Thursday, March 8, 2012

What is Money ?

Money was a mystery for me during my childhood. As a school boy, I remember asking my father many times why this printed paper called the Rupee note or simply the note which was also called money was such a valuable thing.

I was not sure why those printed papers and those small metal pieces were so valuable.

I kept wondering why the shop keepers gave us many things in exchange of these small pieces of printed paper.

If that was so, why couldn't any one print more such papers so that we all have plenty of it and get all the things that we wanted by giving those papers to who wished to exchange their goods for those papers.

My father used to explain in vain about other abstract things like government ('Sarkar' or സര്‍ക്കാര്‍ in my  native language Malayalam) and the sole powers of the Sarkar to print such papers or make those metal coins that we treated as money. If others tried to make those things the Sarkar would catch them and punish them, I was informed.

So these two names, money and Sarkar remained too abstract for me to understand.

For many years I didn't know what is Sarkar and what is money.

I have been in search of true answers to these two questions all these years. I did not get an opportunity to get convincing answers to these from authentic sources until now.

No schools taught about it convincingly. At least the schools I studied did not.

No colleges taught about it either. At least the colleges I studied did not .

So I ventured beyond that and started reading books written by eminent economists and administrators.

They were all so confusing and full of jargons that did not go into my head, but flew over it.

Then it all became clear to me somehow.

But just as my father might have felt, I was finding it difficult to explain these things to my son when he was as becoming curious with these.

I was thinking how to explain these things in simple terms to laymen.

Then one day I remembered seeing a game of cards that a group of ruffians were playing in a hide out in our village, years ago.

I did not know how to play the game.

But I saw them playing. Six of them in all. And another one just sat there not playing, but with a small book and pencil with him.

As the six kept playing this lone one kept writing numbers in his book.

At the end of the game, the one who kept the book began adding and subtracting the numbers against each of the names of the six who were playing.

He also had a small cotton bag which contained some cashew nuts which he had colllected initially from the six players for joining in the game as a player.

At the end of the game, he distributed some nuts to a few of them as a reward for winning the game in accordance with the numbers he had in his book.

But he had more nuts in his bag even after distributing some to some of them.
There were some protest.

But there was some thing in this man that the others seemed scared of him.

So the murmers soon ended when this man stared gravely.

So he is the sarkar of the game ! Those six are the people ! The nuts are the money ! You can replace anything with the nuts.

But sarkar and people have to be there.

No sarkar and no people, then money means nothing !

Did you get it ?

Now let me explain some fundamentals of money and money making that I have learnt through my own observations for the last many years.

As you already know, I am not a certified or branded economist. I have not got any formal certifications from any authorized agency and hence I am not 'authorized' to make 'learned' opinions on economics or money. However, by any accident of chance, if I happen to occupy any official position in the government (for example using some 'political connections') which could brand me as an economist then my views could find a place in the laws of economics with the possible support of the so called 'media'!

So let me write down some universal truths which I have observed on money :

1. Money is the measure of value of a thing or service as determined by the people with sufficient general acceptance.

2. Units of money are country or region specific, such as dollar, rupee, pound, etc. which are enforced by governmental agencies on the basis of statutory rules and systems.

3. Since there can be a value for every thing, real and unreal, money represents the value of both real things such as potatoes, rice, wheat, petrol, milk, iron, gold, etc and unreal (abstract) things such as work, beauty, entertainment, enjoyment, assurance, services, opportunity, etc.

4. Money accumulated by transactions of goods and services is called fluid money which is either kept as mere numbers in bank accounts or kept in visible form as 'currency notes' or coins.

5. Accumulation of fluid money with individuals in such levels than they normally require for normal transactions can cause a deterioration in the measure of value for goods and services. Hence for any money system to work efficiently, clever systems of blocking the accumulation of fluid money has to be incorporated which are generally and legally accepted. One of the process of blocking fluid money is by creation of assets with a value measured in terms of money, such as buildings, shares, jewelry, artifacts, etc and its periodic destruction.

6. The factors which govern the build up of money by individuals and groups are essentially rules made by the government and the cleverness and efforts of people to make use of those rules.

7. Doing activities involving transactions of money is called business. If all activities are in accordance with the laws and rules of the government, the business is legal. Otherwise it is illegal.

8. Illegal business has the potential to make money which is called 'black money' which simply means money made through means not allowed by the government or not vetted by the government.

9. An economy whose money build ups are based on transactions of goods and services on an equitable basis is likely to be more stable than an economy which relies more on services.

10. An economy which provides opportunities for all families with a steady money source for meeting their expenses on food, clothing, shelter, transport, entertainment, health, education and contingencies can be deemed as well managed. A well managed economy is likely to make faster progress in overall civilization if not prevented by internal or external forces vitiating such a progress.

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