Background
“Cash” generally refers to physical currency in the form of notes and coins. In a broader context within economics, the term “cash” is often used synonymously with “money.”
Historical Context
The term “cash” has its roots in various languages. The English word “cash” comes from the Old French “casse” meaning a box for money, evolved from Latin “capsa.” With its widespread use in transactions around the world, cash has retained a fundamental position in both personal and economic discourse.
Definitions and Concepts
- Literal Definition: Cash is physical currency that includes notes (paper money) and coins.
- Extended Definition: In economics, the term “cash” can also represent liquid assets readily available for transactions such as checking account balances.
Major Analytical Frameworks
Classical Economics
In classical economics, cash mostly serves as a medium of exchange, a unit of account, and a store of value.
Neoclassical Economics
Neoclassical economists examine cash in terms of its liquidity and utility in market transactions, emphasizing its role in consumption, saving, and investments.
Keynesian Economics
Keynesian economists consider cash relevant for its impact on spending and savings habits. The liquidity preference theory explains people’s preference for cash against other forms of money based on motives such as precautionary and speculative use.
Marxian Economics
In Marxian economics, cash is analyzed within the framework of capital circulation and class dynamics, focusing on how money, including cash, factors into the creation of surplus value.
Institutional Economics
Institutional economists focus on the role of cash within different institutional setups, how cash usage varies across different societies, and regulatory practices affecting cash transactions.
Behavioral Economics
Behavioral economists look into how individuals interact with cash, highlighting psychological aspects, such as spending behavior changes when dealing with cash versus other forms of payment.
Post-Keynesian Economics
Post-Keynesians expand on Keynesian ideas to stress the importance of cash liquidity in influencing economic fluctuations and business cycle dynamics.
Austrian Economics
Austrian economists emphasize the role of cash in facilitating exchanges and argue for minimal government intervention in the money supply, viewing cash primarily as a product of free-market processes.
Development Economics
Cash plays a crucial role in development economics, with emphasis on how increasing cash availability and reducing remittance costs can spur economic development in less-developed areas.
Monetarism
Monetarists focus on the relationship between cash and inflation, asserting that changes in the cash supply directly affect price levels and overall economic stability.
Comparative Analysis
Comparatively, different economic frameworks uniquely prioritize aspects of cash—from its physical form in classical economics to its behavioral implications in modern behavioral economics. Each perspective sheds light on certain crucial roles cash plays in the economic system.
Case Studies
- Hyperinflation in Zimbabwe: Analysis of cash in instances of extreme debasement where physical currency becomes nearly valueless.
- Cashless Societies: Case studies look into countries and societies transitioning heavily towards digital payments like Sweden’s predominantly cashless transactions.
Suggested Books for Further Studies
- “Money: The Unauthorized Biography” by Felix Martin
- “Gold, Cash, or Credit: Exploring the Many Roles of Money in Modern Economies” by Michael Hudson
Related Terms with Definitions
- Cash Discount: A reduction offered to buyers who pay their bills promptly in cash.
- Cash Flow: The total amount of money being transferred into and out of a business, especially as affecting liquidity.
- Cash Limits: Budgetary constraints that set an upper limit on expenditure.
- Cash Ratio: The ratio of a company’s cash and cash equivalents to its total liabilities, assessing liquidity.
