What Is The Role Of Money In Capitalistic Economy?


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Anonymous Profile
Anonymous answered
Following are the three roles of money
1) Medium of exchange
2) Unit of account
3) Store of value
Muhammad Abdullah786 Profile
In capital economy, money is the pivot around which all economic activities cluster. Money is an indicator as well as a surveyor of wealth.

Production decisions:
Production has been greatly facilitated by the introduction of money. Money makes possible the accumulation of wealth in those hands which are able to organize the production. The captain of the industry hires the various factors of production in order to meet the future demand for goods and services and pays them in term of money. If the reward was to be paid in commodity, then the exchange of goods would have been very limited and so the production on a small scale.

Production without the use of money cannot be organized on a large scale and run efficiently and economically. The decision of what, where, when and how much to produce are all guided by the amount of money offered in exchange of goods and services. The cost of production is also estimated in terms of money. The profit or loss which is the difference between the sales proceeds and the total money cost is also expressed in terms of money. With the introduction of money, the consumption can be easily postponed and the assets can be stored for the use to a future date. People can also deposit their saving in the banks which can be lent to the business firms and industrialists for further production of wealth.

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