This page has been robot translated, sorry for typos if any. Original content here.

Money and credit - Ivanov V.M.

TOPIC 5. LAW OF MONEY

5.1. Characteristic of the law

Money circulation is the movement of money in cash and non-cash forms, serving the sale of goods, as well as non-commodity payments and settlements. Money circulation in its various forms is regulated by objective economic law.

The law of value and the form of its manifestation in the sphere of its circulation — the law of money circulation — are characteristic of all social formations in which commodity-money relations exist.

Analyzing the development of forms of value and money circulation, K. Marx discovered the law of money circulation, the essence of which is expressed in the fact that the amount of money needed to fulfill their function as a medium of circulation should be equal to the sum of prices of goods sold divided by the number of turns (speed of circulation ) units of the same name. The law of monetary circulation expresses the economic interdependence between the mass of circulating goods, the level of their prices and the velocity of money. The amount of money needed for circulation can be expressed by the formula

Economic science has another point of view, which is shared by representatives of the quantitative theory of money and supporters of the monetarist concept. The American economist I. Fisher formulated the following equation:

where M is the money supply; V is the velocity of money; P is the average price of goods and services; Q - the number of goods sold. goods sold

The law of monetary circulation is as follows: The amount of money needed for circulation is determined by the total amount of commodity prices to be sold plus the total amount of payments falling over the same time period, minus payments mutually destroyed by repayment.

From this law follows the principle of money circulation - limiting the money supply to the real needs of the turnover. K. Marx analyzed the conditions and patterns of maintaining monetary equilibrium, which is determined by the interaction of two factors: the needs of the economy in money and the actual flow of money into circulation.

Theoretically, the value of commodity circulation in money in terms of the circulation of non-exchangeable banknotes can be calculated as the amount of money needed for commodity circulation at the current price level in the given period, i.e., their real value (purchasing power).

The study of the law of money circulation requires multiple analysis. Since money circulation serves commodity circulation, the sum of the prices of goods and services sold for cash and on credit is an important factor determining the need for money. These needs are determined by the demand of enterprises, the state and private individuals for purchasing means of payment, as well as for means of accumulation and savings.

The influence of credit on monetary circulation increased, which is explained by the widespread use of credit operations and the dominance of credit money. The relationship of money circulation with the movement of loan capital is manifested in the fact that money easily crosses the border of credit and the monetary sphere, turning into loan capital. The accumulated amounts are mobilized as a means of circulation and payment to service economic turnover.

The need of the economy for money is also determined by the level of prices for goods and services.

The inverse effect on the amount of money required for circulation is exerted by:

• the degree of development of the loan (the more goods sold on credit, the less money is required in circulation);

• development of cashless payments;

• money circulation speed.

In metallic circulation, the amount of money was regulated spontaneously with the help of money as a treasure; if the need for money was reduced, then their surplus (gold coin) went out of circulation into treasures, if it increased, there was an influx of money into circulation from treasures. Consequently, the amount of money in circulation was maintained at the required level. When exchanging banknotes exchangeable for gold (free exchange for metal), the law excludes the presence of excessive amounts in circulation. If the circulation is serviced by banknotes not exchanged for gold or paper money (treasury bills), then the circulation of cash is made in accordance with the law of paper money circulation: a specific law of the circulation of paper money may arise from their relationship to gold only because they are representatives of the latter . This law boils down to the fact that the issue of paper money should be limited by the amount in which gold (or silver) would symbolically represent them.

Consequently, when the amount of paper money is equal to the theoretical amount of gold needed for circulation, no negative phenomena will arise - paper money or unchanged banknotes will regularly perform the role of banknotes, i.e., substitutes for gold money. This requirement ensures the stability of money and takes place in all social formations where money circulation exists.

Unlimited issue of money leads to a violation of this law, overflowing the sphere of money circulation with excessive banknotes and contributes to their depreciation.

The conditions and patterns of maintaining money circulation are determined by the interaction of two factors: the needs of the economy in money and their actual entry into circulation. If there is more money in circulation than the economy needs, this leads to a depreciation of money — a decrease in the purchasing power of the monetary unit.