What is meant by money

What is meant by money? Discuss the functions, which are performed by money in the economy.

Money is any object that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; an unit of account; a store of value; and, occasionally, a standard of deferred payment.

According to the capitalist economic theory, “money” is just medium of exchange, unit of account and store of value. This definition of money does not take into account the role of money as “means of stimulation of economic activities” and “equivalent of labor and production”.

In order to correctly understand the essence of money, it is necessary to examine all functions carried out by it. Pursuant to the National Economic Model, money possesses four basic characteristics.

1. Money as means of stimulation of economic activities:

In our model money, functioning as an instrument to stimulate human labor and energy triggers entire economic activity aimed at producing goods and services.

That is, money is not a “neutral” in economics as suggested by some other economic schools. On the contrary, money serves as an instrument to reveal intentions in terms of production and consumption. This function of money is introduced into the economic literature only within the National Economic Model.

2. Money as an equivalent of labor and production:

In everyday life in the absence of money, it is impossible to satisfy even the simplest human needs in food, home, safety and health care, and it is also impossible to put into action human labor to develop country’s natural resources.

Money is an equivalent of labor that is put into action, which produces goods and services.

Money, by means of which the production is triggered, may not have the corresponding equivalent in the beginning. However, in the process of production money is capable of creating its equivalent and even more. Therefore, the cost of money is incomparably lower than the value of goods and services created by the use of factors of production.

This function of money is also introduced into science by the National Economic Model.

In the National Economic Model money circulating in the economy has no cost. Therefore, money that stimulates labor and activates factors of production has no cost either. Money without initial cost by stimulating and involving labor secure production of goods and services and in such manner creates its own equivalent.

Money as an equivalent of labor and production by entering economic system puts into action labor of the unemployed. For example, providing raw materials and financing to build roads can bring many benefits to people in the form of roads. This activity involves labor of people and creates value as well.

3. Money as medium of exchange:

In the economy, all goods and services are purchased with money. This reflects the function of money as medium of exchange. There should be sufficient quantity of money supply circulating in the market for money to fully carry out this function.

In the liberal economy, money in circulation has cost. Money that has cost becomes limitation for production. It also leads to decrease in demand.

When through the system based on interest rate money is withdrawn from circulation (which is one of the key concepts in liberal economics), it hampers a normal exchange in the economy. Liberal economy creates obstacles to money return into the markets by means of additional money supply and opens the door for “money re-sellers”. These limit the ability of society to consumer and even meet the simplest human needs.

The population of Earth is growing. This growing population does not have satisfactory consumption not because the volume of production is not sufficient, but because people do not have money enough for consumption.

In the National Economic Model, money in circulation has no cost. Due to this money returns to the markets, it freely circulates and stimulates real economic activities. The National Economic Model promotes intensive exchange of goods and services and creates conditions for their fair exchange based on their true value.

In the National Economic Model, the supply and demand equilibrium is achieved through the money supply subject to mathematically calculated indicators of demand and supply. Such approach is a formula to secure sustainable economic growth, which is the main objective of economic policy.

4. Money as store of value:

The objective of saving money in the liberal economy is to receive interest on it. Consequently, in the liberal economy as store of value money promotes:

               • Withdrawal of money from production and thereby from real economy;

              • Monopolization of capital;

              • Transfer of goods and services produced worldwide to global forces;

              • Increase in production costs;

              • Decrease in demand;

              • Reduction in workers’ wages of workers and decrease of labor productivity.

Since money in circulation has no cost in the National Economic Model, as store of value it serves to:

        • produce goods and services,

        • meet daily needs,

         • satisfy in mid-run such needs as wedding, traveling, medical care, etc.

As store of value, money in the National Economic Model promotes:

        • Free circulation of funds;

        • Increase in production and demand;

        • Elimination of imbalance in distribution of income.

The incorrect monetary policy carried out up to now limited consuming power of an individual and hampered sufficient use of resources.

Employment

While the reason why fast-growing economies end up in recession is not understood in the modern economics and the problem of unemployment and fair distribution of income is considered insolvable at the moment, our model envisages solving the problem of unemployment through overcoming the period of recession and securing sustainable economic growth.

To achieve solution within the framework of the model proposed by us as consistent with the welfare state concept, it is envisaged to mobilize production with parallel support of consumption. It is necessary to put the country’s resources into economic cycle by establishing public-private joint ventures through interest-free loans. At the same time, additional money supply is not ruled out.

By reducing production costs due to state support of production, creation of tax-exempt and interest-free economy and government intervention into unrestricted pricing mechanism, the National Economic Model also solves the problem of inflation.

In this context the National Economic Model buries in the history also the problem of securing balance in distribution of income, sustainable economic growth, full-time regular employment, which the capitalist system was not able to resolve and considers as recessionary phenomena.

Pursuant to our theses, the major objective of the state is to explore the subsoil and land-based resources owned by the nation and make them available for the use by the nation itself. As a result, on the one hand, there is assurance that resources owned by the nation are operated and used by the nation; on the other hand, there is implementation of production mobilization through the efficient use of resources.

For example, an oil field located at any place within the country is totally owned by the nation. In addition, it should be employed by the state to the benefit of all social groups of the society. This concept is carried out through the public-private joint ventures. Part of shares of the established company should be held by the citizens, the proceeds from the other part should be directed to cover the budget expenditures.

Participation of the nation in those businesses, in turn, should be secured by granting interest-free loans by means of additional money supply.

This issue is of special importance when considering the situation in Turkey. The ore reserves available in Turkey are valued at about USD 3 quadrillion. Due to laws passed recently these reserves are squandered and almost for nothing are transferred to foreign companies. In Turkey, which as result of such policy has turned into “a beggar sitting on treasures”, we have fallen into the state when in return to our promise to pay interest we receive loans from foreigners, who already own our resources. This is nothing else but the sale of our own money to us.

Again, in National Economic Model we initiate “complete mobilization of production”. We will do this by granting interest-free long-term loans to businessmen, public-private and small businesses; by providing interest-free advances to the agricultural sector paying, say, 50% of the value of future crop; by granting interest-free long-term loans to transportation companies to purchase and modernize buses, taxi-cars and other vehicles; by granting interest-free long-term loans to industrialists depending on their business projects. By doing so, we will support both production and consumption in parallel.