At the end of this lesson, Students will be able to:

 Explain Principle approaches to the definition of money.

 Explain the evolution of money from the beginning to the

present day.
 Financial Manager
 Describe the characteristics of Corporations
 Distinguish between Corporation and Partnership
 Principle approaches to the definition of money :
1. Conventional approach
2. Chicago approach
3. Gurley and Shaw approach
4. Central Bank approach
 Conventional approach

According to this approach, the most important function of money in

society is to act as a medium of exchange. Money is what money
uniquely does. It mediates between the vast number of goods and
services that are transacted in the community. Consequently, anything
is money which functions generally as a medium of exchange in the
economy.
M1=C+D
Where,
C= Currency
D= Demand Deposit
 Chicago approach

The Chicago economists have adopted a broader definition of money

by defining more broadly money’s function as a temporary abode of
purchasing power. Their argument is that since in the economy money
income and spending flow streams are not perfectly synchronized in
time , in order to function as a medium of exchange money must be
temporarily stored as the general purchasing power.
M2= M1+Time deposit + Postal Deposit
 Gurley and Shaw approach
According to Gurley and Shaw approach, currency and demand
deposits are just two among the many claims against the financial
intermediaries. According Gurley and Shaw, there exists a fairly large
spectrum of financial assets which are close substitutes for money.
They emphasize the close substitution relationship between
currency, demand deposits, commercial bank time deposits, savings
bank deposits, credit institutions, shares, government bonds, etc. all
of which are regarded as alternative liquid stores of values by the
public.
M3= M2+ Near money assets
 Central Bank approach
This approach which has been favored by the central banking
authorities takes the widest possible view of money as though it were
synonymous with credit –funds lent to borrowers. Consequently,
money is identified with the credit extended by a wide variety of
sources.
 The evolution of money from the beginning to
the present day:
Primitive money was first used in the form of commodity money. The choice of
the particular commodity to be used as money was determined by various
factors such as location of the community, climate, cultural and economic
development of the community.
Thus, those communities which lived on or near the seashore adopted the
familiar shells or fishhooks to serve as the medium of exchange.
In the cold regions such as Siberia or Alaska animal skins and furs were used as
money unit.
The communities living in the tropical regions used elephant tusks, tiger jaws
and brilliant plumes of birds as money.
The commodity used as money also depended on the stage of socio-economic
development of the community. Since animals were the most important form of
wealth, cattle was used as money in the primitive agricultural communities.
 The evolution of money from the beginning to the present
day:
In almost all parts of the temperate climate regions of Europe, Asia and Africa
cow became the standard unit of exchange.
Large stone pieces were used as money by the natives of the Yap Island in the
Pacific.
Dried fish and beaver skin were used as money in Iceland.
Thus for a long time (Fourth Century B. C.) the ancients used animals as
money.
Then metal was used as money due to their durability, portability etc. In this,
silver and gold scored over all other metals and these were used as money.
The early metallic money was not perfect in size, weight and shape.