Highlights

Concept of Money – Flaws in the existing financial Systems – Cause for Boom-and-Bust Cycles – Ensuring circulation of money – Barter systems – Exchange rate mechanism.

Quotations for Consideration

“The 1^st panacea of a mismanaged Nation is excessive inflation of the currency; the 2^nd is war. Both bring a temporary prosperity; a permanent ruin.” – Ernest Hemingway.

“An economist is an expert who will know tomorrow why the things he predicted yesterday did not happen today.” – Laurence J. Peter.

“Expert predictions have a lousy record. An expert will always have an explanation for anything in hindsight, and will rarely accept that his earlier prediction was wrong. There is not much risk for experts who make predictions, as their rules for play are “Heads: I win, Tails: You forget we had a bet.” – Dan Gardener

“The difficulty lies not in the new ideas but in escaping from the old ones” – John Maynard Keynes

“Money is like manure; it’s not worth a thing unless it’s spread around encouraging young things to grow” – Thornton Wilders

Key Concepts

• The many Boom and Bust cycles in the history of our Financial System arise out of fundamental flaws inherent in our concept of money and how it operates in the Financial System.
• An effective, steady and robust Financial System must be in consonance with the universally applicable Nature’s Laws. Flaws arise when the concepts underlying the systems are in contravention of such Laws.
• Busts come when short term over borrowing is resorted to, to make long term investments in non- productive properties / assets which do not really have any inherent potential for growth to justify the values claimed and when the compounding interest makes the value of money untenable.
• Money must first be recognized for what it is and second the financial system in which it moves and operates must also, be understood. Identification of inherent flaws therein and redesigning of the Financial System will result in a more resilient and effective system that encourages steady growth and best maintains the value of Money.
• Money, as a store of value and as a means of exchange, makes trade and transactions possible in todays’ global world. It also greatly empowers those who control its flow and allows them to in turn influence policies and even manage governments.

The International Financial System has experienced many ‘Boom and Bust’ cycles ever since the establishment of Capital Markets. Each time a great many financial analysts have written many analyses about the ‘root cause’ of the most recent ‘Bust’. However, there has been no success in preventing such ‘Busts’ from recurring. Also, as the ‘root cause’ is differently identified each time, it raises the question that perhaps each such ‘root cause’ is not actually the real ‘root cause’ but only an effect symptomatic of a more fundamental flaw.

The real and only cause of such ‘Busts’ cyclically following every ‘Boom’ in the financial system perhaps arises out of some fundamental flaws in the very concept of ‘Money’ and how it operates in the current Financial System.

To prevent such ‘Busts’ following ‘Booms’ in future, and to ensure that the growth of wealth in the System is continuous and steady and not a short lived ‘Boom or Bubble’, we need to identify the flaws in the current Financial System and redesign the System eliminating such flaws.

Money

‘Money’, has always been seen as being represented by something of value, initially by cowrie shells or livestock or grain, the value of which tended to reduce over time due to natural causes. Later it began to be represented by tools or other items of value whose reduction in value over time was much less. Even later it began to be represented by the ‘Notes’ issued by Goldsmiths or Traders for acceptance and exchange by their relatives/ representatives elsewhere, a much safer way to have it where required than actually carrying it through dacoit infested regions.

The invention of the idea of ‘Money’, as a mutual recognition of the value of the effort or cost embedded in each product or service by both the parties to a transaction, (the seller and the buyer), and as a medium of exchange that could replace the direct barter system and allow for easier and longer flows of trading, was a major milestone in the growth of human economics and brought about an unprecedented increase of wealth.

As Robert Frenay writes in ‘Pulse’ – People needed to be transactors before gaining recognition as producers or consumers. Production for self -consumption clearly does not generate any growth in wealth, it is only when one’s surplus production can be profitable traded, for the surplus production of different items of others, can wealth be generated. Since money is the medium of exchange for such trading, it is evident that it is the circulation of money that really determines the health of the economy and it is only the mutual perception of benefit that each of the parties to the transaction has, that generates added value to each transaction thus adding wealth to the overall economy.

Money is not by itself an evil or bad thing. lnfact, as Shiv Khera says, earning money dharmically is actually a spiritual endeavour generating wealth and prosperity and hence, should be encouraged. Money in good hands does good, while money in bad hands does evil and it is the love of money by such bad people that is the root of evil. ‘Loving money while using people is bad, while loving people and using money is right’. Seeking wages or grants without working amounts to stealing and should not be encouraged.

Money… is also seen as a thing which can be lent or rented out for a payment of fee, which we call ‘interest’ and as something that exists by itself and doesn’t rot or corrode or dissipate or lose value over time as does everything else in Nature.

Today ‘Money’ is in the form of currency – which, till 1971 was linked to gold, but thereafter is only a promissory note, promising to pay something to the bearer, in some tangible form, at some other time or place, by someone else and hence, that has value that depends only on trust. Trust in the promise of the issuer which allows it wide recognition and acceptance and hence, encourages circulation. Trust in the currency also, rests on the premise that the issuer has ensured that some real assets of equal value underlie the currency issued.

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