
Contingent Functions of Money
Prof. Kinley has mentioned four contingent functions of money. These functions are as follows
Directs economic trends : Money directs idle resources into productive channels and there by affects output, employment, consumption and consequently economic welfare of the community at large.
Basis of Credit: In present days, the use of credit money like Cheque, Draft, bill of exchange, Promissory Notes is expanding widely. The credit instruments are issued on the basis of cash reserve. The credit instrument like Cheque is issued on the basis of money deposits. Hence, money is a basis of credit.
Distribution of National Income: The national banks also create credit on this basis. Income is produced by the joint efforts and coordination of different factors of production. This national income is distributed among the factors in monetary terms. The contribution of all factors is calculated in monetary terms. The distribution of production among factors would be difficult in the age of modern specialized labour in the absence of money.
Smoothens transformation of savings into investments : In a modern economy, savings and investments are done by two different sets of people – households and firms. Households save and firms invest. Households can lend their savings to firms. The mobilisation of savings can be done through the working of various financial institutions such as banks. Money so borrowed by the investors when used for buying raw materials, labour, factory plant etc. becomes investment. Saved money thus can be channelised into any productive investment.
General Form of Capital: Money works as a general form of capital. In present times almost all wealth or capital are kept in the form of money. This increases the liquidity and mobility of capital.
Maximum Benefit: People derive maximum satisfaction from own income by the help of money. According to law of equi-marginal utility, people derive maximum satisfaction when they spend by making marginal utility equal in all goods. People spend money to make marginal utilities of all commodities equal and derive maximum satisfaction by the help of money. Likewise, the producers also spend money in different factors so as to make marginal productivity of all factors equal. This increases total output and yields maximum benefit to the producers.
As encouragement to division of labour : In a money economy, different people tend to specialise in the different goods and through the marketing process, these goods are bought and sold for the satisfaction of multiple wants. In this way, occupational specialisation and division of labour are encouraged by the use of money.