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Money - Why We Can't Live Without it

Ian is a passionate writer and blogger, with interest in money matters and online business

Money - Uganda ahillings

Money - Uganda ahillings

It's a popular saying, that 'money is the root of all evil'. Some people believe that perhaps, the world would be a safer place without money.

In my opinion, this is incorrect. The complex human mind is the true source of all evil. Money is simply a medium used to propagate evil. Vices like corruption and theft would still exist, even in the absence of the object of money. Although wealth is quantified with money, ancient societies valued wealth in terms of possessions such as oxen and donkeys. The natural desire to have more still compelled the faint-hearted to steal or to use dishonest scales as they shared.

Why is money so important?

The simple answer is; Money makes life smoother. It's the very reason why we work so hard. But would life be the same without money as it is today? We are steadily embracing digital currencies, but even these are a mere transformation of the monetary system that exists, rather than a direct replacement. So money isn't going anywhere.

While it's theoretically possible to have a world completely free of money, the practical aspect is questionable. Money is certainly not one of the basic needs that sustain life, but is so important that we simply can't live without it. It is the only effective means through which we can quantify the value of the basic needs such as food, clothing, and shelter, and is the only sure way of acquiring them for their true worth.

One would argue that the value we attach to different objects is a thing of the mind. For example, why should one stone be more valuable than another, yet both are extracted from the earth? But value is far from a mere illusion. It is a basic principle of life. One stone may be more useful in application than another, yet more scarce. This ultimately gives it more value. Additionally, a cow will naturally be considered worth more than a goat, even without the concept of money. This is simply because a cow can feed three times the number of people that can feed on a goat. A cow is thus of more value than a goat. Money simply quantifies this value and simplifies exchange.

A world without money would be difficult, and this is why;

Money as we know it, is an object that is generally accepted as payment for goods and services. Society has evolved from the use of commodity money such as gold and silver, to the use of what economists refer to as ‘fiat money’.

Fiat money has value only by government order and does not derive its value from intrinsic value such as Gold (commodity money). It is thus true that the object of money as used today may itself have no significant value on its own. In other words, it derives its value from a mutual agreement by members of society.

There is no doubt that trade is responsible for the global economic evolution we enjoy today. Eliminating money from the picture means that we would need an alternative medium of trade to have continuous development. The easiest alternative would be a system of batter trade.

But would this be effective? Certainly not. An effective system should be able to provide a fair, comprehensive medium of exchange of goods and services in relation to their worth, as well as act as a store for value that can be saved for future use and be predictably used as medium of exchange when retrieved. This can only be achieved with the use of money.

can-we-live-without-money

A possible computation of exchange rates for different items in a batter trade system

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The table represents an exchange rate for items as would be found in the market under a batter trade system. One liter of milk would be exchanged for 0.5 liters of cooking oil, while one kilo of beans would be exchanged for 0.5 kg of rice

 Rice(1kg)Milk(1ltr)Cooking Oil(1ltr)Beans(1kg)

Rice(1kg)

1

3

2

2

Milk(1ltr)

0.33

1

0.5

3

Oil(1ltr)

0.5

2

1

7

Beans(1kg)

0.5

0.33

0.14

1

What would the world be like without Money?

The biggest challenge in a world without money comes from the fact that human wants and needs are never constant. They vary from time to time, and from one individual to another. They are thus inconsistent and unpredictable. The other problem is that it is difficult to have an environment that abundantly provides every item one requires, to live a comfortable life. This is where the idea of sharing fails. If I want tomatoes but you have oranges, then sharing with me your oranges does not satisfy my want. It means I need to look for a stranger who has tomatoes, from whom I will have to beg. The option of begging is tricky because it does not guarantee that I will get as many tomatoes as I need, or that this person will have enough tomatoes to share with me to my satisfaction, and still have enough for him to adequately use in the days to come. Therefore trade and competition become inevitable.

The absence of money would mean that if you needed to get tomatoes, oil, beans, and potatoes, you would have to walk into a market with some items for exchange. The probability of finding a person who needs the exact items you have brought for exchange is so unpredictable.

One economist suggests that a batter system would require a complex matrix of exchange rate, for every pair of products. For example; if you have rice, you'd have to know how many kilograms of it you need, to exchange for every product you want. See the table below.

Imagine how costly it would be to compute this matrix for 1000 items. This is why money is a necessity.

The other problem would be the inability to save. Many times you don’t want to simply exchange a product for another. You just want a promise to exchange for the product at a future time. Money can be kept and will stay for long periods, unlike physical products. For example, the milk you got for beans may not stay intact for such a long time. You can therefore not exchange it for another product 7 months later. In other words, you cannot reliably store value in goods because they easily spoil.

There would also be difficulty comparing value for organic items against factory products. For example, how many clusters of bananas would I need to exchange for a tin of margarine from a local store? Sustaining production would also be complex. The amount of resources needed to produce a smartphone is what determines its market value.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2014 Ian Batanda

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