The money as medium of exchange played an important role by having put to an
end the demerits of barter system. But if we observe the present day problems we
find that money also played an important role in creating and promoting these
problems. As it is said, "money can serve as a good slave, but not as a good
master". Again; "money is like an elephant which performs many a functions and
its presence in the circus makes the circus attractive and colorful. But if
this elephant gets mad it will create a disaster for the spectators". In the
same way, Prof. J.S. Mill says, "If money gets out of order it would give rise to
so many distinctive and independent effects". It means that J.S. Mill wanted to
control money. Now we see in detail the side merits and dangers of money.
(i) Misallocation of Resources: Under capitalistic economies the resources arc allocated under the signal of
money. But because of price distortions and market imperfections the prices do
not represent the real value of resources, particularly when due to monopolistic
forces the artificial shortage of resources and goods is created. Accordingly,
the allocation of resources on the basis of such prices will be un-optimal.
(ii) Unequal Income Distribution:
The capitalist system is run on the basis of wages, interest, profit and
rent. Such all is represented through money. But under capitalistic economies
the resources are misallocated. Such misallocation of resources is attributed to
the motive of self interest. The self interest often bypasses the social
interest. As a result, the monopolies in the business grow. The people engage
themselves in hoarding, speculation and artificial shortages. As a result, the
businessmen cum-hoarders earn extra-ordinary profits. While such state of
affairs worstly affects purchasing power of the poor buyers. Consequently, the
rich get rich and the poor get poor. In other words, there develops unequal
income distribution in the society.
All such is attributed to money. This is the reason that Karl Marx and other
socialist economists were highly against money. In this respect Karl Marx writes,
"Money is like a common whore and it can be accorded as a common pimp for the
people and the nations". He further says, "what a capitalist produces with the
help of labor of a worker its major part is pocketed by the capitalist himself
which Marx calls "Surplus value" such surplus value is responsible for economic
inequalities".
(iii) Trade Cycles: So many economists like Hawtry, Friedman and Shwartz are of the view that
trade cycles are generated due to money. In other words, money is responsible
for business fluctuations. As during boom when MEC is higher the producers in
order to earn more profits increase production. For this purpose, they pay
higher prices to factors and inputs. They are prepared to pay even the higher
interest rate. But in such situation, purchasing power of the people increases
more than the increase in production. In this way, there generates inflation in
the society. Because of inflation, a 'Mouse-Cat' game starts regarding rise in
prices and wages. The laboring class demands for higher wages, they go on
strikes; and the producers follow the policy of lock-outs. The banks ask for
repayment of loans. The combined result of this phenomenon is fall in profits of
the producers. In this way, the economic activities shrink and the economy
experiences depression. All this shows that money is responsible for inflation
and deflation.
(iv) Fluctuations in the Value of
Money: We told earlier that money is like a measure which can be used to measure
the values of goods and services. We also told that if money is accorded as a
yardstick it often goes on to shrink. It means that value of money often goes on
to fall. Now a days, govts. do not have control over their expenditures. As a
result, they have to face rising budget deficit While for the sake of economic
development govts., are bound to follow a cheap monetary policy. Thus, because
of these factors the supply of money goes on to rise persistently. While due to
structural problems the production remains lagging. Consequently, the prices in
a society go on rising. Whenever, the prices rise the value of money falls. The
rising prices badly affect the fixed income group whereas the businessmen and
merchants remain benefited. In this way, the gap between the rich and the poor
is widened leading to so many social and economic problems.
(v) Deficit in Balance of
Payments: In the presence of barter system the goods were traded directly both in case
of domestic trade as well as in case of foreign trade. As a result, the world
trade was least complicated under gold standard, the transactions were made on
the basis of gold. While under Bretton-Woods system, gold, dollar and pound were
the components of world's liquidity. But with the passage of time the role of
gold in world trade has diminished. As a result, all of the world trade is
transacted on the basis of US dollar. And in case of most of the countries, the
demand for dollars is far more than supply of dollars. Accordingly, they are
facing deficit in their BOPs.
To remove such deficit the countries have to devalue their currencies-or
borrow from IMF. Because of these factors the poor and the developing countries
are getting poor while the rich countries are getting rich. Thus the economists
are of the view that whether it is domestic disparity or international disparity
both are due to Money.
(vi) Social Disadvantages of Money:
In addition to above problems of money, money has led to create so many
social disadvantages. In modern societies, the corruption, bribery, difference
between social and private benefit, such all is attributed to money. To earn
money each proper and improper step is taken. The craze to earn more money has
disrupted the family life. The wealthy person is valued in a society while the
man without money is highly discarded. Once Ruskin said, "The ghost of money has
captured our souls. Any religion and philosophy of the world does not have power
to oust it". The German economist Lud-wig Von Mises, in his book "The Theory of
Money and Credit" writes: "Money is held responsible for theft, dishonesty,
corruption and murder.
Money is objected when a prostitute
involves in prostitution and a corrupt judge shatters the law and justice".
Some people are of the view that the negative role of money we presented
-earlier is based upon exaggeration. The smuggling, corruption, men, bribery and
ransom cases are due to behavior of the people, not due to money itself. Money
is a medium of exchange, it is store of value; and it is a means of deferred
payments. Money is in no way responsible for social unrest; the real
responsibility is with the people who are over-ambitious to earn money through
dis-social, uneconomic and illegal means.
