Evils of Money

Money is derived from the Latin word Moneta, which is another name for the Goddess Juno of Rome. The first mint was established in Rome in the temple of the Goddess Juno or Moneta. Money cannot be explained only in terms of the matter it embodies, such as metal or paper. It should be explained by the purpose or use it provides. Money performs four primary functions: medium of exchange, measure of value, store of value, and standard for deferred payments. Therefore, anything that is commonly accepted as a medium of exchange, a measure of value, a store of value, and a standard for deferred payments is referred to as Money. In general, Money refers to Notes, Coins, and Bank-cheques. However, economists continue to disagree on this point.

Definitions of Money

It is impossible to provide an undisputed, widely accepted definition of money. Usually, one of the two approaches for the term “money” is used:

1. Money is defined as anything that can be used to pay for goods and services or to settle debts.
2. Money is defined as anything that serves as a means of trade, a measure of value, and a store of value.

Evils of Money

Money is a good servant but a bad master. It means that as long as the supply of money is regulated and controlled, money provides significant contributions in all aspects of life; but, when the supply of money gets uncontrolled, it becomes the source of multiple evils in society. Prof. Robertson adds, “Money, which is a source of so many blessings to mankind, becomes evil also, unless one can control it, a source of peril and confusion.” Evils can be of two types: Economic Evils and Social Evils.

(I) Economic Evils

Money results in the following economic evils:

1. Instability of Value of Money:

The value of money does not remain constant. It frequently changes from time to time. With the introduction of paper money and bank money, this instability has increased even further. Money-value instability has two different aspects:

1. Inflation: In this situation, prices have a tendency to rise continuously. This has a negative impact on the poor and middle classes of society. While the rich get richer, the poor get even poorer. People start losing their faith in money when the rate of inflation is really high. The system as a whole then tends to collapse.
2. Deflation: When prices fall drastically, production and employment are adversely affected. This causes unemployment, which increases the problems of the poorer sections of society.

2. Trade Cycles:

Money creates trade cycles. In fact, money is one of the primary causes of trade cycles. Keynes believed that an imbalance between saving and investing decisions causes trade cycles. Money is involved in both saving and investing. Therefore, the primary cause of trade cycles is money. These cycles cause a disruption in the system as a whole.

3. Over-Capitalisation:

The development of money has made a variety of credit facilities feasible. This has promoted a lot of investment in industrial production. Over-capitalisation frequently leads to overproduction. Additionally, excess output results in unemployment and uncertainty. This negatively impacted the perspective of investors. The economy’s rate of growth decreases and investment is decreased.

4. Economic Wastage:

Money has increased the availability of credit. As a result, loans are generally raised for non-productive activities. This is one of the primary causes of the growing indebtedness of people in general.

The Indian farmer is said to be “born in debt, lives in debt, and dies in debt.”

5. Unequal Wealth Distribution:

Money causes unequal wealth distribution. There is a concentration of wealth in fewer hands, and monopolistic tendencies rise. Hence, inequality in wealth and income becomes more clear. Rich and powerful people take advantage of the system to increase their wealth. These people have a tendency to build monopolies over the majority of production units in the country. Thus, money causes class conflict.

6. Problem of Black Money:

Money has given rise to the problem of black money. Money has made it easier to engage in economic crimes. Taxes are easily evaded because of money. The monetary rates of progressive taxation are set so high that tax evasion becomes highly profitable. Black money undermines the monetary and fiscal policies of the government.

7. Strengthens Capitalism:

Money reinforces and strengthens capitalism. As we already know, money has given birth to credit because of which rich businessmen can easily obtain borrowed funds to expand their business. Simply put, in a capitalist economy, the rich people get richer and the capital gets concentrated in their hands giving rise to inequality in income and wealth distribution in the economy. Besides, over a time period. these inequalities may result in a violent revolution as once happened in China and the Soviet Union.

8. Money and Purchasing Power may not be Synonymous:

Generally, we use money and purchasing power as synonymous. It means that if a person has money, he automatically has purchasing power. However, under some extraordinary circumstances, money and purchasing power may not be synonymous. It means that the situation of a person having money but lacking purchasing power is possible. The people of German faced this situation after the First World War. At that time, the price in Germany increased at a high rate due to inflation and the value of German Mark had fallen almost to zero. Even though the German people during that time had money with them, they lacked the purchasing power required for use.

9. Money tends to become the Master, instead of being a Servant:

As long as money is kept under control, it is beneficial to mankind and functions as its servant. But, once it goes out of control, it becomes harmful to the entire economy. In simple terms, when the supply of money is more than its demand, the consequences are bad. In those situations, in spite of being a man’s servant, it becomes a man’s master.

(II) Social Evils

The social evils of money are as under:

1. Promotes Materialism:

Money promotes materialism. It has developed as an indicator of success or failure in social life. According to Ruskin, “The evil of money has come to possess our souls,”. No religion or philosophy seemed to have the power to drive it out. Money has become so important that it has entirely overshadowed traditional values such as honesty, love, and faith. Everything is being measured on a monetary scale.

2. Tendency of Exploitation:

There is a mad race to make money by fair or foul means. To make money, one does not hesitate to exploit others. According to Davenport, “It has enabled strong nations to destroy backward communities in order to win them over with financial aid.”

3. Increase in Immoral Tendencies:

The money craze has said good-by to life’s moral principles. Bribery, black-marketing, deceit, and a variety of other evils are all related to money. According to Prof. L.V. Mises, “Money is regarded as the cause of theft and murder, of deception and betrayal”.

After taking the above evils into consideration, some eminent thinkers have favoured the abolition of money altogether. But, in present times, this suggestion has very less practical value. Without money, the capitalist economy would not have any existence and people may have to face the difficulties and perils of the barter system. However, there is a possibility that a socialist economy can function without money. But, even they would need money as a unit of account. Hence, abolishing money altogether is not a good suggestion. Instead of abolishing money, it is essential to remove or minimise its evils as much as possible. It can be done with the help of a well-conceived and well-executed international monetary system. 

1. Cheap Money

Cheap money is money that can be borrowed with a very low-interest rate or price for borrowing. It is good for borrowers, but bad for investors, who will see the same low-interest rates on investments like savings accounts, money market funds, commercial deposits, and bonds.

2. Credit Squeeze

Credit squeeze refers to the control of credit facilities as an instrument of economic policy associated with restrictions on bank loans and overdrafts, raised interest rates, etc.

3. Financial Literacy

Financial literacy refers to the ability to understand and apply different financial skills effectively, including personal financial management, budgeting, and saving. Financial literacy makes individuals become self-sufficient so that financial stability can be accomplished.