And so, finally, the last economic claim that for some reason passes unquestioned. It goes like this: “Money must work.” Banks, for instance, use this thesis, having again begun a campaign to attract “deposits” from the population. The notion that “money must work” is not so simple or harmless as it seems.
We should start by noting that in reality, it is not money that “works,” but people who transform certain resources into something new. With the same money you can hire completely different people, and the results of the same work done for the same amount will be completely different. This simple observation alone makes the idea of “money working” quite dubious.
Now consider a straightforward question: when does money “work”? According to the logic we’re presented with, money works only in that brief moment when you pay for something (or receive payment for something). All other time, when it sits in your pocket, it is considered not working.
Proponents of this view assume that any economic exchange is “useful,” and the more often they occur, the better. However, what truly matters are the reasons for exchange, the benefits that the parties receive from it, which motivate them to make the exchange.
Now consider this. What does having money in your pocket mean? Why is it considered in this case that it is “not working”? Money in your pocket indicates that you do not need other people’s services and goods right now—either because you don’t want them, or because they are too expensive. Tell me, is this state of money not work? Is it not a signal to sellers that it would be good to lower prices? Is it not a signal to producers that it would be good to improve quality? Is it not a signal to inventors to create new opportunities? Certainly, this is the case. Money in your pocket always works, because it has an owner—you, and the owner has intentions and plans which he creates based on his assessments of the surrounding reality (that is, the state of prices, quality, and range of goods offered to him by the market today). He will need money for these plans.
The fact that I do not want to spend money is just as important a signal for the economy as my purchases.
The second error is the belief that for money to “work,” you need to give it to the bank. In other words, the bank will co-manage my money with me, which always happens when money ends up in a bank deposit. But my money, which I continue to manage in this case, cannot finance other entities’ activities, for the simple reason that those activities are part of my plans. Of course, in reality other people will receive my money in the form of bank loans and will undertake something with them—but what comes of it, we can see.
Quite another matter is when I consciously relinquish management of money for a certain period in favor of future profit. Again, following my personal plans and preferences, I will give this money to the bank as a loan. Now other people will be able to conduct activities with my money, since I have abandoned my plans for this money in favor of their plans. This is one of the few cases when one can speak of “money working.”
However, note that usually such actions are not what is being discussed. Usually it is said that “keeping money in the bank is beneficial for the economy” because it creates “access to monetary funds.” That is, the benefit is seen in another entity taking my money (issued to them by the bank as a loan) and buying something for themselves. This is considered “good,” because the seller of the goods will earn from this operation, its producer and other participants will all pay taxes, and in short, there will be general prosperity. I would have shed tears at this point if it weren’t for the fact that those were my own money. The issue here is not that I’m sorry for them. Nor is it that the bank will sooner or later be unable to return my deposit. The issue is that in the infinite set of individual plans and the exchanges made within them, which the economy comprises, a malfunction arises. Money that was part of my plans will be received by people to whom I did not give this money. Let me repeat—if I had relinquished control of my money by issuing it to the bank as a loan, nothing terrible would have happened—instead of my plans, their plans would have appeared. But this did not happen.
In general, “money must work” is a strange statement. It is strange in essence, because money “works” always, and strange in its conclusions, which assume that you must put money in the bank, otherwise it will not work.
I once came across an analogy of a crisis with a cancerous tumor. Indeed, a body suffering from cancer dies because cancer cells consume its resources and poison it with toxins. The same can be said about unsound activity. It consumes resources and poisons the economy. Though, unlike an organism that dies once, the economy “dies” regularly during crises. Moreover, it cannot be said that its worst part dies.