The emergence of financial relations

In our brief review we will try to get a general idea of ​​the financial system, the origins of its formation and the main functions

In order to understand when finance arose, first of all you need to decide what it is.

Translated from French, the word “finances” means “cash”. Everyday, in everyday life, we often use the word “finance,” usually meaning this equivalent of the French word “money.”

But in modern economic theory, the word “Finance” has a different meaning. “Finance” is considered to be a process associated with the accumulation, transformation and control of the use of monetary funds. That is, “Finance” is flows money, and not money itself.

In the scientific literature, the functions of finance are described, which can be reduced to the following three points:

1. Accumulation (formation of monetary funds);

2. Management (distribution and redistribution of funds);

3. Control (compliance with the intended use of funds). 

Whereas the functions of money are:

1. Expression of the measure of value;

2. Payments;

3. General equivalent.

In order to clearly imagine the concept of “finance”, you can compare “private finance” and “private funds”. 

For example, wages are “private funds”. Purchasing goods is not yet a financial transaction, because it is a function of money. And receiving wages, forming a family budget, distributing it to maintain a home, family, car, culture and education, and accumulating savings are “private finances.” 

Although finance is inherently part of monetary relations, here is an example when private finance existed in society before the emergence and widespread use of money. 

The transfer of tools or hunting weapons for use on the basis of remuneration for its use in the form of part of the harvest or production is “primitive” financial leasing. It can be considered that the evolution of the development of the economic system begins with the first financial transaction of private finance. 

Currently the structure of the financial system consists of public finance, enterprise finance and private finance.. And this system cannot fully exist without its subjects:

- Financial markets (Forex market, stock market, cryptocurrency market); 

- Financial institutions (Banks, insurance companies, financial organizations, financial funds, etc.);

- Financial activities (Banking, insurance, investing, leasing)

- Financial instruments (Budget, financing, financial assets, financial control and management);

Thus, the financial system is a set of relations between its subjects that are aimed at implementing basic financial functions.

This is a general idea of the structure of the financial system. What was the impetus that turned “private finance” into a modern financial system - read in our next review.