The reason money is not an economic resource is because it is not productive. For example, have you ever seen a copywriter write with money or an employee transporting goods from a factory with money instead of a logistics vehicle?
We create money, at least through the central bank. It’s just like we produce goods and services. But, unlike semi-finished goods, we cannot use the money to produce other goods.
But, indeed, in the modern economy, money plays a vital role. With it, we store wealth. We also use money to facilitate transactions, for example, to pay for the goods we buy. And, with money, we can judge the value of an item because money functions as a unit of account.
Money is not a productive resource.
Money may be scarce, and the central bank is responsible for printing it. However, if it is available in abundance – the central bank prints a lot of money – it can lead to high inflation and even hyperinflation.
Money does not contribute directly to production. Although rare, we cannot use it directly as an input or help the production process. For example, car manufacturers use aluminum inputs to produce car frames, not money. Likewise, to produce and process aluminum, they rely on robotic machines and workers, not money.
So, we cannot use money directly as inputs such as raw materials and components. Likewise, we cannot use it to help process raw materials such as capital goods and workers.
Money only facilitates transactions.
Money contributes indirectly to production. We use it only to facilitate trading. Businesses use it to buy capital goods such as machinery and equipment. They then use machinery and equipment to process raw materials and components instead of using money.
Then, with money, the business pays the workers wages or salaries. They can also provide perks such as insurance benefits and pensions with the money earned.
Lastly, businesses also use the money to pay suppliers of raw materials. They order the raw materials needed and then hand over the money as payment.
Money compared to other factors.
Land. Economists refer to land as what is available in nature and can be used to produce goods. Take wood, for example, and assume you operate a furniture business. You buy wood from loggers and process it into various furniture products. You pay the loggers with money.
Labor. You recruit several workers to process the wood you buy. Some workers operate with automatic machines. While others do some manual work or design your next product. Their input – mental and physical effort – helps your production process.
Capital. You may rely on several machines to scale your business operations as well as some other equipment. Like labor, you use machines to process input. And you are unlikely to use the money to process the wood you buy.
Entrepreneurship. It is about your efforts to start and operate a business. You take a risk by starting a business – you may succeed, and you may not. When realizing your commercial idea, you map out what you need to operate a furniture business. You think about where you buy your wood from, who you recruit and what machines you need. Your effort is a productive input because, without it, there is no business and furniture product.
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- Economic Efficiency: Meaning, Prerequisites, Why It Matters
- How are Economic Resources Allocated?
- Why Are Economic Resources Scarce?
- Why is Money Not an Economic Resource?
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- What Are the Consequences of Scarcity in Economics?