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Question
Answer the following question
What are the contingent functions of money?
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Solution
The following are the various contingent functions that money performs.
i. Facilitates credit - Money facilitates the functioning of credit instruments such as cheques, promissory notes, bills of exchange etc. Such credit instruments facilitate the transfer of value from one person to another.
ii. Facilitates distribution of income - Factor payments can be made easily in the form of monetary remunerations such as wages, rent, interest and profit.
iii. Maximises consumers’ and producers’ satisfaction - Since all goods and services are valued in terms of money, it is possible for a consumer to maximise his/her satisfaction by equalising marginal utilities of various goods consumed. Similarly, all the factors of production are valued in monetary terms. Consequently, it becomes possible for a producer to maximise production by equalising marginal productivity of the different factors of production.
iv. Liquidity - Money is the most liquid of all assets and wealth. Gold, silver, land, cheques etc. are not as liquid as money. If need arises, these assets have to be converted into money, but on the other hand, money need not to be converted into any other form as it is readily acceptable.
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