Economics Isn't Just About Financial Measurements

The fundamental subject, which makes a very compelling case to promote the adoption of farm living is economics. To understand how, we need to revisit our understanding of economics.

Adam Smith, the father of modern economics defines economics as a study of managing ‘wealth’. Though not explicitly defined, wealth is considered as all that satisfies the human want, but excludes abundantly available resources like air, water, land, etc. Arthashastra, an ancient Indian text on state administration touches upon macro economics as an important component. It gives a lot of importance to agricultural land, forest land, cattle, rivers, mountains and other natural resources, not only as a means to fulfil the material needs but also security of the state and its people.

The modern view of economics may have been relevant during the 18th century, but not in the 21st century. Water scarcity is the biggest crisis.  Pollution of air and water and soil health are formidable challenges. The scope of wealth ought to be revisited – not just from the macro or state perspective, but also for the individual and family. Once we do so, ecology gets included within the scope of economics. 

The Idea of Value

Interestingly, modern economics refers to ‘real value’ and ‘nominal value’. Though this pertains to inflation or depreciation of currency, while revisiting economics, we may consider real value as pegged against financial value. Water has a real value – it quenches thirst, it enables hygiene, it cools the atmosphere and it does much more. Water has a financial value – drinking water, water for irrigation, water for swimming pools, etc. The real and financial values are really not necessarily co-related. The financial value is the market price – determined by demand and supply. If the supply is much higher than the demand, the financial value is low. Therefore in our study of economics, if someone has access to good water, there isn’t much value attached to it. Same holds true for land, cattle, people, festivals, forests, air, open spaces. Adam Smith does not include them in the definition of wealth. When we revisit economics, we should. 

Is Money Redundant?

The answer to this question is quite easily an emphatic ‘No’. Money is a great concept. As Yual Noah Harari puts in his famous book Sapiens, money is a ‘shared myth’.  The value in money cannot be proven scientifically. It exists only for human beings and that too only those who share the myth. However, this shared myth makes it possible for people to trust each other and co-operate for mutual benefit. The role of money, therefore, can never be undermined. 

The fallacy is in the notion that anything that cannot be measured in monetary terms isn’t an economic resource or doesn’t have economic value. We must find a way of assigning value to those constituents of wealth or resources, which cannot be expressed in money terms. It is difficult, but that is no reason to ignore them in the study of a subject, which is central to the civilisation.

A Possible Beginning

Measuring micro-economic well-being can be a possible starting point. Economic well-being at individual, family or community level can be said to be the ability of attaining well being through self-effort, collaboration, interdependence, commerce and access to resources. Self-effort refers to having the strength, inclination and time to fulfil a need. Collaboration refers to having a network of people with similar needs, who can together achieve a higher level of need fulfilment vis-a-vis doing so alone. Interdependence refers to having a network of people, who may be willing to exchange competencies through a barter system. Commerce is where this exchange is done by way of paying money. Access to resources is refers to natural and other resources, which can fulfil needs or a progression towards well being. 

Each of these can be referred to as economic resources. The availability of these resources is what makes it possible for people fulfil their needs (without considering it to be different from wants or desires). People, who have these resources can be plotted on the line of poverty of affluence, in other words economic well being. For example, a village community, which has the following can be considered economically well-off. 

1. the land, labour and access to water and climatic conditions to grow sufficient and nutritionally balanced food

2. Sufficient surplus of food thus grown to exchange it with the neighbouring village for goods, they grow

3. People within the community who can take care of the health, education, recreation and other similar requirements in exchange of being provided with food, water and other needs

4. Sources of earning money sufficient enough to pay for some market supplied goods and services like train tickets, mobile phones, transport, etc

Such a community and individuals who have access to live here can be considered economically well-off even if the monetary income is below what the World Bank prescribes as sustenance income.

The Challenge

It may not be possible to have an objective measurement like gross household income or gross domestic product since it is not possible to convert the value of all economic resources in financial terms. 

A subjective assessment may have to be considered. The results may not be easily usable for arithmetic or statistical purposes. Nonetheless, the results of such a study are likely to be significantly more accurate than the existing methods. 

The Opportunity

By overcoming the challenge of developing a measurement matrix for economic well-being as stated above, there are multiple opportunities

1. Near accurate assessment of poverty/affluence 

2. Macro-economic policy making in light of the results. Separate studies can be undertaken for different needs – education, healthcare, food, etc. 

3. A more meaningful directional guidance to government, non-governmental and business organisations