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Money and credit - Ivanov V.М.

2.2. Money as a measure of value

In addition to the function of the means of circulation, money also serves as a measure of value. The government of each country usually establishes its own measure of value (price scale). In the USA, the dollar is the measure of value, in Japan - the yen, in Mexico - the peso. With the help of a measure of value, the value of things is measured in the same way as weight and length are measured using ounces and feet, that is, the function of a measure of value is the ability to measure the value of all goods and serve as an intermediary in determining the price.

In the era of real money (money - goods), a simultaneous appearance of an equivalent in goods and money was provided in accordance with the law of value.

Money and goods have a homogeneous base of comparison - abstract labor. Thus, this function reflects the ratio of the commodity to money as a universal equivalent. For such a comparison, we need to select the scale to compare them. The scale of prices is a means of expressing value in monetary units based on a fixed amount of a monetary metal in a unit. In commodity production, money must ensure the exchange of goods not only on the national, but also on the world market. In the transition to impolite money, this function can not be fully implemented, because credit money is endowed only with representative value. This is countable money.

Today, the dollar serves as a measure of value, and means of circulation, but it was not always so. In colonial America, despite the fact that the basic monetary unit in circulation was the Spanish dollar, the real price scale was measured in British pounds. The dollar has replaced the pound in the role of the scale of prices only after separation from the English crown. The Law on Coinage of Coins of 1792 introduced a decimal monetary system. Despite the greater ease of using the new decimal system of value measurement, people resisted change. The replacement of the old British scale of prices was one of the most important innovations made by America's "founding fathers". The final transition to universal use of dollars and cents as a measure of value was completed only after the civil war in the United States. Before that, prices were often expressed in dollars and shillings, dollars and so-called levies (a coin worth 12 1/2 cents), etc.

Money as a measure of value did not fulfill the function of the medium of circulation during the period of rapid inflation, which took place, for example, from 1939 to 1949 in China. Many Chinese traders made settlements in US dollars, but transactions were made using the Chinese currency. This made it possible to carry out economic calculations and calculations using a stable measure of value, although the real value of the official means of circulation fell very quickly. All the goods had two prices: one was expressed in dollars, and the other - in Chinese monetary units. Prices in Chinese currency were recalculated daily based on the exchange rate of the Chinese yen against the US dollar. While prices expressed in Chinese money rose rapidly, prices in dollars remained, in general, at the same level.

Such a separation of functions of measure of value and medium of circulation is a rather ingenious way of adapting to rapid inflation. The prices of resources expressed in Chinese yen lost meaning, as they depended more on when these resources were purchased than on what their relative values ​​were. Assessing the resources in dollars, Chinese entrepreneurs were able to more accurately express the relative prices of various resources. Similar processes have been observed in other countries in recent years.

The government of any country can change the previously established price scale. This change is called monetary reform.

European countries, in which from 1944 to 1952 there was very strong inflation, carried out 24 monetary reforms. In the course of these reforms, old banknotes and bank deposits were exchanged for new ones, with a significantly reduced par value.

In countries experiencing hyperinflation, monetary reforms often lead to increased confidence in the national currency, as the government, by conducting monetary reform, informs the population of the intention to stop implementing inflationary policies. In 1961, the Soviet Union carried out a monetary reform, although at that time there was no strong inflation in the country and there was economic stability. The government withdrew the ruble from circulation and replaced them with new banknotes in the proportion of ten to one. This led to a drop in all prices in state stores tenfold compared to the previous level. One of the goals of the reform was to strike the black market. Soviet leaders believed that businessmen of the shadow economy who had accumulated large amounts of money would not be able to exchange their accumulations of old banknotes for new ones.