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(B) Functions of money: As per Walker’s definition money has to perform four major functions. If in reality money is found to be performing any additional function then it is directly or indirectly connected with these four functions. The first two of these functions medium and measure are known as 'M' or original functions of money. It is due to the fact that money was originally invented to perform these functions. The other two are ’S’ functions to act as a standard and store; these are its derived functions. Once the money was in use it could prove itself capable of performing these functions as well. Now let’s look at the functions of money more closely.
i) Medium of Exchange: Money is used as a common medium or means of buying and selling all goods and services. In the absence of money exchange activity used to take place in the barter form. Barter exchange means the direct exchange of goods against goods. Cloth is sold in exchange of sugar (which is therefore bought) or sugar is sold in terms of fruit (which is again being purchased) etc. But under such a system of exchange various inconveniences crop up. The major problem is of double coincidence of wants. Further, it becomes necessary that buyers and sellers of all such goods demanded must meet together at a particular place every time to perform the exchange. With the use of money only currency is needed to act as a medium between two or more buyers. Another basic advantage of the use of money is the wide extension of markets. Barter activity can be performed only locally among small traders. But with economic progress, markets go on expanding. Both the number of goods exchanged and geographic distances of markets widen. The markets extend from village to city and to regional, national and international levels. All this is facilitated by the use of money.
ii) Measure of value: The second important function that money performs is to act as a common measure of values of all goods and services. In this form money acts as a unit of account. Under barter exchange buying and selling was difficult or even impossible in case of large variety of goods. This is because several goods are quite dissimilar. Hence to decide and compare their values is inconvenient. For instance, one would possibly not be able to compare the value of some pounds of wheat with a few ounces of milk or of a piece of land with number of cows. But with the use of money as a commonly accepted standard value of all goods and services can be expressed and compared in it.
iii) Standard: In modern times money acts as a means of deferred payments. We may purchase an automobile or a TV set today and pay back in installments over a few months or years ahead. We can avail of a doctor’s services today and conveniently pay him later on. Businessmen may purchase raw materials or machines today and pay their charges when the goods are produced and sold. All these are called credit or loan transactions. Money can suitably be used for this purpose. The only difference may be in the present and future valuation for which a small additional amount is paid or received by way of premium, discount or interest charges. By acting as a standard of deferred payments, the size of the markets and exchange activities is not only widened but also multiplied several times.
iv) Store of value: Goods and services are perishable. These must be consumed or utilized immediately or within short interval whenever they are supplied. Fruit, vegetables, fish, milk or services of teachers, workers, musicians must be used within a very short span of time. These goods and their values cannot be stored up for future use. Even when it is possible (in case of some durable goods) to preserve them, there is always a danger of their damage or loss of value. But with the presence of money all these inconveniences can be avoided. Excess grains produced by farmers can be sold at market price and the money received can be deposited in the bank. As a matter of fact, money can store values for future use or transactions because money in paper currency or in the form of bank deposits is a transferable and a durable commodity. Its capacity to store values and wealth enables it to act as a standard of deferred payments.
On the other hand, it may be pointed out that money may not be the sure shot way as a store of value. After all it may even devaluate over a period of time. At the same time, nevertheless, it may be regarded as the most liquid asset as it is easily accepted universally.
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