Is money still needed? – 02/27/2023 – Why? Economês in good Portuguese

Money is one of mankind’s greatest inventions. Think what would happen in his absence. In modern economies, people tend to specialize in a few economic activities, usually what they do best. But their consumption is diversified, that is, with the resources they receive for their work, they buy the most varied goods and services. This arrangement would not have been possible without the money. There would be an enormous loss of productivity and well-being in society.

Suppose you studied to be a veterinarian. You spend most of your working time doing this job, which is probably what you do relatively best (compared to other economic activities). After all, you can make more money in it than in other potential trades. With the money received for working as a veterinarian, you can buy different things – food, clothing, services, etc.

Now a pipe in your house has burst and you need to find a plumber. In our money world, you simply take the money you earned as a vet and pay the vet. But in a parallel world, where there is no money, you would have to directly trade your vet services for plumbing services. In other words, you would have to find not just a plumber but a plumber who needs an appointment for your pet. Imagine the complication!

Most likely you would have to fix your plumbing yourself, sacrificing hours on something you don’t do so well. This would be true for the various goods and services you consume. A similar problem would face a plumber who might need a repair on his son’s clothes. He would have to find a seamstress willing to take plumbing services.

Now extrapolate this problem to the level of society. People would not be able to specialize in their crafts, which would be a huge waste of resources and loss of productivity. And, with this lack of specialization, there would be no availability of different goods and services in the economy, bringing a loss of well-being.

Money allows you to “unlock” exchanges in the economy, solving this problem.

Throughout history, various things have been used as money: salt, gold, giant stones, even cigarettes in prisons. In recent centuries, we have converged to paper money, which has no other function than to enable exchanges in society. It is based solely on collective trust. I accept that colored paper (and hand over my merchandise) in the expectation that someone else will also accept it in a future purchase.

However, carrying cash has its costs. An excessive amount in the portfolio leaves the holder exposed to being stolen or causes the amount to have its purchasing power eroded by inflation. But a small amount requires frequent trips to the bank to make withdrawals.

In recent years, technological advances have made this last cost increasingly smaller. ATMs, debit and credit cards and, lastly, mobile purchases (such as via Pix) have significantly reduced the need to carry cash to make transactions.

I, for example, don’t remember the last time I went to an ATM to make a withdrawal, and I carry almost nothing in my wallet.

But what happens when technology fails? We were able to witness this issue in recent weeks on the north coast of São Paulo, when heavy rains made internet signals unavailable, making purchases by card or Pix impossible. There were several reports of people not being able to buy food or spending hours chasing ATMs in search of cash. Note that these individuals had the resources to make the purchases – only the “middleman” was missing.

For these and other reasons, money remains essential.

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