A New Perspective on Money and Numbers
Money is an Idea which is Built upon the Foundations Set by Mathematics and Economics.
In my first post, the definition as well as the importance of numbers in the formation of large cities were discussed. If you haven’t read it already, you can read it here in order to get continuation. My intent was to discuss the importance of mathematics in banks, but I felt that without discussing transactions and money, the post on banks won’t be very fruitful. Here I would be discussing money and in another post I would discuss how transactions facilitated the development of the concept of money. If you are ready then let’s dive in.
Yesterday I went to a famous bakery in our locality to buy some bread. The approximate weight of the bread is almost 400 gram and its price is ₹35 ($0.42). Suppose one of my ancestors who lived almost 3000 years was recently resurrected with the help of an innovative technology and he was with me while I went to the bakery. So as usual I bought a packet of bread by paying ₹35 ($0.42) as currency notes. I could imagine his first reaction. He would be wonderstruck and his first few words would be like “How on earth did you do that? “. For him, getting food by giving some useless(In his context) paper notes would seem like magic or fraud(I wonder what his reaction would be when he sees paying through UPI Or crypto currencies) .
His reasoning is correct almost 3000 years ago but not in this century. So let’s try to imagine our conversation which would have ensued afterwards.
Ancestor: “What is this paper note? “
Me: “It’s called money and we use it to pay others. “
Ancestor: “I don’t get it. “
Me: “Money is something which performs the following three functions — medium of exchange, unit of account and store of value. “
Ancestor: “Okay, the first and third functions seem understandable. Could you please elaborate on the second one because it is a little bit confusing? “.
Me: “In simpler terms I could say that a unit of account is the measure or standard of relative worth and it’s a complex topic. The value of a unit of currency is determined through some complex methods(we would be discussing it in another post) and it is then multiplied with the numbers on each currency note to obtain its overall value.”
“ A unit of account is the measure or standard of relative worth.”
Ancestors: “ Numbers? What are those? “.
Me: “Hm. To understand that you need to learn a new language called mathematics. “
I would like to ask you one question. If I showed my ancestor a ₹5($0.061) coin and a ₹2000($24.27) currency note and asked him to pick the one having higher value, which one would he pick? Yes, your guess is correct he would pick the coin because he doesn’t understand numbers — an important part of mathematics. He doesn’t know 2000 is greater than 5. His reasoning would be like “The coin is heavier as well as made up of metal which could be used for other needs like making a weapon or tool. Paper notes of that size don’t have any use of their own. “ He is partially correct if we don’t consider the trust factor associated with the currencies. As you all know, the value of a currency exists only because governments support it. There is always a seller who is ready to get settled in a particular currency.
Now imagine a world without numbers where the currency is made up of coins with different shapes and sizes. If the coin equivalent to a handful of grains had the size of our teeth, what would have been the size of the coin for a sack full of grains? In a world with numbers we are able to print ₹2000($24.27) currency notes which are lighter than ₹5($0.061) coins and it is a wonder which is only possible with the help of numbers.
“In a world with numbers we are able to print ₹2000($24.27) currency notes which are lighter than ₹5($0.061) coins and it is a wonder which is only possible with the help of numbers.”
The world GDP in 2021 was $94 trillion. GDP is a measure of monetary value of all goods and services produced and sold in a particular time period. How do you think we would have managed such a huge quantity without numbers? I’m pretty sure that there isn’t any other language which could have handled this information with such ease. It has made our life much easier and simpler. Moreover we are able to build much bigger complex systems like banks on top of basic foundations like mathematics.
In the next post I would be discussing banks and how mathematics plays a very important role there.
