The evolution of money

In conclusion, we briefly summarize the historical path of the development of money (Fig. 1)

Rice. 1 Types of money and their evolution

In the early stages of the development of exchange, money existed in a commodity form. At the same time, already in the traditional societies of the Ancient World and the Middle Ages, noble metals become money, and the ingots originally used for these purposes are gradually being replaced by coins. Paper banknotes, which have become widespread since the 18th century, initially coexisted with metal circulation. Moreover, the end of the XIX century. and the first decade of the 20th century. characterized by the triumph of the most perfect form of metallic circulation - this is the short era of the gold standard. At the same time, over time, paper and credit money became more and more widespread, while getting rid of its biggest shortcomings, primarily from acute inflationary instability. It was on their basis that modern money was gradually formed.

FROM economic point From the point of view, the history of money represents an evolution in the direction of ever more perfect performance of their functions and the greater cheapness of their use for economic agents.

The outlined historical path of the emergence and development of money indicates that money is special kind a universal commodity used as a universal equivalent, through which the value of all other goods is expressed.

Distinctive feature money is theirs absolute liquidity, ᴛ.ᴇ. the ability of money directly, in its primary, original form, without any transformations and without loss of value, to be a means of payment, settlements.

Requirements for money (Properties of money):

Acceptability (general acceptance);

Ease of use (portability, visibility, recognition);

Divisibility;

Storage capacity;

Reliability against counterfeit;

homogeneity (sameness purchasing power regardless of the type of money - banknotes, non-cash money or small change).

Money, whatever form it may take, has always performed the following features:

1. Money like measure of value (value) realizable blessings. In this function, money is used as a quantitative measure of the value of goods. The value (cost) of a commodity, expressed in money, is its price.

The cost measure function is implemented based on the price scale. With its help, the price of a product as an indicator of the magnitude of the value is converted into a market (or list price) price, expressed in the national currency.

2. The main function of money is to be medium of exchange (D "T) goods and services - involves the implementation of a market exchange at the time of the transaction. In this case, money allows resource owners and producers to be paid with a good (money) that can be used to buy any other good or service available on the market. Τᴀᴋᴎᴍ ᴏϬᴩᴀᴈᴏᴍ, money greatly facilitates the movement (purchase and sale) of goods, which brings benefits in the form of saving time, expanding the capabilities of the national economy, and also helps to avoid the inconvenience of barter exchange.

3. Money can serve means of payment that is, be a measure of deferred payments if they express the amount of future payments in monetary form. This may be in cases of selling goods on credit (that is, with a deferred payment of money), when paying rent for the use of land or property, paying taxes, paying other debts.

4. Particular importance has always been attached to money due to its function of storing value (value) or means of accumulation. At one time, theoretical economists considered it to be the main essential feature and qualitative characteristic of money, which makes it possible to distinguish money from non-money. In their opinion, paper money can perform the task of storing value very poorly. Subsequently, this function began to be given a slightly different meaning, considering money (primarily gold) as a means of creating treasures.

AT modern conditions money performs the function of accumulation because, after the sale of goods and services, they give their owner future purchasing power. In conditions of inflation, other things can serve as a means of accumulation, for example, jewelry, real estate, works of art, not to mention stocks and bonds. In the economic literature, there is a common term for their designation - assets that have liquidity, that is, the ability to act as a means of payment at any time. In a stable economy, money has the highest liquidity, as it is a universal means of payment.

5. Function world money , as a rule, is assigned to the most stable monetary unit.

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As mentioned above, different goods claimed the role of money as a universal value equivalent at different times in different territories. However, as a result, the final choice was made in favor of metals.
In the early stages of metal circulation, money was minted from a wide variety of metals, including iron, tin, lead, copper, silver, and gold. Their shape was also varied: bars, plates, ingots, wire, rings, metal powder. As a result of a long search, the optimal form of a modern coin for metallic money was chosen. It turned out that in this form, metal money is the least erased during circulation.
The word coin is borrowed from ancient Roman mythology. On the territory of the temple of the goddess Coins-Juno in the IV century. BC e. minted and kept the banknotes of ancient Rome.
Of the metals, in the end, preference was given to silver and gold, as they possessed properties that made them most suitable for the function of money.
Properties of noble metals: homogeneity, divisibility, portability, storability.
Uniformity means that two pieces of gold (or silver) that are equal in weight are indistinguishable from each other. Therefore, they measure the value of other goods better than, for example, two bulls, since in wildlife there is nothing exactly the same.
Divisibility means that precious metals, unlike living or fur money, are divided into equal parts without loss in value. Thus pieces of precious metal of equal weight and shape not only have the same value, but also measure the value of other commodities to the same extent.
Portability means that even small pieces of precious metals have a sufficiently high value and even in small quantities are suitable for measuring the value of other, including expensive goods.
Preservability means that precious metals do not rust or
deteriorate over time. For this reason, coins made of silver or gold are more suitable for long-term circulation and storage.
Despite these properties, metallic money was eventually replaced by non-metallic ones - signs of value printed on paper. Metal money, including gold coins, was erased during long-term circulation and ceased to be the actual equivalents of goods sold. As a result, metallic money was replaced by tokens of value, which took the form of symbolic money. Signs of value are characterized by a short period of circulation and a forced exchange rate set by the state.
The essence of money is manifested through the functions they perform.
K. Marx pointed out five functions performed by the money of his era - gold coins:
1) measure of value;
2) medium of exchange;
3) means of payment;
4) a means of creating treasures;
5) world money.
1. Money as a measure of value reflects the essence of money as a universal cost equivalent. They measure the value of all goods. This is possible because money itself is a specific commodity in which abstract social labor is embodied, that is, it has an exchange value. Commodities, in turn, are comparable, that is, qualitatively homogeneous and quantitatively commensurable, precisely as exchange values. Therefore, the measurement of the value of goods in money does not require their actual presence. Money, when it performs the function of a measure of value, can act as ideal, mentally represented.
The value of a commodity expressed in money is called the price of the commodity. However, money itself has no value, and the value of money cannot be expressed in itself.
To compare the prices of different goods, they are expressed in the same monetary units. In the era of the circulation of metallic money, this meant bringing prices to one scale.
The scale of prices is the weight of the metal, taken in a given country for monetary unit and serving to measure the prices of all commodities.
Between money. as a measure of value and money as a scale of prices, there are certain differences:
1) the measure of value is formed spontaneously, and the scale of prices is established by law;
2) gold is a measure of value in relation to all commodities, and as a standard of prices it is compared with itself;
3) the measure of value is the money commodity, the value of which changes depending on the change in the amount of labor necessary for its production, and the standard of prices is a fixed weight of the metal, which does not change due to the change in the value of the metal itself.
After the cessation of the exchange of credit money for gold, the official price scale lost its economic sense. The initial coincidence of the scale of prices with the weight content of the metal was reflected in the names of many monetary units: the French livre, the British pound sterling, etc.
In modern Western economic literature, the function of the measure of value is called the function of the unit of account.
Modern money printed on paper, unlike gold coins, has no use value. At the same time, withdrawn from circulation gold coins can be melted down and used for other purposes: gold as a metal is always in demand, and modern banknotes, for some reason declared invalid and withdrawn from circulation, can hardly be used anywhere.
If the value of a gold coin (as a piece of gold) is appropriate to compare with the value of other commodities, then the canceled banknote has no use value, so using modern money, which are in circulation, you can only measure (calculate) the value of one or another product. Thus, modern banknotes serve only as units of account for measuring the value of goods.
The unit of account is the national currency used to measure the value of goods.
In countries with a high level of inflation, which leads to the loss of almost all functions of money, foreign currency is often used as a unit of account. This is called the currency substitution effect. Absolute displacement national currency foreign, of course, is not allowed. As a rule, the law on the country's monetary system states that only the national currency is recognized as legal tender in the country. But at the private level, economic entities evaluate the cost of goods and, if possible, attract, stir cash and also carry out settlements in foreign currency.
There are two legal forms of limiting the functioning of money as a unit of account - barter trading and coupon trading.
Barter trade is the exchange of goods without the movement of money. Often barter is identified with natural exchange, but this is wrong.
In-kind exchange is a forced direct exchange of goods, in which money falls out of the C-D-T chain ... Such an exchange leads to inflation in its extreme manifestation, when money ceases to perform all its functions, which leads to the destruction of commodity-money relations.
An exchange in kind - a forced direct exchange of goods - takes place under the following conditions:
1) commodity-money relations are destroyed;
2) the monetary system is destroyed.
A barter transaction is an exchange of goods for equal amounts. Such transactions are carried out by mutual agreement of trading partners in a stable monetary system, when national monetary units perform their functions and commodity-money relations exist. Barter deals save money on banking service trade deals.
Barter transactions take place under the following conditions:
1) commodity-money relations exist;
2) the monetary system is stable.
Trading with the help of coupons, special coupons is an attempt to plan the consumption of certain goods. The reason for trading with coupons can be either a shortage of certain goods; or a targeted policy of commodity producers.
In both cases, coupons are issued that allow you to purchase certain products.
2. Money as a means of circulation. After the value of the commodity has been expressed in ideal money, which takes place even before the circulation process, there follows the transformation of the commodity into real money, that is, its sale, which takes place directly in the circulation process. Commodity circulation, mediated by money, means the purchase and sale of commodities: the sale of a commodity means its exchange for money, and the purchase means the exchange of money! for goods.
In general, commodity circulation can be represented formula T-D-T, from which it follows that money in commodity circulation acts as an intermediary or performs the function of a medium of circulation.
The function of money as a measure of value differs from the function of money as a medium of circulation:
1) the measure of value is ideal, and the medium of circulation is real money;
2) only valuable ones serve as a measure of value, while defective and paper money can also serve as a medium of circulation.
The functioning of money as a means of circulation helps to overcome the individual, temporal and spatial boundaries that are characteristic of the direct exchange of goods for goods.
individual boundaries. In commodity circulation mediated by money, there is no need for the mutual coincidence of the needs of the buyer and the seller. The seller sells his goods and can buy any other goods with the proceeds. In a natural exchange, a transaction can take place only if the needs for the supposedly exchanged goods mutually coincide. The seller exchanges his product for another only if he needs this product.
Time limits. In the circulation of commodities mediated by money, the coincidence of purchase and sale acts in time is not required. The seller sells his goods, and with the proceeds he can buy the goods he needs at any other time. In a natural exchange, the seller sells his commodity while simultaneously acquiring another in exchange for it.
Spatial boundaries. In the circulation of commodities mediated by money, there is no need for the spatial coincidence of acts of purchase and sale. The seller sells his goods in one market, and with the proceeds he can buy the goods he needs in another market. In a natural exchange, the seller sells his commodity and receives another in exchange for it in the same market.
Thus, the functioning of money as a means of circulation contributes to the development of commodity exchange.
3. Money as a means of payment. Goods are not always sold for cash. Most often, firms sell their goods on credit, that is, with a deferred payment. After the period specified in the promissory note, the debtor pays the due amount of money. Thus, performing the function of a medium of exchange, money serves as an intermediary in the exchange of goods, and performing the function of a means of payment, they complete the exchange process.
Money performs the function of a means of payment not only for the sale of goods on credit, but also for the repayment of other obligations. At non-cash payments ideal money can serve as a measure of value; in cash settlements, money should only be real.
The function of a means of payment is performed by inferior, usually real money, and in case of mutual repayment of debt obligations - ideal.
In modern Western economic literature, the functions of money as a means of circulation and a means of payment are not differentiated.
K. Marx distinguished these functions in order to indicate the moment of occurrence commercial loan: the payment is late for the transaction of the sale of goods.
4. Money as a means of creating treasures. Money. Being a universal value equivalent, in exchange for which another product can be purchased, they themselves become the embodiment of social wealth. The desire to possess wealth in its general form induces commodity owners to accumulate money. In this case, the act of selling one commodity is not followed by the act of purchasing another commodity. Money is withdrawn from circulation and performs the function of creating treasures. At the same time, money must be both valuable and real.
In modern Western economic literature, the function of money as a means of creating treasures is called the function of money as a means of savings (accumulation).
Money as a means of savings (accumulation) ensures the development of production and its modernization.
World money. The function of world money differs from the functions as a medium of circulation and a means of payment in domestic market. The fulfillment of the function of world money implies that money serves:
1) universal international means of payment;
2) universal international means of purchase;
3) the universal international embodiment of public wealth.
Money acts as an international means of payment in settlements on international balances. If the payments of a given country for a certain period exceed its cash receipts from other countries, then the country exports gold to pay off obligations.
Money acts on the world market as an international means of purchase in the event that the equilibrium of the exchange of goods between different countries is disturbed and one of them is forced to import certain goods from other countries, paying for them in cash.
Money serves as the universal embodiment of social wealth, as well as a means of transferring this wealth from one country to another. With the help of money as a universal value equivalent, you can get any product. Because of this, money itself becomes the universal embodiment of social wealth. The transfer of this wealth from one country to another is possible in the following cases:
1) the state that won the war collects monetary indemnity from the defeated country;
2) one country provides another country with a loan.
The function of "world money" arose in pre-capitalist formations, but did not receive proper development due to the lack of a world market and the underdevelopment of international credit. This function was most fully developed under capitalism, when a world market arose, linking all countries together.
In modern Western economic literature, the function of "world money" is not considered.
K. Marx lived in the era of the gold coin standard and pointed to the above functions of money in relation to gold coins, that is, contemporary money.
The function of "world money" in the original sense was performed only by gold coins during the period of the gold coin standard.
Gold coins circulated without restrictions, for their use in international settlements no conversion was required. Entering the world market, gold coins, in the words of K. Marx, "dumped their national uniforms" and were accepted as payments by weight. In conditions when gold performed all the functions of money, monetary and monetary system- national and world - were identical. In the context of all other monetary systems it is possible to talk about the fulfillment of the function of world money by money only conditionally.
In modern economic literature, modern "world money" refers to the means of international settlements that serve all types of international relations.
Before the advent of the International Monetary Fund (IMF), such funds were non-monetary gold (gold bullion, gold reserves) and foreign (hard) currencies. Together they were called and are called gold and foreign exchange reserves and are at the disposal of central banks of issue. With the advent of international economic organizations, including international regional economic organizations, the list of international means of payment was replenished with collective currencies and the country's reserve position in the IMF.
Thus, the modern structure of the means of international settlements, which are also called international liquid reserves or briefly international liquidity, includes the following elements:
1) non-monetary gold;
2) stocks of foreign freely convertible currencies;
3) collective currencies, including:
> special drawing rights (SDRs);
>“¦ Euro-denominated holdings:
4) the country's reserve position in the IMF.
Obviously, none of the modern means of international settlements listed above can circulate as freely as gold coins circulated in the era of the gold coin standard, which means that it does not fully fulfill the function of world money, as gold coins did.
In its circulation, any of the above means of international settlements faces any restrictions established either for certain categories participants in transactions, or by the terms of transactions (table 5).

Very often, when it comes to money, we all turn into brilliant politicians who know what, who needs to do and when, so that every citizen of our country has a solid salary and a decent pension. In fact, all these disputes are worth nothing, because, as the old saying goes: “If you are so smart, then why aren’t you rich?”. The answer, as always, is on the surface and it often seems to us that we know how to handle money, but in fact this is not so. We know how to make money and how to spend it, but we know absolutely nothing about budgeting, and the word “savings” for us means a couple of thousand rubles hidden under a mattress. The truth is that in order to be financially independent and not live paycheck to paycheck, you need to know some basic requirements for money, which one way or another is constantly in your hands.

So, first of all, you should learn to understand what makes sense in your life, and what is useless and even harmful. For example, a game console that you spend 200-400 rubles a month on helps you relax in the same way as drinking friends calling you to a bar, but it will do it ten times cheaper. And if you replace a computer or set-top box with a book, you will also be able to save on electricity. And this is just a single example when you can replace an element of your leisure time with a cheaper and more effective one.

As soon as you start to figure out what's what, you will understand that you need to keep a record of all the receipts and expenditures of money that turn around in your life. This is the main requirements for money that you want to keep, instead of spending on unnecessary things or a hangover in the morning. Follow the following simple rules bookkeeping and soon you will be able to see where all your free money is going: first, calculate how much you or your family needs for food per week. Make a grocery list and calculate its cost. In no case do not try to break down the cost of food by day, because with daily trips to the store you will spend much more money than buying every one or two weeks. Secondly, install meters for gas and water. If you haven't done this yet, then most likely you simply don't know that your bills will be reduced by two to three times thanks to the counters. Do you like to pay the state, which already takes the lion's share of your salary in taxes, also an additional 2-3 thousand every month literally for "live great". And finally, thirdly, try to get rid of bad habits, as well as the craving to eat in cafes and restaurants. And no matter how profitable it seems to you - even the cheapest dish in the most ordinary cafe is two times its cost, from which we can conclude that by cooking yourself, you will save two to three times more money.

So, summing up all of the above, we can say that the main requirements for money are caring for them. Moreover, you need to be careful not so much about the money itself, but about what you spend it on. Take a look at your life from the outside and decide what you can save on and what is a vital necessity for you. This is the only way you can cut costs and learn how to manage your finances properly!

Financial literacy is impossible without understanding the essence of money and its properties. This topic is interesting and at the same time obligatory for every person who wants to learn how to deal with them and understand what laws they live by. We encounter them every day and yet know absolutely nothing about them. Money can be called the international language of the world market, which is used by people from all over the planet. Understanding the functions of money is the first step to financial literacy. If you know the theory and understand the basics, you are armed with a tool that will help you learn how to manage them competently. Let's look at the history of the appearance of money, their functions and essence.

Essence of goods and money

Money is impossible without goods. Therefore, first of all, you need to get a simple answer to the question: what is a product? A product is any product that meets three basic requirements:

• Produced for sale
• Satisfies specific needs
• Has a cost

In this regard, the essence of money lies in the fact that they serve as an element and an integral part of economic activity society, relations between participants in the production process. Money is also a commodity (only universal) and therefore has the same properties that are indicated above. However, they also have a number of unique properties. So what is money?

According to Big Russian encyclopedia:

Money is a specific product of maximum liquidity, which has several properties that are their essence. Maximum liquidity is characterized by the fact that you can easily exchange your money for goods, while the reverse is a rather problematic process for you. The closest synonyms for the term liquidity are marketability and marketability. In addition, money:

• It is a tool for the exchange of goods and services
• This is the universal equivalent of the cost of other goods and services
• This is a kind of certificate of the social nature of the private labor of the commodity producer.

Basic functions of money

With each new century, money acquires new specific functions, but at the same time, some of them are universal, which we will consider.

• The measure of value. Money is able to change and measure the value of goods, therefore it is a standard for them. The form of manifestation of the value of goods is the price. Price is the value of a product expressed in terms of money. Since at the very beginning of its existence money had an independent value (silver and gold contained in them), then initially the value of commodities was correlated with the value of money through the ratio of social labor spent on their production. Currently, with loans electronic money and funds have changed a lot.
• Exchange tool. This is the original function of money, it means that you can exchange your goods for money and then use them to purchase the goods you need. Over the millennia, dozens of others have been added to this main function, completely changing the economic picture of the world.
• Instrument of payment. This function arose in connection with the development of credit relations. In this case, there is no reciprocal movement of money and goods. If you took the goods on credit, you will need to repay the amount of the debt, expressed in money, and not in goods. Also, this function is embodied in wages or payments to the budget.
• medium of exchange. In this case, money acts as an intermediary in the circulation of goods. And this is where liquidity plays a key role. You can sell your product today and buy raw materials whenever you want. A person can buy the goods he needs in one place, and sell it in a completely different place - that is, money overcomes spatial and temporal restrictions.
• means of accumulation. Not all money can and should be put into circulation immediately. A person can be engaged in accumulation for a sufficiently long period of time, after which he can make some expensive purchase or order a service. The downside is that inflation is possible, which means that the value of money will decrease.
• world money. Trade and loan relations are established between the countries of the world, which led to the emergence of the so-called world money. They function like a universal means of payment. There are currently five currencies: the US dollar, the euro, the Japanese yen, the British pound and Swiss frank. From October 1, 2016, the Chinese yuan will also become such a currency. However, people have learned to convert electronic money into 17 currencies, which greatly simplifies the process of commodity-market relations between countries.

As it was said, the functions of money are constantly changing and supplementing, however, the above ones have been universal for a long time. In connection with the emergence of new electronic money, as well as cryptocurrencies, new functions may soon be invented and the essence of money itself will change along with them.

The history of money

Before the advent of money, the economy was very different from the modern one and functioned on the basis of debt and gift.

The gift economy is a system of social organization in which goods and services are given free of charge ("The Gift Economy" by David Cheal). Some principles and elements of donation exist to this day, for example, in the form of information. According to these principles, there are torrent trackers, and with some exceptions, science. In this case, reputation and social position are acquired, which in the information world sometimes mean even more than the amount of money that can be earned by selling this information. The desire to accumulate resources and information in the modern world is considered a sign of weakness and greed.

Then, in different regions of the world, people began to use various things as money:

• In many countries it was furs and skins of animals, cattle.
• On the islands of Oceania, shells and pearls served as money.
• In New Zealand, stones with holes in the middle were used as money. The cost of such a stone was formed based on the size, material, and also on its history. Some stones were up to 3.6 meters in diameter.
• In Kievan Rus, despite the monetary unit hryvnia, honey, salt, livestock and animal furs were used.
• Later, in the form of money, people began to use ingots, bars and stumps of metals.

As a result, the role of money passed to metals. The function of money was performed by bronze, copper, iron and silver. Over time, they began to use whole ingots of metal, which brought significant inconvenience, because they had to be constantly weighed, as well as to determine the sample. Therefore, in order to avoid fakes and underweight, the metal began to be marked with a public stamp, which led to the creation of a minted coin and a mint.

Minted coins became popular around the 7th century BC. They were convenient to store, their weight was quite small, and it became more convenient to pay due to their exact cost.

The first paper money appeared in China in 910. And already in 1661 the first issues of banknotes appeared in Stockholm. Around the same time, banks began to issue their own certificates, which confirmed that the money was in the banker's custody. Over time, these certificates themselves became money and it was not necessary to go to the bank in order to receive a certain amount of money.

As we can see, the very creation and development of monetary units was a revolution in market relations and it was essential. People could create their goods faster and buy raw materials for production. We also note the evolution of the physical weight of money - from three-meter stones to paper ones. In our time, there electronic currency and now the money has come from where it came from, from the minds of the people.

Time value of money

During the existence of money, people have formed many concepts and theories about them. One of the concepts was proposed as early as 1202 by a famous mathematician. He formulated the golden rule of business: The amount received today is greater than the same amount received tomorrow..

All this is known to us now. The value of today's money is higher than the value of the same amount received in the future and even tomorrow. That is why (though not only) banks require interest on their loans.

From all of the above, there are two extremely important consequences that any person who wants to become more financially literate needs to realize:

1. It is always worth considering the time factor when conducting financial transactions.
2. Summation money values relating to different time periods is incorrect.

In order to understand what is the value of money over time, you need to calculate the value of money. This is what discounting was invented for.

Discounting- this is an estimate of the cost of the future flow of payments based on the different value of money received at different points in time (“Fundamentals of Stochastic Financial Mathematics”, Shiryaev A.N.). That is, simply put, discounting will help you find out what is the difference between your profit of 100 monetary units in a year and today. Also, keep in mind that it's not just about inflation, but also about the fact that if you get 100 monetary units today, you can invest them and get additional income even taking into account the loss of value of the amount over time. The calculation of the present value is important, for example, who want to understand whether their profits will depreciate so much that it is easier to invest in something more profitable and not so long in time. You become poorer if you receive the same salary for months or years and spend it on your daily needs.

What does the discount rate depend on? There are five main factors:

• Return on alternative investments
• The cost of credit
• Inflation
• How long do you expect to receive future income?
• The risk associated with this future income

For this reason, investments are in a good way save and multiply equity. Investing money in a bank allows you to essentially only save your money. It is also possible to increase your capital by putting money in the bank, but this becomes possible only in the case of a long term and compound interest. However, remember that in this case there is a serious risk that the bank will burn out and you will lose the entire amount. And at best, return only part of it. Compound interest is a good way to generate income because interest is also charged on interest. There are cases when relatives became millionaires only because their ancestor invested a small amount money to the account, and a century later the contract was discovered. Of course, the bank had to pay a huge amount, but it received publicity for its durability and attitude towards customers.

We will not give complex discounting formulas here, but we will give a simple example. Let's say in one year you expect a profit of 121 monetary units at a discount rate of 10%. Then the cost of your future 121 units will actually be 110 units -121/(1+0.1). If in two years, then 100 - 121 / (1 + 0.1) 2. This is the value of your money over time.

As we wrote above, inflation also affects the value of money. Let's consider it in more detail.

Inflation

There are many different definitions of this term, so we have tried to give the most simple, accurate and understandable.

Inflation- this is the depreciation of money, as a result of which the prices of goods and services, if they remain at the same level, then become less affordable. Inflation should not be confused with an increase in prices, because in the second case, prices for certain groups of goods rise, but in the case of inflation, money depreciates and all goods rise in price. When people say that the purchasing power of the population has declined, they usually mean inflation. The depreciation of money and the general rise in prices are its main features.

In world history, there are two exceptional cases of sharp increases in prices and inflation. The uniqueness is that, in theory, the financial security of citizens should have increased:

• After the discovery of America, European countries began to receive a lot of gold and silver from Peru and Mexico. This led to an increase in prices by 2.5-4 times.
• In the 1840s, the development of California gold mines began, as well as mines in Australia. Gold production has increased six times, but prices around the world have increased by 25-50%.

The reason is that a large increase in money in the economy causes prices to rise. The more money there is in the economy, the more the commodity depreciates. Accordingly, an increase in production could help to contain inflation in these two cases, but in the first case, in the absence of industrialization and industry, this could not be done, while the second became less catastrophic precisely because of the increase in production.

A slight increase in inflation around the world is considered the norm. Its level usually increases slightly at the end of the year, when the quantity of consumed goods increases and at the same time the level of corporate spending.

What are the causes of inflation? There are six main reasons, but in addition to them there are dozens and even hundreds of others that economists are still arguing about.

1. Money issue. Government spending increase, resulting in a decision to print more money. Emission is the issuance of new money.
2. Mass lending. In this case, finance is taken not even from savings, but from the emission of a currency that is not backed by goods. That is, the second reason often coexists with the first.
3. Excessive taxation. Not only are fewer goods produced in this case, but the tax itself falls on the shoulders of the ordinary consumer.
4. Monopolization of markets and monopoly pricing. Large firms determine the price and their own production costs.
5. Reducing the volume of national production. This means that the same amount of money corresponds to a smaller number of goods.
6. Union monopoly. In this case, the salaries of employees are increased, regardless of economic reasons.

As we can see, with proper government management, high inflation can be avoided. Now there is only one country in the world that periodically experiences an increase in the value of money. This is the so-called deflation and it is in last years characteristic of Japan.

Types of inflation

There is an open and hidden nature of inflation. With an open one, everything is simple - this is a rise in prices and a decrease in purchasing power. You can see it, and you don't have to be an economist to recognize it. Hidden inflation is much more complicated and interesting. For example, in the USSR for some time there was an increase wages and lower food prices. However, the natural consequence of such suppressed inflation was a shortage of goods and huge queues.

There are also the following types of inflation:

• Demand inflation- in this case, there are fewer goods than people need.
• cost inflation- prices increase due to the increase in production costs in terms of unused resources. Thus, raw materials and resources are delayed in warehouses, which increases the price per unit of production.
• Projected inflation— it can be predicted because many economic actors often behave in the same way. As mentioned above, by the end of the year, consumption usually increases, companies increase production, and therefore it is at this time that the inflation rate rises.
• Unpredictable inflation- in this case, the growth of inflation becomes a surprise for the population and the government due to the complexity economic system.
• Balanced inflation- The prices of all goods increase almost equally. If inflation is inevitable, then it is more suitable for the country's economy, the economy is not shaken by surprises.
• Unbalanced inflation In this case, the prices of some goods rise more than others. This leads to many unfortunate consequences.
• Tailored Consumer Expectations- information about future inflation is spreading in society, this changes consumer psychology, the demand for goods increases, which leads to higher prices.

Government intervention to suppress inflation does not always help. When the state forbids raising prices for a particular product, this leads to a decrease in the production of this product with all the ensuing consequences - for example, to cheaper production costs and the appearance of fakes.

There are types of inflation depending on the growth rate:

• Creeping inflation characterized by price growth of less than 10% per year. Some Western economists consider this to be a completely normal process. For example, if such inflation is caused by an increase in the money supply, then in the end this money will be used and the rate of production will also increase. But of course this is in theory, but in practice everything depends entirely on the adequacy of the country's leaders. In this case, such inflation gets out of control and turns into two other types, described below.
• Galloping inflation characterized by price increases from 10 to 50%. The economy is out of control and requires urgent, perhaps even unpopular, action. Government intervention is allowed.
• Hyperinflation characterized by price increases of 60% or more, can reach astronomical numbers. We all know the example of Zimbabwe and that they have a bill of one hundred trillion Zimbabwean dollars. To cover the budget deficit, this government began to issue an incredible amount of money, which led to hyperinflation. As a result, Zimbabwe returned to the barter exchange. A similar experience also exists during the war.

The main conclusion that everyone should make for themselves is that a slight inflation is a normal process, and in some cases even means an economic growth. If a new money supply flows into the country's economy, then at first it leads to inflation, and then this money begins to move the economy forward, there is an increase in production. All this is possible only with proper management, otherwise the process will eventually get out of control.

Types of money

Throughout its long history, mankind has used a large number of different types of money. Initially, the material from which the money was made was very important. They should have the following properties:

• Divisibility and Combinability. They must have an exchange property, and also not change their value when combined.
• Qualitative uniformity. Separate copies of the same denomination should not have a greater value.
• Portability. Small weight and volume and at the same time their high cost. That is, it should not be three-meter stones with a hole in the middle. The world longs for credit cards and electronic money with all their advantages and disadvantages.
• Persistence. When stored for a long time, money should not physically deteriorate or change its chemical properties.
• recognition. Money could be easily identified and understood their face value.
• Safety. There must be protection against forgery and theft.

In connection with all of the above, the type of money changed and improved significantly, because, ideally, money should have had all these properties.

commodity money

This is a commodity that has a generally recognized value and utility. The main feature of such money is that it can be used not only as payment for goods. For example, a gold coin is valuable in itself, it can be melted down and made into jewelry.

Therefore, at the dawn of the development of the economy, independent goods that would be useful to any person in any case acted as money - furs, pearls, livestock, grain, Kauri shells, as well as bronze, copper, platinum, gold and silver coins. In Scotland, at one time, workers were paid with nails, and in Sudan with spearheads and shovels. Cigarettes are money in prisons.

Commodity money did not take root, because it did not meet the same properties of ideal money - it was not portable, deteriorated during storage, it was difficult to divide and create it. Therefore, over time, people began to invent money that is easy, fast and cheap to make.

secured money

In essence, they are representatives of commodity money. You could receive marks or certificates and use them to exchange for a certain amount of goods or commodity money. For example, in ancient Sumer, you could present figurines of sheep and goats made of baked clay and get live goats and sheep for them. Initially, even banknotes were considered backed by money, but then this function disappeared from them.

fiat money

This is the same money that we currently use. They do not have an independent value, but they act as money, because the laws are written in the state to consider them as such. To date, three forms of such money are banknotes, non-cash money held in a bank, and electronic money. Non-cash should not be confused with electronic, although they can eventually be put into a bank account. Banknotes are gradually being phased out of circulation.

Electronic money

They are used to pay for goods and services on the Internet and at the same time have the same value as real money. The development of this type of money has become possible for many reasons, but the two main ones are earnings on the Internet by an individual and financial transactions between companies.

Electronic money has all the properties given earlier. In addition, they have additional ones - they can be quickly counted, translated and divided. You can also pay your bills automatically and you don't even need to spend extra time for this. And in view of the fact that they do not exist in a physical form, they cannot deteriorate and do not lose their qualities over time. The disadvantage is that almost all monetary transactions can be traced, and many cases of theft are known. There is a joke that claims to be true: if earlier it took ten armed men to steal money, now one nerd with a laptop is enough.

Cryptocurrency

The most controversial currency, about which disputes still do not subside. Also, few people understand how it works and whether such money has a future. Let's talk specifically about bitcoin, which is the most popular cryptocurrency.

For the transfer of bitcoin, a person does not pay commissions, that is, there are no intermediaries in principle. Almost complete anonymity is guaranteed, which of course can become (and has already become) the field of activity of various criminal transactions. In the bitcoin system, there is no person who manages it, all participants in the process are equal.

The downside besides the fact that cryptocurrency can become a weapon in the hands of different organizations is also that a limited number of bitcoins are planned to be issued. At least because it is no longer a market principle and it can lead to many problems.

Bitcoin, by its very nature, is also an indication of the level of credibility in a conspiracy theory. Cryptocurrencies in their advertising focus on the Big Brother, who is constantly watching us and if you do not get out of his control, then humanity will face financial slavery. To put it simply, with the massive introduction of bitcoin, it is likely to collapse banking system of the world, or at least it will accept the rules of the game and change a lot. No one can say what will happen to the world economy if the cryptocurrency wins. That is why the cryptocurrency is so ambiguous and disputes on this topic still do not stop.

In this lesson, we examined in detail the concept of money, its properties and depreciation. We looked at the history of money and found out why money is the way it is now. Any financially literate person should understand these basics, because any history of a subject is of great importance in understanding the present and future.

In the next lesson, we will move directly to a topic that will allow you to learn how to relate to your finances, namely their planning and accounting. This is the basis and foundation on which any financial well-being rests.

Test your knowledge

If you want to test your knowledge on the topic of this lesson, you can take a short test consisting of several questions. Only 1 option can be correct for each question. After you select one of the options, the system automatically proceeds to next question. The points you receive are affected by the correctness of your answers and the time spent on passing. Please note that the questions are different each time, and the options are shuffled.

Among the basic requirements, we highlight:

2. Manufacturability of use. For retail, especially for large stores, the use of modern transaction processing tools is an important aspect that can significantly reduce labor costs, increase the speed of settlement operations, and reduce the costs of subsequent accounting operations.

3. Fraud resistance. Each means of exchange (payment) is characterized by individual types of fraud, the features of which arise both from the characteristics of the means of payment (exchange) itself and the conditions in which it is used.

4. Anonymity. Despite the measures implemented in the framework of the fight against financial abuse to ensure the identification of participants in financial transactions, there is still and remains a very popular demand for their own private space in financial sector. Based on this, it can be assumed that the realization of the possibility to remain an anonymous buyer may influence the choice of one or another means of payment (exchange).

5. Universality - "universal acceptance". One of essential qualities, which must have a means of payment. The fewer restrictions, the more agents (including payments between individuals) are willing to accept this means of payment, the more widespread it will be.

6. Negotiability. The ability, without special confirmation, to be used as a means of payment between any of the existing agents.

7. Autonomy. It should be possible to use the means of payment in case of unavailability of communication channels (offline).

8. Ensuring micropayments. The means of payment must be able to provide settlements with the accuracy required by law. At the same time, the economic costs of agents for organizing such a payment should not deprive it of economic sense.

9. Portability. The means of payment must be available for carrying out transactions in the "street" conditions.

10. Time of use. The means of payment should not have restrictions on the time of use, or, in any case, have long terms for its use and clear rules related to the termination of the possibility of its use.

11. Liquidity. Any payment instrument, called money, in my opinion, should be a means of final payment or be such a medium of exchange, which should be exchanged for central bank money with practically no restrictions.

12. Economically rational cost of servicing a trading operation for buyers. A complex value that includes the cost of owning a means of payment and the amount of possible commissions when conducting a payment transaction in comparison with the size of such an operation.

13. Economically rational cost of servicing trade operations for sellers. This value includes the cost of the transaction (for example, commission fees of payment systems and financial agents or cash processing costs) and the cost of converting the received payment instrument into a form in which it can be used in further transactions (for example, collection costs) in relation to the size of such transactions.

14. Convenience of payments on the Internet.

15. Ease of personal finance management. Managing the means of payment should allow a person to control and plan personal expenses.

Let's consider the most popular means of payment from the point of view of the formulated basic requirements in "Appendix A". It outlines some of the advantages and disadvantages of the mentioned means of payment currently used for retail payments, as well as the expected trend in their market share and development potential.

An analysis of the compliance of the means of payment indicated in the table with the basic requirements shows that at present, cash is still the best fit for the idea of ​​the most convenient means of payment. That is why they remain the leading tool in calculations, not only in Russian Federation, but also in many countries where the infrastructure non-cash payments more developed.

In addition, the results of the analysis help explain why bank cards, being a highly technological payment method with developed rules of banks and payment systems, will be able to compete with cash in the period up to 2025. Of no small importance will also be the fact that they are, by their nature, deposit money.

Electronic money as a prepaid payment instrument, in my opinion, will certainly develop, but will retain its niche character.