Sunday, December 26, 2010

Potential Money

Last week I wrote about fiat money, and its fantastical symbolic value based purely on a collective faith in our ability to create value – a faith in the human mind. Without any intrinsic value, money can only realize value by interacting with the human mind. So how can we think about this in a more formal way?

To me money is a kind of meta-energy. In physics, energy is defined as the capacity to do work or effect a change – a change in position or form. This is a fairly simple analogy since money can be used to build, distribute and reshape our environment in so many ways. When we lend or invest money, it is largely for this potential. The key word here though is ‘potential’.

The potential energy of a system is typically defined in terms of the relative position of its components – the structural arrangement of a mass or object within a force field. Take for instance the potential energy of a ball that is held at the top of a very steep hill. Its potential energy is not simply its mass but is the product of its mass, the force of the gravitational field and its height or distance from the surface (m x g x h). Place the same ball on the same hill on the moon and its potential energy is immediately less. Out there in space, out of the influence of the gravitational fields, the ball has virtually no potential energy at all.

Money, it occurs to me, is not that different.

Tuesday, December 21, 2010

Of Mind and Money

Ever since I found myself unwittingly heading a microfinance institution I have had money on my mind. Not so much how to make more of it, but what it means. It’s such a critical component of so many human interactions, so caught up in so many aspects of our psyche and so baffling in its complexity. It can make and break bonds in human systems, foster marriages, alliances and enterprise, or bring them down. Or it can vanish in slow trickles, dissipating into a vast ocean, leaving behind a pile of random stuff as a reminder that it passed through.

But what is money? Money the way it was first conceived several thousands of years ago is easy to understand. It was a mechanism for simplifying exchange, making it easy for two people who did not have a fair trade of goods (I have something you want but you have nothing I want to give me in return) or had a mismatched timing of goods (my wheat has harvested now but you won’t have your strawberries until the winter) to transact by way of some third product that was not easily destroyed and had widespread utility. This kind of ‘commodity’ money – like salt for instance - had intrinsic value, it was something everyone needed. As it morphed to metal for the convenience of portability, it still mirrored its melt value or its utility as a standalone product. It did not matter if you ‘counterfeited’ it because it was worth simply its utility and the effort of mining it. But metal is still heavy and inconvenient to port so then there came notes, pieces of paper that represented some amount of metal, typically gold, that was held somewhere safe. Not too different, but with a faith in the issuing party that you could exchange the piece of paper for metal – a material of real value and utility.

Saturday, December 18, 2010

Physics of Poverty at

I am now writing a weekly column for YourStory (, also called Physics of Poverty that will post every Monday. Some things taken from what I have already written here but also some new stuff. I will start posting the column here as well. Here is the first post that appeared last week.

What is the question?

Physics of Poverty series by Dr. Tara Thiagarajan, chairperson, Madura Microfinance Ltd.

Alright, I’ll come right out and say it. Microfinance has done very little to alleviate poverty. Practically speaking, even after five loan cycles, virtually all of our borrowers are still poor—poor enough to be eligible for yet another microfinance loan.

The premise of microfinance has been that giving poor people a loan is all they need in order to get out of poverty. This presumes that simply giving someone money will first turn them into an entrepreneur, and that once they are thus transformed, that their entrepreneurial abilities will far exceed that of even the most educated entrepreneurs who fail more often than they succeed. This premise makes light of the difficulties of entrepreneurship and of the greater problem of the impoverished ecosystem within which the poor operate. On the other hand, in poor rural areas, where employment opportunities are few and most of India’s poverty is thus concentrated, effective entrepreneurship is a crucial component of progress. So how else to catalyze entrepreneurship but through microfinance? What about those pictures of Rajalakshmi and Kannamma smiling broadly alongside their cowshed and petty shop, the poster women of microfinance success? Surely there is something to that? There is a little. But that’s just it. It’s a little, very little.

Saturday, December 11, 2010

Hear Ye! Hear Ye!

One of the greatest challenges our rural folk face is a lack of access to information about markets - not just distant markets but neighbouring markets as well. Few of them read and our research has shown that they don’t tend to travel beyond a few kms for commerce (see my earlier post Do not disturb). When they do travel longer distances it’s primarily to visit temples on pilgrimage. Consequently, many of them claim that they don’t need a phone because everyone they know and interact with lives close by. I was lamenting the difficulty of getting new product information to people who live in these circumstances and my husband very helpfully offered up that it sounds like we need to have heralds or messengers and town criers like they did in medieval Europe. That got me thinking and I started to read about these roles. I think he was on to something.