money... my take...

Often, I am bedazzled by the concept of money. From simple barter of things to complicated derivative instruments - we have covered a long way across the evolution.

Once upon a time, two cows were bartered for one ton of barley, one acre of land for three beautiful wives and three silver coins for a sumptuous supper at a place where naked damsels served the food.

Today, the barter has become so complicated that without having an MBA in finance, it is almost impossible to understand what is being bartered against what. Consider this - 'X' bank gives loan to its customer 'Y'. The bank received that money by selling equity stocks in the financial market. A mutual fund bought those equity stocks in hope of making profit, and also hedged the losses by signing some derivative contracts which were sold by some foreign investment bank. There is no wonder that customer 'Y' himself invested in the money in the same mutual fund which bought the equities from the bank which helped the customer to procure the loan. Now, you call that the messy barter.

Still, simple barter does exist. 12 INR for a glass of juice, 99 INR for a pair of allegedly 'imported' sunglasses, £1 for a bottle of orange juice, $1 for a diet coke. But then, £1 is traded equal to INR 80 and $1 equal to INR 40 in currency markets. George Soros, made $1.1 billion on September 16, 1992 by short-selling $10 billion worth of pounds. Now, you think that's simple?

No, it's no longer simple. Different people have different views about money based on their education, culture, upbringing and last but not the least 'how-much-of-it-they-already-have'.

There are worldly, practical, realistic people who think that money is everything, money is power etc. Also, there are poetic, idealist and dreamers who think that money is not everything, and they even go to the lengths to saying that money is the root of all evil, or even money is evil.

I say - both of them are wrong. First kind does not understand the aesthetic sense of money, and the second kind misunderstands its beauty. Money has power, no doubt. It has power to purchase things. But how that power gets exercised, depends on the most complicated organ of human body called brain.

While spending money, we make choices. Those choices depend on our personal values, which we develop throughout our lives. Consider this situation where there are two guys 'A' and 'B' who are given 50,000 INR each to spend. Now what will they do with that?

1. 'A' buys a multifeature mobile phone with 50,000 INR and person 'B' puts it into her savings account and forgets.

2. 'A' buys a multifeature mobile phone and person 'B' after seeing 'A' also buys a mobile phone.

3. 'A' and 'B' collaborate and invest their 100,000 INR in a new business.

4. 'A' goes to a pub and throws a party to his friends. 'B' buys some mutual fund.

Anything is possible.

We have unlimited wants, but limited resources. Based on this and our predilections we make choices of where to apply our available resources and which wants to satisfy. Economics is the study of this, at individual level (micro-economics) and at country/industry level (macro-economics).