Skip to main content

Economics Simplified




Ram wants to start a business.  He needs ₹1 million.  Desh Bank is a new bank where Shyam has deposited ₹1 million on completion of a recent contract of his. The bank is ready to give Ram a loan and transfers ₹1 million to his account.  Ram gives the contract for his new building for his proposed business to Shyam who demands ₹1 million for the job.  Ram gives Shyam a cheque for ₹1 million.  Shyam deposits the cheque in the bank.  How much money does Shyam have in his account now?  Answer: ₹2 million.  How much money is there actually in the bank?  Answer: ₹1 million.

Som similarly gets a loan of ₹1 million from Desh Bank.  He too employs Shyam as his contractor and gives a cheque for ₹1 million to Shyam who deposits it in the bank.  There’s now ₹3 million in Shyam’s account although the actual amount in the bank remains the same original ₹1 million.

Now Shyam wants to take out his ₹3 million to start a business of his own.  What happens?

Desh Bank seeks government assistance.  The government agrees to help so that the bank won’t collapse.  Where does the government get the money from?  It can raise the price of petrol and diesel by a few paise and a few millions will be materialised within minutes. 

This is just a parable adapted from Yuval Noah Harari’s book, A Brief History of Humankind.  Replace the names of the bank and the persons with some real names, make it a little more complex with more people and bigger amounts, and you will understand the way our economy works.



Comments

  1. Durga Prasad DashSeptember 20, 2017 at 4:38 PM

    Your blog has a new look. Great.
    That is unfortunately, the story of human kind. You pay for someone else's sin, someone who is much much richer than you.

    ReplyDelete
    Replies
    1. Tomichan MatheikalSeptember 20, 2017 at 7:32 PM

      Ah, you put it so precisely. Great comment. Great understanding. I'm obliged for such understanding. At least you won't shoot me. :)

      Delete
  2. Pranju chakrapaniSeptember 25, 2017 at 7:16 AM

    I have been reading this book, sapiens. It has broken my several beliefs and at the same time has evoked a certain helplessness in the entire system of imagined realities that we hold dear to us. The concept of money is itself the biggest imagined reality that people believe in. Stock exchange, banks, limited liability companies , religion, feminism, nationalism, capitalism , gods and gossips come along and hold our collective imagination.

    But for what? Where is it leading us to? If you go back and find the barter system stupid , then is the currency exchange system also a stupidity or an evolution of the imagined realitities? Are we moving towards a converging point, towards a unity with such progressive imaginations? What would be the conclusion? I am yet to finish the book but nonetheless the book raises more of such questions and inevitably makes me embrace the cognitive dissonance.

    ReplyDelete
    Replies
    1. Tomichan MatheikalSeptember 25, 2017 at 7:35 AM

      The book raises many radical questions. As long as most human beings choose to wallow in mediocrity, the civilisation will continue with limited liability systems.

      Delete

Post a Comment

Popular posts from this blog

The Adventures of Toto as a comic strip

  'The Adventures of Toto' is an amusing story by Ruskin Bond. It is prescribed as a lesson in CBSE's English course for class 9. Maggie asked her students to do a project on some of the lessons and Femi George's work is what I would like to present here. Femi converted the story into a beautiful comic strip. Her work will speak for itself and let me present it below.  Femi George Student of Carmel Public School, Vazhakulam, Kerala Similar post: The Little Girl
47 comments
Read more

Indian Knowledge Systems

Shashi Tharoor wrote a massive book back in 2018 to explore the paradoxes that constitute the man called Narendra Modi. Paradoxes dominate present Indian politics. One of them is what’s called the Indian Knowledge Systems (IKS). What constitute the paradox here are two parallel realities: one genuinely valuable, and the other deeply regressive. The contributions of Aryabhata and Brahmagupta to mathematics, Panini to linguistics, Vedanta to philosophy, and Ayurveda to medicine are genuine traditions that may deserve due attention. But there’s a hijacked version of IKS which is a hilariously, if not villainously, political project. Much of what is now packaged as IKS in government documents, school curricula, and propaganda includes mythological claims treated as historical facts, pseudoscience (e.g., Ravana’s Pushpaka Vimana as a real aircraft or Ganesha’s trunk as a product of plastic surgery), astrology replacing astronomy, ritualism replacing reasoning, attempts to invent the r...
17 comments
Read more

The Ugly Duckling

Source: Acting Company A. A. Milne’s one-act play, The Ugly Duckling , acquired a classical status because of the hearty humour used to present a profound theme. The King and the Queen are worried because their daughter Camilla is too ugly to get a suitor. In spite of all the devious strategies employed by the King and his Chancellor, the princess remained unmarried. Camilla was blessed with a unique beauty by her two godmothers but no one could see any beauty in her physical appearance. She has an exquisitely beautiful character. What use is character? The King asks. The play is an answer to that question. Character plays the most crucial role in our moral science books and traditional rhetoric, religious scriptures and homilies. When it comes to practical life, we look for other things such as wealth, social rank, physical looks, and so on. As the King says in this play, “If a girl is beautiful, it is easy to assume that she has, tucked away inside her, an equally beauti...
31 comments
Read more

Waiting for the Mahatma

Book Review I read this book purely by chance. R K Narayan is not a writer whom I would choose for any reason whatever. He is too simple, simplistic. I was at school on Saturday last and I suddenly found myself without anything to do though I was on duty. Some duties are like that: like a traffic policeman’s duty on a road without any traffic! So I went up to the school library and picked up a book which looked clean. It happened to be Waiting for the Mahatma by R K Narayan. A small book of 200 pages which I almost finished reading on the same day. The novel was originally published in 1955, written probably as a tribute to Mahatma Gandhi and India’s struggle for independence. The edition that I read is a later reprint by Penguin Classics. Twenty-year-old Sriram is the protagonist though Gandhi towers above everybody else in the novel just as he did in India of the independence-struggle years. Sriram who lives with his grandmother inherits significant wealth when he turns 20. Hi...
9 comments
Read more

Ghost with a Cat

It was about midnight when Kuriako stopped his car near the roadside eatery known as thattukada in Kerala. He still had another 27 kilometres to go, according to Google Map. Since Google Map had taken him to nowhere lands many a time, Kuriako didn’t commit himself much to that technology. He would rather rely on wayside shopkeepers. Moreover, he needed a cup of lemon tea. ‘How far is Anakkad from here?’ Kuriako asked the tea-vendor. Anakkad is where his friend Varghese lived. The two friends would be meeting after many years now. Both had taken voluntary retirement five years ago from their tedious and rather absurd clerical jobs in a government industry and hadn’t met each other ever since. Varghese abandoned all connection with human civilisation, which he viewed as savagery of the most brutal sort, and went to live in a forest with only the hill tribe people in the neighbourhood. The tribal folk didn’t bother him at all; they had their own occupations. Varghese bought a plot ...
8 comments
Read more