Money matters

From barters, we have for long become accustomed to using money in our trades. Many things changed with the advent of money.

If you think about it, we are still using the barter system. The only difference is that money has become an intermediary; the means to complete an exchange. If you don’t agree, then answer this question – do you consume money? Of course not – you consume goods and services bought with money. And how do you make money - by exchanging something, like your labor. So effectively, you are exchanging your labor to buy something you wanted.

Money decoupled the barter transaction. In a barter trade, you knew exactly what you were giving up in exchange for something that you wanted. In the example of my previous post, you knew that spending half a day’s labor will get you one stomach full of food in exchange. If your neighbor asked you to spend a full day’s labor in exchange for one meal, you may disagree and demand that you need two meals in a day to survive. Today, if you buy yourself an expensive piece of clothing, it may never occur to you that you are bartering a day’s labor (for example) in exchange for your dress.

With money, came the disease of “poverty”. A simple definition of poverty is “the state of being poor”. A poor person is the one who lacks the means to access goods and services to meet his basic needs. The reference here is to absolute poverty and not relative poverty.

In the Stone Age, no one may have been ‘poor’ as natural resources were available in abundance to meet the needs of a tiny human population. Even today, Earth has sufficient resources to support the ever growing human race. Then why do we have the ‘poor’? The answer is clear – our economic systems have denied the poor access to basic necessities. Unlike in the Stone Age, our civilized society attaches a cost to every natural resource and consequently, to every human activity. In simple terms, for a poor person, there is a mismatch between his purchasing power and the cost of satisfying his basic needs like food, water, shelter, clothing, sanitation, education and healthcare.

As we shall see in future posts, the way we control access to natural resources, the way we price everything and the way we have arranged our economic affairs are largely responsible for creating conditions of absolute poverty for a large number of people.