ROLE AND IMPORTANCE OF MONEY IN MODERN ECONOMY

There is no doubt that money facilitates and motivates all economic activity relating to consumption, production, exchange and distribution.Money enables a consumer to maximise his satisfaction.Money measures the intensity of desire and the utility of a commodity to a consumer.Money facilitates production by stimulating saving and investment.It gives mobility to capital and helps in capital formation.It enables the harnessing of various factors of production so that the entrepreneur is is able to maximise his profit.Introduction of money facilitates exchange and helps in the development of trade and commerce, both national and international.Money functions as a common denominator for the distribution of social product.It is in term of money that, wages, rent, interest and profits are determined.Money helps the price mechanism to operate and serve as an instrument which has largely contributed to the growth of national wealth and social welfare and social welfare.It has ensured the smooth functioning of the economic system.It has accelerated the process of industrialisation .In money payments.This circular flow is essential for promoting economic welfare.
Whatever the type of economic system money is found to be of great service.In a capitalist economy, money plays an important role because capitalism basically depends, price mechanism which operates through the medium of money.As prof. Robertson observes,"the existence of monetary economy helps society to discover what people want and how much they want............... and to decide what shall be produced and in what quantities, and to make the best use of its limited productive power.And it helps each member of society to ensure that the means of enjoyment to which he has access, yield him the greatest amount of actual enjoyment which is within his reach."Even in a socialist economy, price tags are essential for its smooth, efficient and economical working.It is said while money is a master in a capitalist economy, it is a servant in a socialist economy.Money also plays a significant role in a mixed economy.It plays a crucial role in determining employment,output and income in the private sector.In the public sector, it is helpful in the allocation of resources and for changing the pattern of income distribution.It is a powerful instrument for capital formation and economic development in a developing economy.