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Importance of money in socialist economy

  In a socialist economy, the central authority owns and controls the means of production and distribution. All mines, farms, factories, financial institutions, distributing agencies (such as internal and external trade, shops, stores, etc.) means of transport and communications, etc., are owned, controlled and regulated by government departments and state corporations. Therefore, the pricing process in a socialist economy does not operate freely but works under the control and regulation of the central planning authority. Theoretically, the role of money in a socialist economy is different from that in a capitalist economy. Features of Socialism : The main features of this system are detailed below. (1) Public Ownership: A socialist economy is characterised by public ownership of the means of production and distribution. There is collective ownership whereby all mines, farms, factories, financial institutions, distributing agencies (internal and external trade, shops, stores, etc....
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Importance of Money in capitalist economy

  A capitalist economic system is one characterised by free markets and the absence of government intervention in the economy. In practice a capitalist economy will need some government intervention, primarily to protect private property.  Features of a capitalist economic system Economic freedom . Individuals free to set up business and provide the goods and services they want. Consumer sovereignty . Consumers free to decide which goods and services to purchase. Limited government . Government intervention limited to the protection of private property and provision of public goods. Finance sector.  Capitalism requires a developed banking and financial system which can provide loans to companies and banking services to households. Profit motive  is seen as important for enabling an efficient distribution of resources and encouraging innovation and responsive markets. Market forces . Goods and services are distributed according to ‘the invisible hand of the market’ – ...
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Evils of money

  The evils of money are shrouded behind a monetary veil, and what really happens behind the veil is sometimes quite different from what appears to take place on the surface. This extreme view has been discarded. Now economists regard money not merely as veil but also as an extremely valuable social instrument promoting wealth and welfare. But money which is a useful servant, often misbehaves when it tries to act like a master. This leads to a number of economic and non-economic defects of money. Economic Defects: The economic defects are as under: (1) Instability in the Value of Money: The first drawback about money is that its value does not remain stable over time. When the value of money falls, it means rise in the price level or inflation. On the contrary, rise in the value of money means fall in the price levels or deflation. These changes are brought about by increase or decrease in the supply for money. Large changes in the value of money are disastrous and even moderate ch...
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Static and dynamic functions of Money

  Static Role of Money: In its static role, the importance of money lies in removing the difficulties of barter in the following ways: (i) By serving as a medium of exchange, money removes the need for double coincidence of wants and the inconveniences and difficulties associated with barter. The introduction of money as a medium of exchange breaks up the single transactions of barter into separate transactions of sales and purchases, thereby eliminating the double coincidence of wants.  (ii) By acting as a unit of account, money becomes  a common measure of value. The use ะพ money as a standard of value eliminates the necessity of quoting the price of apples in terms of organes, the price of organes in terms of nuts, and so on. Money is the standard of measuring value and value expressed in money is price. The prices of different commodities are expressed in terms of so many units of dollars, rupees, pounds, etc. depending on the nature of monetary unit in a country. The ...
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Characteristics of Money

  1) DURABILITY:- Money needs to be long lasting. 2) PORTABILITY:- Money should be easy to carry around, convenient and easy to use. 3) DIVISIBILITY:- Money should be easily broken down into smaller denominations. 4) HARD TO COUNTERFEIT:- Money shouldn't be easily faked or copied. 5) GENERAL ACCEPTABILITY:- Money should be generally accepted by a population. 6) VALUABLE:- Money should be one which generally hold value over time.
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Money supply and it's classification

WHAT IS MONEY SUPPLY? The supply of money ia a stock at a particular point of time. It is synonymous with terms as "money stock", "quantity of money" etc.  The supply of money at any moment is the total amount of money in the economy. DETERMINANTS OF MONEY SUPPLY The determinants of money are:- 1) The Required Reserve Ratio- It is an important determinant of money supply. An increase in the required reserve ratio reduces the supply of money with commercial banks and a decrease in required reserve ratio increases the money supply. 2) Public's Desire To hold Currency and Deposits- It also determines the money supply.If people are in the habit of keeping less in cash and more in deposits with the commercial banks, the money supply will be large. On the contrary, if people do not have banking habits and prefer to keep their money holdings in cash, credit creation by banks will be less and the money supply will be low. 3) High-Powered Money-...
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Gresham's law

The law is named after Sir Thomas Gresham (1519-79), a leading English business pay on and financial adviser to Queen Elizabeth I. It states that if two coins are in circulation whose relative face values differ from their relative bullion content, the ‘dearer’ coin will be extracted from circulation for melting down. ‘ Bad Money Drives out Good ’.  In India, we have one-rupee notes and one-rupee coins. Both are forms of legally good money. Yet, the public sometimes prefer one form of a particular denomination to ano­ther, e.g., they may prefer the rupee coin to the paper note. If there is such a preference for one form of money rather than another, it is an example of Gresham’s Law in operation. In short, the principle suggests that “bad money tends to drive good money out of cir­culation when both are full legal tender”. This principle is known as Gresham’s Law. The term  “bad money”  does not mean coun­terfeit coins. It means worn out, clipped or underweigh...
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