MONEY: Its Nature and Value

ALLAMA IQBAL EXPLAINS 

By: Abbas Ali

The exchange of goods is the necessary result of the division of labour. Generally, different countries produce goods for which the climate and other conditions are specifically suitable and get the goods for their personal use in exchange for other countries. For this kind of exchange, it is necessary that the value of goods have a particular standard because just exchange will not work. If a shoemaker needs a cap, then it is obvious that he should search for a capmaker who needs a shoe; otherwise, it is impossible to fulfil his need. Therefore, it is necessary that a particular good be determined as the standard of value that will be accepted by everyone in exchange. In different times and in different nations, different goods were used for this purpose, e.g., salt, rice, tea, etc. However, there were hundreds of difficulties in the use of these goods; therefore, necessity automatically discovered a commodity that could shoulder the burden of this purpose. Obviously, to fulfil this purpose, there should be a commodity that:

1. has its own value.
2. can be easily transferred.
3. when it gets old, its value does not change.
4. can be divided into smaller parts.
5. has more value in less quantity.
6. generally, it has a constant value.
7. its purity and impurity can quickly be tested.
8. its coin can easily be made.

After having pondered, we will come to know that all these qualities are present in the best way in silver or gold. Therefore, the civilized nations of the world adopted these two metals as the standard of value, with the help of which the difficulties of exchange vanished. If there were no letters, there would have been a lot of problems expressing human ideas. Gold and silver are related to goods, just as letters are related to our ideas. Therefore, the discovery of this standard in the history of human civilization is not less important than the invention of letters.

Suppose a wine-seller needs bread. He tells a baker to take wine from him and give him bread in exchange. But it is possible that the baker either does not need wine or does not need it intensely, which is equivalent to the value of bread. The wine-seller takes bread and, in exchange, gives as much wine to the baker as he needs, and to clear the balance, he pays some amount of the above-mentioned standard of value. Obviously, if the baker did not need wine at all, then the wine-seller had to pay more than the standard of value. Now suppose that the baker does not need wine at all, but he needs cloth. Carrying in his pocket the amount of the standard of value that he got from the wine-seller, he goes to a cloth seller and gets the commodity, whose value is equivalent to the value of the bread that he had sold to the wine-seller. Or, in other words, the commodity that the wine-seller had to pay him mandatorily, the cloth seller-provided him. Ponder the word “mandatorily” because the reality or nature of money is hidden in this word. From the above example, it is clear that when the exchange is unequal, there is a need for a standard of value or money. Therefore, the standard of value, or money, is the symbol of the right that, in an unequal exchange, one party has over the other party. In the present, this standard of value is known as money, and all the civilized nations of the world have declared it the symbol of such rights. Therefore, money is the symbol of the right of the person who has provided any good or service to another person and, in exchange for his good or service, has not received any good or service of equal value. From this definition, it is established that the quantity of money that is prevalent in a country is the symbol of that quantity of rights that were mandatory to be paid in the absence of money, In conclusion, we can say that in a country where these rights are not present, there is no need to trade any standard of money.

For a further explanation of money, it is important to compare it with trust and reputation. What is a reputation? Suppose I need a good, but I do not have money to buy it. If I am a reputed or trusted person in the eyes of the person who sells it, he will provide it to me based on my reputation. Therefore, I will get the goods due to my reputation, which otherwise I would have to buy with money. In other words, we can say that the promise to pay can also do the same thing that money does. As the payment of money is like acquiring a type of right, similarly, getting the necessary goods due to reputation is like acquiring a right. It means that the person from whom I got a good, based on my reputation, if, upon his demand or on the expiry of some fixed time, I fail to pay any good of equal value in exchange, has the right to take legal action against me and get that good of money from me. In short, we can say that, like money, trust is also the name of purchasing power, and both are a type of right. From this research, it has come to be known that money and reputation are the same in nature, and money is the name of an expanded and common form of trust. However, despite this fact, there is a delicate difference between these two, an understanding of which is crucial. In economics, all money is trust, but the converse of that is not true. No person can force a shopkeeper to sell a good to him against money or trust. Therefore, when a person takes money in exchange for a good, in reality, it is a form of trust. Because if he does not believe that with the help of that money, he can buy any other good, he will never accept that money. However, suppose a deal has been struck and a person has gotten a good deal on debt. Justice demands that the indebted person have permission to force his creditor to accept anything to defray his debt. If the creditor had this right to accept anything against their debt, you can imagine the level of problems to be faced. Therefore, all countries have established the principle in law that if a person has taken a debt, the debtor can force his creditor to accept any specific thing to defray his debt. This specific thing that, in the case of defraying debt, a debtor can force a creditor to accept is termed legal tender. It implies that, in certain cases, certain things are legal tender, and in some other cases, they are not. In England, golden coins are legal tender in all cases, but silver coins are legal tender only up to 40 shillings. It means that if the debt is greater than 40 shillings, the creditor has the right not to accept it; if it is less than 40 shillings, the debtor can legally force the creditor to accept the silver coin in defraying his debt. From the above-mentioned research, it becomes clear that money fulfils three objectives in international trade:

1. Exchange is a source of goods. As international trade takes on complex shapes, the use of money for this purpose becomes clearer. As we have mentioned above, for the exchange of goods, its existence is as important as the language is for the expression of ideas. In all the countries, mints have been established where, with the arrangement of the members of the kingdom, golden and silver coins are minted. On both sides of the coin, royal symbols, etc., are engraved. The world trade runs based on the power of these coins.
2. The second purpose of money comes into existence at the conclusion of the first purpose. It means that it is a standard for the value of things. However, there arises an important query: what determines the personal value of money? Before answering this question, let us understand the meaning of the term “value of money.” JS Mill has misunderstood this term, which can put others in doubt. You know that the price of a commodity means that its value is estimated based on money or trust. But the value of money depends on something else, which is against the money. For example, some material commodity or service of a servant, some other right to property, or some right to receive debt If, in exchange for a specific amount of money, some huge quantity of a commodity is exchanged, then obviously the value of money is greater. Because in exchange for it, a huge quantity of some commodity is acquired. However, if in its exchange, a lesser quantity of some other commodity is received, the value of money is obviously lower. Therefore, it became known that there is a reciprocal relationship between money and the price of a commodity. It means that if the value of money is higher, the price of a commodity is lower. If the price of goods is higher, the value of money is lower. However, like material goods rights (e.g., the right to receive some specific amount of money from some specific person, etc.), debts and trusts can also be brought into the circle of trade. For example, suppose that A has taken a debt of Rs 500 from B. It is possible that C will buy the right to receive Rs 500 from A for some lesser amount. And after the expiry of the fixed time, B will receive Rs 500 on demand. Therefore, for the sale and purchase of these rights and trusts. The same measure is established that is used for the sale and purchase of material goods, for example, a mound for grains or a meter for cloth. Likewise, money is divided into different measures, which are known as coins. According to the same theory, for the sale and purchase of debts and trusts, there is a set measure. It means the right to receive Rs 100, which will be payable after the expiry of one year; the quantity of money that is paid to buy a measure of a debt; the price of that measure is known as money. The condition of its sale and purchase is the same, which is for the sale and purchase of goods. It means that if the quantity of money to be paid or the price to buy a measure of debt is lower, the value of money will be higher, and vice versa. Therefore, the above-mentioned principle is also correct for the sale and purchase of debts and other rights. It means that there is a reciprocal relationship between the value of money and the price of commodities. However, it should be remembered that in the case of the sale and purchase of debts, the value of money is not commonly estimated by the quantity that is bought against it. Because money creates profits naturally, it is obvious that the price of a debt that is payable after one year should be less than the quantity of that debt; otherwise, the buyer will have no profit. Therefore, the present value of money or price minus the principal amount or quantity of debt is equal to the profit that is accrued by buying that debt. This difference is known as the discount rate. Now it is clear that as the price of a debt increases or decreases, so does the discount rate. Therefore, for the sale and purchase of debts. The principle is established that there is a direct relationship between the value of money and the discount rate. It means that if the price is lower, then the discount rate will be higher, and vice versa. The below-mentioned principle dominates all the branches of trade, viz., the sale and purchase of debts and other rights and the sale and purchase of material goods.

The value of money has a reciprocal relationship with the price of the goods, and with the discount rate, it has a direct relationship.

Now you might have understood that the term “value of money has two meanings.” In the case of material goods, rights, etc., it means the quantity of the price of the good or right that can be obtained in exchange for it. In the case of the sale and purchase, its meaning is the discount rate or profit that a person obtains by buying a debt.

to be continued…….

Ilm-ul-Iqtisad

Part-3 Chapter-3

Zar-i-naqd ki mahiyat aur iss ki qdr

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