The development of the value form and the emergence of money. The essence of money. The function of money.

Money – goods of special type, that function as a general equivalent, i.e. it possesses ability to express the coast of all other goods.

Economic role of money is expressed in its functions. Classical political economy defines five functions:

1) a measure of cost – an ability to measure the cost of other goods;

2) means of exchange – an ability to act as an intermediary while exchange of goods and services;

3) means of payment – an ability to act as legal tender;

4) store of value;

5) world money (an ability to participate in exchange between countries).

Modern economics concentrates on three fundamental functions: a measure of cost, means of exchange and means of payment. A constant movement of money, that fulfills the functions of means of exchange and means of payment creates circulation of money.

A form of organization of money circulation, established by state in every country is called financial system. In the history of mankind the three major systems of money circulation are distinguished:

1) bimetallism - money was used in a form of gold and silver (XVI-XIX);

2) monometallism - money was used in a form of gold, paper money and credit one were only exchanged into gold (XX);

3) credit and monetary circulation – the use of a substitute of gold only – paper money (banknotes) – from the beginning of XX.

On the basis of specific nature of money and the functions it fulfills, the laws of circulation of money come into force.

Under the conditions of gold circulation and at a free exchange of banknotes and credit money into gold, the quantity of money, necessary for the circulation can be defined by means of the formula:

M= (D-C+P-MP)

N

Where: M – quantity of money, necessary for the circulation; D – the sum of prices of goods to be distributed;

C – the sum of prices of goods, sold in credit; P – payments to be settled; MP – mutually paid payments;

N – the number of circulations of the same units of money.

Many of Western economists use balance of exchange (by Fisher, neoclassic approach):

M*V=P*Q where M – monetary mass; V – velocity of money circulation;

P – level of commodity prices; Q – quantity of goods in circulation.

The breach of this balance leads to inflation. Inflation is the depreciation of money, caused by its excess quantity in circulation of money. It is expressed in the increase of prices for goods. There are following types of inflation:

2) According to the character of inflation process:

- open – unlimited, free and durable increase of prices;

- repressed – a state control over prices under conditions of commodity deficit;

- inflation shock – sudden sharp increase of prices.

3) According to the place of spread:

- local – within one country;

- world – embraces a group of countries or global economy.

4) According to the tempo of the increase of prices:

- creeping (10% price increase a year);

- galloping (20-200% price increase a year);

- hyperinflation (500-1000% price increase a year);

Law of value is the law, according to which production and exchange of goods are realized according to socially necessary costs of labour. It expresses an objective necessity of defining market value of goods by working class. Price is a monetary expression of value. The law regulates the development of commodity output, ensuring progress of production and economic relations. It fulfills three functions:

1) regulates the proportions of production;

2) stimulates the increase of labour efficiency;

3) promotes social and economic differentiation of employees.

Lecture 5.
1. Essence and kinds of market. The structure of the market and its classification.

The functions and role of the market in social production.
2. Competition: concept and types. Perfect competition. Imperfect competition:

monopoly, oligopoly, monopolistic competition.
3. Infrastructure of the market. Basic elements of the infrastructure of the modern

market. Functions of market infrastructure.

Key words

circular flow of goods and incomes – кругооборот товаров и доходов

household – условная семья

twin – двойной, двусторонний

top (bottom) half – верхняя (нижняя) половина

expenditure – расходы

flow – перетекать, переходить

reverse – меняться местами

interest – проценты

facilitate – содействовать

insurance – страхование, страховка

factor market – факторный рынок

rent, hire – арендовать, нанимать

interact – взаимодействовать

budget constraint – бюджетное ограничение

compete – конкурировать, соперничать

restricted – ограниченный

perfect competition – совершенная конкуренция

imperfect competition – несовершенная конкуренция

monopolistic competition – монополистическая конкуренция

oligopoly – олигополия monopoly – монополия

natural monopoly – естественная монополия fix the price – устанавливать цену

cost price – себестоимость

illegal – противозаконный

differentiated product – дифференцированный продукт

undifferentiated (homogeneous) – недифференцированный

dumping – демпинг

cartel – картель, ценовой сговор

entry into the market – вход на рынок

barriers to entry – барьеры на входе

economies of scale – экономия на масштабе (от масштаба)

1. Essence and kinds of market. The structure of the market and its classification. The functions and role of the market in social production.

Evolution of social production forms and economy led to the appearance of modern market system, in the basis of which is the functioning of the socialized commodity production. This commodity production exists in order to satisfy social needs on the whole and needs of separate individuals in particular.

Market evolution

Market evolution takes place along with society development. The market formations has 3 periods:

1) XV – the beginning of XIX century – market of free competition creates. Smith said, that state played a part of night guard (that is, state didn’t absolutely interfere in market mechanism). That was a seller market, where the production conception dominated, the essence of which – to produce necessary commodities and satisfy the demand on them.
2) XIX – the middle of XX century seller market changed into buyer market, production conception changed into realization conception, the essence of which – the analysis of needs and organization of commodities production and sale.
3) The end of XX century – social market is created by state. Production changed from satisfaction of mass needs to mass satisfaction of individual needs. The priority turned from producer to user.

Market should be considered as a complex category that includes the sphere of circulation, where the exchange of goods and services takes place and the system of money-commodity relations, formed in the process of exchange of goods and services at the existing system of production relations.

Market is a system of economic relations between people who are involved in the processes of production, allocation, exchange and consumption.

In a broader sense market is a set of social institutions within which a great number of specific types of exchanges take place, when these institutions assist these transactions, adding them some structure.

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