The Function of Money, Understand the Real Function of Money!
The function of money is divided into two types, namely the original money function and the function of money derivatives.
Since money officially became the legal medium of exchange for making transactions, the barter system was almost never used automatically. In addition, the necessities of life in the modern era are far more complex. It is impossible for humans in today's world to provide for themselves. This is where the role of money as a transaction tool in society emerges. We can buy everything we need with this money. ranging from basic needs such as clothing and food to services or services desired.
Original Function of Money
- As a Medium of Exchange
The first function of money is as a medium of exchange. Basically, the main function of money is to facilitate the exchange process. Money can help you choose between buyers and sellers, eliminating the desire for reciprocity such as bartering.
People in ancient times exchanged goods of equal value. The current exchange is no longer exchanging goods, but only using money as a medium of exchange. This money can overcome the problem of barter.
- As a Unit of Account
The function of money as a unit of account is a future function. It's a must. It is not easy to determine the price or value of goods or services without a unit of account.
It is very easy to show the value of goods or services offered as a unit of account because the values are so different. Calculating the size of the loan and showing the amount of wealth is the unit of account used here.
Derivative Money Function
- Payment method
Money is used to buy needed goods and services.
- Wealth Saving Tool
People usually want to set aside some of their income to save or save. Storing wealth in the form of money, or savings, is much more efficient than storing goods.
- Tools for Transferring Wealth
For example, if someone owns a piece of land and wants to move it to another place, it will be difficult to move the land. However, if they have money, this can be done easily, namely by exchanging the land for money and then buying land elsewhere.
- As a Means to Encourage Economic Growth
In situations like this, money can be invested in setting up factories or other businesses with the aim of making a profit or income. On the other hand, a business establishment may also employ labour.
- Tool for Calculating Goods Prices
Usually, the price of an item is written in money, and money serves as a price marker, like a price tag.
Thus the explanation of the function of money. Hopefully this information can add to your insight.