What is money and why do we need it Historic evolvement of money: economic perspective - Essay Example

?Full What is Money and Why Do We Need It? Historic Evolvement of Money: Economic Perspective Economists such as Crowther and R.P. Kent define money as “a commodity which is generally acceptable as a medium of exchange and at the same time acts as a measure and a store of value" (Economics Concepts, 2012). In the ancient societies such a generally acceptable commodity became important with advancement of indirect transactions. Example: in a society where money is not involved a farmer produced wheat. He also needs salt. Salt producer wishes to acquire fish but not wheat. Hence the farmer would have firstly exchanged his wheat for fish and then fish for salt. Instead money could enable farmer to purchase salt directly from the producer without involving fisherman. Division of labor thus fueled emerging of money. Due to the fact that money could facilitate exchanging of any good or services people started to store money for future consumption. Thus the role of money as a store of value also became prominent. In early societies silver and/or gold coins were used as money. In time trading of goods and services became a large scale practice in the societies. And the amount of silver and gold became insufficient to exchange the amount of goods and services circulating in the economy. Currently the governments produce notes and coins and supply them to the economy for facilitating trade. However government gold reserves still serve as an indication of country’s wealth. It is also argued that evolving of money has not yet reached the highest possible stage because the current day money is not generally accepted as a medium of exchanging across country borders. Hence development of Euro which is generally accepted across all the countries in European Union can be considered as the most advanced stage of money currently in the world (Ludwig von, 1981). Secondary Functions of Money in the Contemporary Societies In the current societies money also facilitate exchanging of future consumption to the present consumption. This is done via credit systems. Health insurance systems functions in reverse order. Health insurance allows people to sacrifice present consumption in order to protect from future hazards. And also money enables people to acquire properties which are distantly located. Hence storing of value through time and space is considered as a secondary role of money in the contemporary societies. Seemingly money based market systems are associated with a number of advantages. However the drawbacks of money lead societies include deterioration of quality of family unit and development of moral ignorance. Welfare Impacts of Developing Market Mechanism Example: in early societies the role of mother or women was explicitly different from the current scenarios. Women were engaged in fulltime house-making, raising children, caring of husbands and so on. According to the early researches the number of labor hours spent by women on these activities per week was approximately equal to the number of hours men worked in paid formal jobs. With time women’s motivation centered more on salary income and hence a tradeoff between love and money has been created (Folbre and Nelson, 2000). As a result the social welfare of women has increased. The poverty of women has decreased. Nevertheless one can also presume decreasing of time spent with the family may have resulted in increasing family problems, deteriorating the quality of family life and increasing mental health issues such as stress, depression and anxiety in the society. Such issues can be the impact of trading off between “love” and “money”. Further the performances of children who are raised under lower parental caring can be adversely affected. Thus the productivity of future labor force is at a stake. Moral Issues Associated With the Market Mechanism Some economists argue that decreasing of fertility rate and advancement of technologies has lifted the family burden of raising children. Hence contemporary women been employed in formal, paid and market-work is inevitable. Nevertheless one has to be modest in admitting the fact that economics theories are not perfect. Economics theory of consumer is lead by the single assumption that consumers wish to maximize their “utility” while the producer wish to maximize individual “profit.” Human beings are not lead by mere self centered objectives as suggested by these theories (Sandel, 2012). A mother whose child died untimely would have given up all the money and borrow more if that could save child’s life. These are undeniable facts regarding human nature. Michael Sandel, a politics professor at university of Harvard recently opened the eyes of society to the drawbacks in money lead societies. His book What Money Can't Buy is a study of "the moral limits of markets. After providing a number of examples of societal corruption lead by market based economy Michael Sandel asks readers “Are there certain moral and civic goods that markets do not honour and money cannot buy?” The answer is yes. Money in fact is an illusion (Sheptun Alla, 1998). It is an artificial commodity useful for exchanging goods and services. There are also societal values, norms and qualities which characteristically distinguish human beings from other animals. Such attributes include emotions such as loving kindness, compassion and sense of justice. Such moral qualities are often challenged in money lead economies. Example: in market economies individuals may pay for “jumping the queue” instead of waiting for their turn. In other words bribing is justifiable in sense of economics. Michael Sandel writes “People should be free to buy and sell whatever they please. As long as they don’t violate anyone’s rights” (Page 29) and “market choices are not free choices if some people are desperately poor or lack the ability to bargain on fair terms” (Page 112). Economists advocate free market as the ideal mechanism for optimum resource allocation. This is a widespread delusion. All the individuals in the society do not own the same amount of wealth. The income inequality of any country in the world is substantially above zero. Hence individuals are “compelled” for taking decisions based on the status of their money. How can “compelling” be described as the freedom? Further Sandel shows how the dead peasants insurance and “viaticals” have change the moral values of health care industry. Placing a monetary value on human life has been a persisting debate even among the strongest advocates of economics theory. However the original motive behind expanding health care insurance was to relieve the survivors at loss of their life supporters. Gradually insurance industry has corrupted to the point where human life is gambled for money. Example: “viaticals” were an insurance policy provided for the well being of people infected with Aids. Accordingly the insurance company pays for the caring of dying patient. In other words sooner the patient dies higher the profit for the insurance company. Does this not encourage murdering of human beings who are ill? (Lanchester John, 2012). If the market mechanism was perfect human life should have received the highest possible monetary value in the market because “literally” people are controlling money not money is controlling people. “Money makes us both master and slave. Our power over money is real only inasmuch as we are able to understand its power over us” (Sheptun Alla, 1998). As described previously money is a human invention. Hence money cannot be superior to human life ideally. But this is not true. Encroachment of market mechanism into unsuitable avenues of human life has resulted in loss of our control over money. Example: Michael Sandel writes “markets and market-orientated thinking reach into spheres of life traditionally governed by non market norms – health, education, procreation, refugee policy, environmental protection” (pp. 79). He strongly refuses pricing of environmental goods and services. Further it can be seen that contemporary educational institutes are lead my market mechanism. The quality of graduates produced by these institutes has become a second thought. Attracting a larger number of students and offering higher number of courses has become the mission of most of the private educational institutes. Many years ago the purpose of education was to awaken wisdom and plant discipline in human beings. However the development of institualization and authority in education sector has stimulated profit motivations rather than enhancing human wisdom or discipline. Thus Michael Sandel writes “Our only hope of keeping markets in their place is to deliberate openly and publicly about the meaning of the goods and social practices we prize.”(pp. 202) Michael Sandel suggests acknowledging the significance of non-market relationships, moral values and ethics as the only solution to discourage this corruption. But the question is it possible? It is not possible to change this deeply rooted system over one night. Nevertheless it is said that “being late is better than never.” At the current rate of market encroachment our future is dreadful to imagine. One day human beings who are ill and economically unproductive will be culled by the others. What is the purpose human wisdom if “money” can make people slaves? Michael Sandel writes “Democracy does not require prefect equality, but it does require that citizens share in a common life” (pp. 203). Sharing a common life is applicable to those who are elderly, ill, disabled and also poor. Summery To sum up, money is an important commodity which was invented by ancient civilizations for the purpose of facilitating convenient exchanging of goods and services between individuals. Money does not have to rule human life. Instead discouraging its encroachment into unsuitable avenues is important. All the human relationships should not be placed a monetary value. Simply money is best when it is kept at its own place in the human society. References “Definition and Concept of Money” Economics Concepts. 2012. Web. 09 December 2012 Folbre, Nancy and Nelson, Julie A. “For Love or Money -- Or Both?” The Journal of Economic Perspectives, American Economic Association 14: 4 (Autumn, 2000):123-140. Print Lanchester, John. “What Money Can't Buy by Michael Sandel – review.” The Guardian, Book of the Week. The Guardian. 17 May 2012. Web. 09 December 2012 Ludwig von, Mises. “The Theory of Money and Credit.” Library of Economics and Liberty. Indianapolis, IN: Liberty Fund, Inc. LibertyClassics, 1981. Web. 09 December 2012 Sandel, Michael What Money Can't Buy: The Moral Limits of Markets. Allen Lane. London, 2012. Print Sheptun, Alla. “Philosophy of Money.” Twentieth World Congress of Philosophy. Boston, Massachusetts U.S.A. 10-15 August 1998. Web. 09 December 2012 Read More