Written by Money plays an important role in modern societies.
In our society today, money serves as a medium of exchange, allowing individuals and businesses to conduct transactions.
Money also serves as a unit of measurement, allowing individuals and businesses to measure the value of a good in terms of money.
Further, money also serves as a store of wealth, which means individuals and businesses can transfer wealth from the present to the future.
However, while money provides many benefits, it also has its own faults and defects.
These can be categorized into economic and social defects, which we will explore further in this post.
Economic defects of Money
1. Instability in the value of money: One of the biggest flaws of money—if not the biggest—is the inability to maintain its value over time.
Due to the forces of demand and supply of money, the value of money is bound to rise and fall.
If the value of money decreases, it implies that the general price level has risen or that there is inflation.
On the other hand, deflation occurs when the value of money increases, leading to a drop in the general level of prices.
Both rise and fall in the value of money adversely affect different sections of the economy.
For example, when the value of money drops, goods become more expensive and people on fixed-income suffers because the purchasing power of their money will decrease.
On the other hand, when the value of money increases, consumer spending declines because consumers are encouraged to save money instead of spending it.
2. Unequal distribution of wealth and income: Changes in the value of money lead to a distortion in the distribution of income and widen the gap between the rich and the poor.
Whenever there are changes in the value of money, different sections of the economy are affected differently.
While some may benefit, others may suffer from the changes in the value of money.
For example, fixed-income earners suffer whenever there is a fall in the value of money as goods become expensive because their incomes are fixed.
So, changes in the value of money benefit some people while hurting others, which causes a redistribution of wealth and income that affects not just the social and industrial classes but also various members of the same class.
Moreover, money has been attributed to the glaring inequalities of income and wealth and the concentration of economic power in a few hands.
The rich often have the means to invest in various assets that increase in value during times of inflation, while the poor does not have enough resources to invest in yielding asset.
3. Cyclical fluctuations: Money usually result in cyclical fluctuations in the economy.
Generally speaking, an increase in the money supply causes an economic boom, while a decrease in the supply of money results in an economic depression.
A boom is often characterized by an increase in output, employment, and income, which often leads to overproduction.
In contrast, during a depression, output, employment, and incomes decrease, which results in underconsumption.
Such cyclical fluctuations bring untold misery and hardship to the people, especially those in the lower-income brackets.
Social or Non-economic Defects of Money
1. Corruption: This is one of the inherent social defect of Money.
Regrettably, many immoral and unethical actions, such as murder, theft, prostitution, bribery, deceit, and fraud, have been motivated by money.
Money has created in man the desire and urge to exploit others.
It has become the root cause of all kinds of social evils and unethical practices.
Corruption has become pervasive in public services. It has remain a significant challenge in developing nations where bribery and other forms of corrupt practices are prevalent.
2. Political instability: Persistent and rapid fall in the value of money has resulted in political unrest and the removal of the government, most especially in Latin American countries.
Persistent fall in the value of money causes economic, social, and political problems, like hyperinflation, economic collapse, poverty, insecurity, and reduced investment in the country, which can trigger economic crisis.
3. Incentivizes harmful activities: Money has served as an incentive for immoral and harmful activities.
Some businesses degrade the environment and exploit workers in a bid to make more money.
Money serves as an incentive for people to engage in harmful and unfair practices without considering the social and environmental consequences.
Conclusion
Despite its many functions in our lives, money has significant economic and social defects, ranging from causing cyclical fluctuations to encourage harmful behavior.
However, it is important to note that all of these defects of money are caused not only by the money itself, but also by human nature.
It is, therefore, essential that money should be kept under proper control so that it can serves as a source of blessing to individuals and the society at large.
The government has a role to play by enacting the right monetary policy.
Individuals must, however, do their best to ensure that money does not lead to unfair and unethical practices.
