This is a series of conversation between two Economists, Akhilesh Verma and myself, Garima Dhir as we try to unravel and simplify various concepts of economics. In the previous post, we had discussed how the economy and formal markets came into being. In this post, we are going to take the story of the economy a bit forward and delve deeper into some of the ideas we had introduced in the previous post.
Garima Dhir: So picking up from where we left, in our last conversation, you had briefly spoken about “monetization” of land, labour and capital and the role of currency in market economy – does this mean money that we see today was born around at that time?
Akhilesh Verma: Money, like humans, has evolved over the years. Commercialization of land, labour and capital, did lead to the birth of money, but that money looked a bit different from what we see today. Let me tell you a story to explain this better.
Many years back, humans started producing fruits and vegetables as naturally occurring vegetation and hunt was not enough to sustain the population. When we started producing, in some years we were also able to produce more than what was required for our consumption. This created “Surplus”. Now it was difficult for an individual farmer to have a personal storage unit and so a common storage was created, which all the farmers could use. This in turn, required some kind of “receipt” for the grain stored. This receipt or record keeping gave birth to “Money”.
Workers were paid in shells that were engraved with numbers which indicated how much grain the rulers owed them for their labour in the field. These shells could also be exchanged for other products in the market. And this is how money came into being!
Garima Dhir: Now let me ask you a welfare-related question – Is market economy a good thing or a bad thing? And what can we do to gain most from the market economy?
Akhilesh Verma: There is no clear answer to this question. Our society is constantly changing, and the results are mixed. Market society has led to high growth, faster development, and rapid technological innovations but has resulted in high inequality too. To answer the second part of your question, we can do many things to gain the most from market economies, such as making better economic policies to reduce poverty and inequality, better technological innovation to bring its benefits to everyone, etc.
Garima Dhir: As you mentioned, the economy has evolved a lot and this would have added more nuance to the field of economics. Can you tell our readers how the field of economics looks like today?
Akhilesh Verma: You are absolutely right – the economy and therefore economics in today’s modern world has evolved substantially. It has many branches that deal with various problems. Think of doctors, for example, a heart surgeon is different from an eye doctor who differs from an orthopedic doctor. Similarly, economics is subdivided into many fields like macroeconomics which looks at economies of countries, then there is microeconomics which looks at decision making at individual level, there is also development economics that deals with matters of poverty, health, nutrition and then we have financial economics which analyses monetary activities and many more.
Garima Dhir: I know we would delve into each of these topics subsequently in this series, but in the meanwhile, could you tell us how economics or economists are relevant in today’s day and age?
Akhilesh Verma: Well, being an economist myself, I can tell you that we are everywhere and in all shapes and forms! For example, we help the government decide what would be their budget in any given year, we also suggest various policies that can be formulated for betterment of the society. For instance, some of these policies in India include Mahatma Gandhi National Rural Employment Guarantee Act, or commonly known as MGNREGA, that aims to guarantee ‘right to work’, or the mid-day meal programme that was designed to improve the nutrition level of school students and enable them to continue their education. A few welfare policies in US include Temporary Assistance for Need Families (TANF) that provides funds to states to help families with financial aid with the view of improving childcare assistance, job preparation, and work assistance. Another example is the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $ 2 trillion corona relief package, that was launched in March 2020, with a view to soften the negative economic impact from the coronavirus pandemic.
Sometimes we also guide private companies on how to place and market their products, or advise banks what schemes they should roll-out.
But most importantly, an economist is present in each one of us. In our daily lives we make critical choices – whom to vote for, which financial asset to buy, whether to save or whether to invest – all these decisions make us an economist in one way or the other.
Fun Fact! When metal currency came into being, it was too heavy to be circulated because the value of grain owned was in proportion to a large piece of iron!
‘Talking to My Daughter About the Economy: A Brief History of Capitalism’, Yanis Varoufakis, 2017
‘The Worldly Philosophers: The Lives, Times And Ideas Of The Great Economic Thinkers’, Robert Heilbroner, 1999