Unquestioned Open Exploitation
due to
Misinterpretation of Monetary Standard
Rethinking Economic Policies for a Poverty-Free India
Introduction
Achieving a poverty-free India is within reach—but only if we address the root cause: misguided economic policies that fail to harness the full potential of our monetary system. Our research reveals that poverty persists not because of a lack of effort or productivity but due to systemic flaws in how money is managed and distributed. When workers are brought into the monetized economy without a proper understanding of the role of money and monetary standards, it often leads to their exploitation. Poverty, in this context, is not a natural condition—it is imposed on those who work and produce.
If the true purpose of money as a medium of exchange is misunderstood, it results in major injustices and deprivation. Misinterpretation of monetary standards has far-reaching consequences, particularly for marginalized communities.
The Role of Money in an Administered Economy
Our livelihood activities—farming, producing goods, and providing services—are essential for meeting basic needs. When these activities are brought under government regulation, the responsibility shifts to the government to ensure that people can access what they need. This includes guaranteeing food security and other essentials.
The division of labor allows us to produce far more than we consume. However, for this system to function effectively, money—a medium of exchange—is essential. Yet, when money is not made fully available for all productive activities, it negates the benefits of division of labour - higher production, distribution, and consumption. Policymakers continue to impose artificial constraints on money supply, rooted in outdated systems like the gold standard and Bretton Woods era, which severely limit potential production.
The Shift to Fiat Currency: A Missed Opportunity
In 1971, President Nixon abolished the modified gold standard by ending the dollar's convertibility to gold, removing the artificial limitations on currency creation. Under the current fiat floating exchange rate system, there is no restriction on money supply tied to gold or forex reserves. Yet, governments and policymakers cling to outdated notions of budget deficits and debt limits, perpetuating unnecessary austerity measures.
India’s economic independence from British rule in 1947 did not extend to monetary policy. By aligning with the Bretton Woods System in 1944, India surrendered its economic sovereignty to a modified gold standard, tying its currency to the dollar. Although countries regained monetary independence in 1971, private capital—long accustomed to wielding power—has propagated a false narrative. Constraints like budget deficits and debt ceilings, once relevant under the gold standard, are now obsolete. Yet, this narrative persists, undermining the transformative potential of public capital.
Private capital thrives on competition, cutting costs at every level—including labor—to survive. If public capital were deployed strategically to uplift marginalized communities, it would diminish the disproportionate influence of private capital. Critics may argue that excessive government spending could lead to inflation, but inflation arises only when spending exceeds an economy’s productive capacity. By investing in unemployed labor and underutilized resources, governments can boost production without triggering inflation.
The Human Cost of Misinterpretation
People work and produce. The total value of goods and services produced constitutes GDP, intended primarily for domestic consumption. Yet, in a monetized economy, many producers—especially workers—are denied even basic consumption. Not only are wages insufficient, but a significant portion of the population is excluded from employment altogether due to inadequate money supply. For instance, China’s money supply is 60 times greater than India’s, enabling higher production and employment.
Real production cannot thrive when a flawed monetary standard chokes the economy. The limitations of the previous monetary standard were removed in 1971, yet outdated practices persist. In the current fiat system, money must be made available to support productive activities.
Policy Recommendations
To address systemic poverty, we must rethink the role of both the public and private sectors in the economy.
1. Private Sector Reforms
The private sector, including self-employed individuals, small enterprises, and micro-businesses, dominates production. However, larger private enterprises focus on profit maximization, employing fewer people at squeezed wages. Encouraging smaller enterprises to play a larger role could create more jobs and reduce inequality. Rural enterprises, in particular, have immense potential to add value to local produce, meet basic needs, and employ millions of people.
Savings in the hands of individuals provide equity for their business ventures. Government spending (beyond taxation) supplies net financial assets to the private sector, the equity that supports the credit structure of the private sector. A proactive private sector, including micro-enterprises, plays a vital role in provisioning goods and services to the government and reducing inequality exacerbated by large corporations.
2. Public Sector Expansion
The public sector must play a central role in critical industries, infrastructure, and core sectors. It should also act as a stabilizing force during economic downturns. To address inefficiency and corruption, a competition-incentive model (as practiced in China) could make public sector more efficient and transparent. Expanding public services in quantity and quality—covering education, healthcare, water supply, and more—would improve living standards and social equity.
3. Universal Transitional Job Guarantee (JG)
A straightforward solution is to offer jobs to everyone. While neither the public nor private sector can employ everyone permanently, transitional jobs can bridge the gap until permanent opportunities arise. When everyone is employed—even in transitional roles—aggregate demand rises, creating more permanent jobs. A universal job guarantee would set a wage floor and ensure that money reaches even the most marginalized individuals.
4. Investment in Rural Infrastructure
Investing in social and productive infrastructure in villages would boost employment, add value to local produce, and meet essential needs. Villages should be equipped with schools, libraries, hospitals, skill training centers, sports facilities, water supply systems, power generation units, and connected water bodies. These investments would empower rural communities and reduce migration to urban areas.
Options for State Governments
If the federal government fails to adopt these measures, state governments can take the lead:
- Invest in rural infrastructure using soft loans or panchayat bonds.
- Enable village-owned enterprises to process raw materials, add value, and produce essential goods locally.
- Implement transitional job guarantees.
- Explore the possibility of introducing secondary local currencies to stimulate regional economies.
Conclusion
Nobody in India discusses the relevance of the currency system to eradicate poverty and distress. Instead, the nation obsesses over stronger or weaker currency values—a secondary outcome of policy choices. The real question should be: Which monetary standard unlocks the full productive potential of the country? Understanding the monetary standard is crucial, as it determines not only the exchange value of the currency but also the quantum of money supplied to the economy.
Any policy structured without this understanding adversely affects the livelihoods of all citizens, particularly the downtrodden. As John Maynard Keynes famously noted:
"The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes."
It’s time to rewrite this legacy—and build an economy that works for everyone.
Rajendra Rasu
** A monetary standard is a system or framework that governs the value and management of a country's currency. It defines how money is created, managed, and regulated within an economy.
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