Role of Money on People’s Freedom

Role of Money on People’s Freedom 1024 500 Crypto Rand Group

This study explores money, its functions and impact on people’s freedom.

From exchanging goods with goods then cash, and today’s digital currency i-e cryptocurrency, money has been a source of freedom to the man in various ways. The need for money was felt because of several inadequacies of the barter system. This journey from barter to bit, yet long, but proved to be very beneficial.  It provided the freedom of what you want and when you want. You no longer have to wait for the crops to get harvested to acquire something in exchange.  It has given the liberty of choice, thoughts, time, and of course, financial independence. Trade has become more refined with money that each party gets equivalent share i-e money or goods. Its non-economic and social influence in community-building also can’t be denied. But it can only provide freedom when you use it as a tool for freedom instead of being obsessed with obtaining more and more.

The Barter system was the first of its form that people started using in 9000 BC for trading purposes. Later in 1200 BC, people started using cowry shells. In 600 BC the first official currency was minted by King Alyattes of Lydia in modern-day Turkey to use as a standardized coin across the Mediterranean world for trade. Paper money was implemented in Europe in the 17th century while gold and silver were adopted as a standard for issuing the currency in the 18th century. Later in 1946 credit cards became the new form of money and mobile payments solution introduced in early years of 2000 AD. Cryptocurrencies are the latest form of currency which is digital in nature and mined on computer systems and recorded on blockchain technology.

How did people use to trade before money?

Before the money came into existence, a system called the barter system was the first system of its form for trading. It is defined as the exchange system where participants exchange goods/services with goods/services without depending on the middleman. In this kind of trade, each participant must want the thing that others have. This double coincidence of wants used to occur without any standard measure of value. For example, in a barter deal, a camel might be traded for ten goats. Introduced by Mesopotamian tribes and reached to colonial Americans, almost everything was exchanged for the other thing. At that time, spices, weapons, salt, deerskin, wheat, and even human skulls were used for barter dealings. It was the ideal utilization of natural resources without any wastage. But this system was not so stable. There was no involvement of consumer protection or warranty. The other person doesn’t know about others’ credibility, so it was limited to family and friends in the beginning. It was adopted on a larger scale also. But later on, lack of double coincidence of wants, the indivisibility of some goods, difficulty in making delayed payments, difficulty in storing value, lack of specialization, and a standard measure of value limit this system and raise the need for a system better than barter system.

Money and its evolution

Money is an economic unit that is accepted as payments for goods and services. It reduced the double coincidence of wants. It originated as commodity money- money whose value comes from a commodity of which it is made. It consists of objects having value or uses themselves and their values in buying goods.  Examples of commodities include gold, silver, copper, salt, cocoa beans, etc. The barter system was replaced with commodity money. There is another term used called fiat money. The government issues fiat money. It doesn’t have any use-value. But the value which it has is only because the government maintains and regulates the use of it. It includes coins and banknotes. Fiat money has no intrinsic value and was preferred because the government can control it. This evolution took a lot of time from barter to coins, paper money, plastic cards, electronic cards, and digital currency. But in the 21st century, cash has still made its place as a king, making 40% of Europeans think that cash will never be eliminated.  

Role of money

Just like other institutions, money has always played a vital role in economic and social functions in not only individuals life but for a whole economic system. 

Money as a medium of exchange

The primary role that money performs is a medium of exchange. It provides the most efficient ways to satisfy the wants. Each consumer has a different desire, and money enables him to fulfil his wishes accordingly. They can buy any goods or services with money, and everyone is willing to trade for money. It eliminates the double coincidence of wants. It serves as a medium of exchange, which is acceptable in all types of transactions irrespective of desires and goods. For example, you ask labour to clear your garden, and in return, you will pay him in the form of money. He can buy anything of his desire with this money. According to the classical theory of money, money is not a necessary medium of exchange, but anything that can be used to calculate price and is generally acceptable-can is money.

As a medium of exchange, money must possess the following properties:

  • It must be easily divided into fractions.
  • It must be easy to carry, not too heavy or bulky.
  • It must not counterfeit- people may not create their own money.
  • It must be long-lasting so that print doesn’t wash off or note tear off.
  • It must be acceptable in all types of transactions.

Money as a measure of value

It wasn’t easy to measure the value of goods with the barter system. But money gave the measure of value to everything. Things got a tag in terms of prices that enable people to compare different prices to check the relative costs of goods and services. It also allows the exchange of very different things with their actual values. For example, a tailor charges $50 to stitch your dress. This $50 can purchase you a pair of shoes also.

You can also buy various items with a total price of $50. Money is a common denominator that simplified the trade. As a measure of value, it can be divided so that the sum of each component equals the original cost. It must be fungible that its values remain the same without any in its value. It must be countable so that it can easily be subjected to mathematical operations. It serves two primary purposes; household consumers can easily organize their expenditures, and in a business record of income with profit and loss can be created.

Money as a standard for postponed payments

It is a widely accepted function of money to value deferred payments that allow acquiring goods now and paying for them in the future. Cash has made these postponed transactions- lending and borrowing, very easy. Several transactions take place in which money is not immediately paid. If it is standard for current prices, it must also be standard for future payments, so for postponed payments, money must retain as a standard. 

With the fluctuations in the value of money, the value of deferred payments also varies. Then the legal tender-US dollar is used to pay off the debt (deferred payment). Contract-based payments are also the fruit of money. This system was not possible with barter. For example, if you take a loan in the form of a commodity, there arises a problem of how you will repay this loan.  Similarly, you can’t value the service of labour in terms of a commodity.

Money as a store of value

The store of value is defined as anything that maintains its purchasing power in the future. Money keeps its value over time, so it serves the function of a store of value. You can save it to use in the future to make any purchases.  It is easier to store money instead of storing corn, wheat, and coal, etc. Because of liquidity that money offers, people prefer to do savings in the form of cash.  This function of money allows its owner to exchange for a similar or sometimes higher value, which is related to the market price. 

For this function, money must perform other functions i-e unit of exchange and a measure of value. Sometimes due to inflation because of rapid circulating supply, the currency loses its purchasing power, but it occurs slowly.  This function was not possible with the barter system. For example, if a farmer wants to do savings, and for this, he puts aside a certain amount of corn each week. He would have to face the problem of storage space; moreover, if the corn is destroyed because of rust or smut, he will be empty-handed.  

Money as a source of freedom

Money can buy you many things and the most important thing is it can buy you freedom.

  • Freedom of choice

Freedom of choice is described as an individual’s opportunity to perform a selected action from at least two available options. Money makes it easier for you to make your choices. You can better take care of your basic needs when you have enough money. You can also think above the necessities, improving your life, and focus on values such as self-esteem and achievements. But if you are worried about feeding your family all the time, you can’t think of anything else but food. You cannot make choices, where you want to live, what you want to eat, and where you want to study. A layman hardly meets his both ends meet, how can he think of making choices?

  • Freedom of time

When you have money, you are the boss. You can manage your time whatever the way you want. You don’t have to bother either; you are taking a day or so off. You have to parent your kid and don’t want to go to work today? No problem, you can stay at home. You want to visit someone out of the city, pack your bags now. These are examples of not being trapped by your work but having control over your life. It can only be achieved when you have money. You can’t imagine taking a day off when you don’t have enough money. You know that if you miss a day, it will cut your money, and you are fighting every day for each penny. You have to leave your kid at home while you are working out. You know if you will not work, your kid may die of hunger. Only money can buy you time, which you can then spend the way you want.

  • Convenience

Money can bring comfort to your life. When you have enough money, you don’t have to line up in a long line at a gas station to save just a few cents per gallon. You don’t have to sit for hours without electricity in the burning summer. If you don’t want to cook tonight, you can order out. If you are too busy with your work that you don’t have time to clean your home, you can hire a cleaning service. If you get tired of driving your car, you can have a driver. This list of convenience and bringing comfort to your life goes on increasing. This is only possible when you have enough money.

  • Symbol of power

If you have the money, you have the power to get what you want. You are socially acceptable for everyone. You can influence the behaviours of others. Everyone respects you. You get the power to hire someone and use his services for a lifetime by paying him in return. You get the power not just to change your personal life, but you can bring change to others’ lives. You can create opportunities for others, helping them manage their basic needs. Whereas when people have a low sense of power, they keep working to collect more and more money.

  • Community building

Money is a source of community building. Money gives you the freedom to create internal household relationships and making them more stable by emphasizing on the appreciation of one who worked to bring betterment in lifestyle. As a parent, you can admit your children to good institutions, making them responsible citizens. You can pay for their monthly expenses for school and colleges. You can give money to your kids as a gift. You can help them have a better future. This is possible when you have enough money.

  • Security

When you have enough money, you need not worry about health, house, and food problems. You can easily visit the doctor if you are sick. You don’t have to be anxious if there is a food shortage because of famine or having a roof overhead because of severe weather conditions. You can get things easily and quickly. You can easily live a peaceful life. But when you don’t have enough money, visiting a doctor merely seems like buying a new house.

  • Financial freedom

Financial freedom is one of the most significant advantages of having enough money. Financial freedom is defined as having enough money, investment, and cash to afford the life you want for yourself and your family. You can quickly pay your debts. You can save for future use. You can invest in medical insurance or contingency funds. You can take retirement earlier if you have enough money and enjoy the rest of your life doing things you love. These are the only possibilities that come with having enough money.

Negative Impact of Money

Having enough money gives you freedom, but it can have a negative impact as well. There are many rich people with a big heart and are humble. But most people change when they have money.

  • Pride

Pride is at the top of the list of negative impacts money can have. This pride comes in the form that people start believing that they are better and superior to others. This kind of mentality keeps on growing as the zeros in their bank account increase. They don’t value poor people. According to a study, it is observed that most of the people with expensive cars don’t stop for pedestrians to cross the road and completely ignore them.

  • Lessor fear of law

Having more money makes people think that they have no more questions before the law. They can violate it as they want. We often heard of accidents where a fast car killed the people who were sleeping on the footpath, driven by some rich lads. They often break the signals. Doing these, if they get charged for it, they have money, so they quickly pay without any regret.

  • Lack of knowledge of ground realities

They are enjoying their lives without any problem of food, home or medical. They have all the luxuries, that is why people with money don’t have any idea about other people’s issues. They have never been through the problems that a poor man has to face. They don’t feel the problems of others and consider them inferior. They don’t have any sympathy for them. The more amounts they have in their bank accounts, the smaller their hearts become. They don’t spend on poor people but are only preoccupied with obtaining more and more money.

How cryptocurrencies are adding to freedom?

Cryptocurrency is a type of digital money which is entirely a new class of asset. Satoshi Nakamoto invented it in 2008 as Bitcoin. It is a decentralized currency that doesn’t involve the need for any middleman. The records are stored in a computer database using cryptography to secure and verify transactions. The blockchain provides the validity of cryptocurrency. Blockchain is the most innovative technology which consists of blocks. Each block is linked through a hash function creating a chain. The data, once entered, can never be altered. Blockchain provides a high level of transparency, efficiency, better security, and can be traced back to the origin. These features of blockchain provide automation and highly reduced fraud in transactions. Because of blockchain, international trade is more accessible by accepting payments in different currencies. Cryptocurrency offers instant payments. Credit card transactions charge a high fee, whereas bitcoin transaction fees are meagre because there are no intermediaries. Cryptocurrency adoption is increasing rapidly because of the ease, and transparency is provided to users.

Bottom line

Freedom is a function of the choices one makes and the expectations that society imposes. Money gives you the freedom to do things you love about. Lack of money not only keeps you hand to mouth but also you can not do the things you are passionate about.  Money has paved the way to freedom. Money adds luxuries and comfort to your life but at the same time, it can destroy your well-being if you don’t use that freedom positively. Let money not control you rather control it and use it for progressive purposes.

Bibliography:

  1. “Top 6 functions of money”, economicsdiscussion.net. October 2015.
  2. “Social usage of money”, researchgate.net. July 2017.
  3. “Can money buy freedom?”, getrichslowly.org. 24 September 2019.
  4. “The secret to happiness”, financialmentor.com. August 2014.