The Four Core Functions of Money in Capitalism
Capitalism is founded on private property and free competition.
Within this system, money serves the following vital functions:
1. Measure of Value (Visualizing Value)
Money acts as a “ruler” that measures the value of all goods and services using a common numerical standard.
Exchanging a loaf of bread for a pair of shoes directly is difficult, but the common language of price (yen or dollars) enables smooth transactions in the market.
Companies use this “ruler” to calculate the profitability of investments and profits.
2. “Self-Replication” as Capital
This is the most characteristic role within capitalism.
Money is not merely for spending; it becomes “capital” used to generate more money.
- Investment and Return
Through actions such as building factories, developing new technologies, and purchasing stocks, it is expected that value exceeding the initial investment will be generated. - The Engine of Economic Growth
Money is reinvested in pursuit of profit, driving repeated cycles of technological innovation and job creation.
3. Signals for Resource Allocation
The movement of money (prices) serves as a signal indicating where society’s resources should be concentrated.
Money flows toward what people desire, causing prices to rise.
Businesses then judge this sector as “profitable” and enter it, leading to increased supply of goods.
4. Preservation of Value and Transcendence of Time
Money does not spoil, allowing it to store value over the long term.
- Investing for the Future
By directing current profits toward savings and investments, you can prepare for future uncertainties or lay the groundwork for large-scale ventures.
The Circulation Structure of Capitalism and Money
In a capitalist economy, money continuously generates value by circulating without stopping.
| constituent elements | The Role of Money | Primary actions |
| household finances | Compensation for Labor and Consumption | Provide labor, earn wages, and consume or save |
| corporation | Investment and Production Tools | Raise funds, invest in equipment and personnel to generate added value. |
| Banks and Markets | Fund intermediation | Redirect surplus funds to where they are needed |
Summary: Money is a tool that expands possibilities
In capitalism, money is not merely “paper” or “data.”
It is the “energy that gives form to people’s desires and ideas.”
When money circulates appropriately and is reinvested, it has improved the convenience of our lives and advanced technology.
However, it simultaneously carries challenges like widening inequality and the pursuit of short-term profits.
Understanding money’s role correctly can be considered the “literacy” needed to navigate modern society.
