2 min read
Akin to human beings, money loves travelling. Money can not move by itself though, people move it through exchange and transactions. It is in the best interest of everyone to keep money moving. In a nation with healthy growth rate people are buying and selling products and services ensuring flow of money.
Movement of money creates opportunities and growth. How?
Assume that I am a teacher. I buy clothes. A sales person is hired for selling job. More sales implies more hiring of sales person. Logistics division of the cloth making company employs a driver and some loaders to distribute clothes. The cloth making company employs people to design and make clothes. From the profits earned selling clothes, the factory owner buys a personal vehicle. A car factory has set up its production line employing thousand of workers to produce vehicles to cater to people like the cloth factory owner. That sales person who sold you clothes or the truck driver who is employed for logistics can educate his/her children and create a whole bunch of jobs at educational institutes. Money moves in a vicious circle. Unemployment or getting fired basically means straying off the circle.
What if I hadn’t bought clothes in the first place? It would result only in a negligible change in the business of the cloth making company. What happens if significant number of people stop buying clothes reserving their money for the extreme conditions? A significant change in transaction volume. What if significant number of people stop engaging in transaction? A financial depression.
A stagnated or financially depressed nation has minimal movement of money because people stick to their money and do not engage in trade and transactions. They are scared that money once gone will be hard to earn back. Another reason people stick to their money in financially depressed conditions is because things and services will most probably get cheaper the next day and even cheaper the next month. Since people stick to their money getting out of financial depressions is tricky.
How do people (and nation) get stuck in financial depression?
I am teacher. I do not buy clothes reserving the money for desperate times. The sales person who would benefit selling clothes is fired because people are not buying clothes. The logistics division of the cloth making company would be cut significantly – far less employees and far less vehicles – because less clothes are manufactured due to weak demand. Vehicle manufacturers employing tens of thousands of employees would cut workforce. The workforce that lost job would have a hard time finding new jobs because no one is spending. They will have to stop their children’s education in desperate cases which means schools might need to shut down and teachers lose their job. Basically when you stop buying products and services, everyone becomes jobless.
So, keep the money moving.
written by WAK