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Non-Monetized Economy and Development Sukhamoy Chakravarty
The non-monetized sector is only remotely connected with the process of accumulation. It should, therefore, be excluded from national income estimates to make them more meaningful in relation to economic growth.
N A T I O N A L income stat is t ic ians and others often te l l us these
days t h a t quite a s ignif icant par t of the I n d i a n economy is, in fact, no t monetized. A l l t h a t they mean i s t h a t the propor t ion of the t o t a l nat i ona l ou tput t h a t has a mone ta ry counterpar t is much lower here than in the economically advanced countries. They do believe, however, t h a t the propor t ion is apt to rise in the course of economic development. Beyond th is no effort is made to b r i n g out the implicat ions of a non-monetized sector f r o m the point of v iew of economic development. A n a t t empt w i l l be made in the course of th is paper to c l a r i fy some of the conceptual and ana ly t ica l issuer connected w i t h the question of non-monethiat ion f r o m a g r o w t h -oriented standpoint. I t need not be presumed tha t w h a t is said here applies in to to to the specific s i tuat ions p reva i l ing in Ind ia .
To s t a r t w i t h , we do not mean by a non-monetized economy an "amo-netary" economy of the Crusoe type where the question of any commod i t y h a v i n g general purchasing power is ruled out by the 'sheer logic of the s i tua t ion . We mean by a non-monetized economy only a pa r t i a l l y monetized economy where the character is t ics of money have not yet sufficiently crystal l ised. This results f r o m the fact t h a t money does no t discharge here a l l the functions tha t are log ica l ly associated w i t h the concept of a rea l ly mone ta ry economy. W h a t money does has been dealt w i t h ad nauseum in economic l i t e ra ture bu t i t i s unfor tuna te tha t the whole discussion f r o m Knapp onwards has been conducted f r o m the point of v iew of the evolut ion of credit . Here our purpose is not to discus's credit , but economic development. This is not to deny the importance of a developed credit system in the process of economic g r o w t h . Schumpeter w i t h his groat ins ight in to the process of economic development sought to analyse the in t ima te re la t ionship between the two as ea r ly as 1911,
F r o m the point of v iew of economic g r o w t h , the crux of the monet a r y s y s t e m lies in the fact t h a t wages there are pa id out in te rms of money, A non-monetary economy, on the other hand , is one
where in the M a r x i a n te rminology the question of the exchange of labour-power against money never arises. There one may conceive of atoy commodi ty aw a numerai re in the Wa l r a s i an sense, but the commod i ty remains only a 'shadow money' unless we postulate t ha t labour is being compensated in terms of* that commodity . The generalised purchasing power which a u n i t of money represents fol lows f rom its purchasing power over labour. So long as money cannot purchase labour because labour power has no t become a saleable commodity, the role of money is bound to be l i m i t e d in character. Only when money star ts per forming the task of wage payment do we have a genuinely monetized economy. This, however, presupposes the emergence of capi ta l is t relationships. F r o m th is point of view, the difference between the monetized and the non-monetized sectors of the same economy boils down to the fact tha t in the former we have a developed wage-labour-capital relat ionship while in the latter, the above relat ionship has not yet developed or is, at i ts best, only in an embryonic fo rm.
This in terpre ta t ion may sound somewhat amazing especially to those accustomed to t h i n k i n g in terms of two r i v a l antitheses; money- non-money, capitalist-precapital ist . Money non-money an t i thesis is, at bot tom, not a real an t i thesis a t a l l For money understood in the sense of a c i r cu l a t ing medium only and h a v i n g l i t t l e or no connection w i t h production relationships has been prevalent since very ancient days. As a mat te r of fact, the money economy understood in this sense had not even registered a un i f o r m trend of expansion t i l l it merged in the money-economy in our sense of the te rm. (Compare M M Postan in 'Essays in "Economic Histo ry ' Ed . by Carus-Wilson.)
F r o m this basic feature of a non-monetized economy, fol low the other in teres t ing features."
A non-monetized sector is largely an unorganised sector. We are not here re fe r r ing to organizat ion in i ts broad sociological sense -cus tom m a y be an impor t an t factor in sett i n g the pat tern of social organisat i on . We mean by organisat ion economic organisat ion. This lack of organisat ion stems f rom the very i n adequate development of social d i v i sion of labour and the emergence of the related phenomenon of commodi ty-product ion . M a r k e t as an economic in s t i t u t ion has therefore only a ve ry l imi ted scope. I f m a r k e t for commodities ha rd ly exists, it. would surely be out of the question to postulate a m a r k e t fo r assets. Accumula t ion , under the circumstances, is not possible f o r to store things hav ing no universa l ly recognised common denomina to r and hav ing no opportun i t y of exchanging negotiable assets ( i f there be any) against goods is not a meaningful economic ac t i v i t y .
A non-monetized economy, therefore, implies l i t t l e or no capacity f o r accumulat ion and consequently, l i t t l e or no possibil i ty of changing the technique of production for i n i t i a t i n g a rise in the level of product iv i ty .
Wha t happens when th is non-monetized sector is placed vis-a-vis- a money-economy? There is no doubt tha t money inf i l t ra tes in to th is sector. B u t this i n f i l t r a t i o n in i t se l f i s no t significant for the dissolut ion of the non-monetized economy. I f people s tar t us ing money in the 'c i rculat ion sense', tha t does not lead to the gradua l emergence of a rea l ly monetized economy. In most cases, it gives b i r t h to an usurious economy, wh ich clings l ike a parasite to a predominan t ly non-money economy. One can notice this phenomenon acutely in wha t fire believed to be the non-monetized parts of our own economy. The fact of the mat te r is that, money has no inner dynamic of its own so that we have an ever-expanding money economy unless
* There are some, however, who f i n d the essence of a non-monetized economy in the not ion of 'self-sufficiency'. B u t self-sufficiency in the economic sense arises out of the mere basic- phenomenon of i m
perfect d i f ferent ia t ion of economic functions. This imperfect funct ion a l different ia t ion in its t u r n is due to the prevalence of pre-capitalist relationships. As such, the no t ion of self-sufficiency in the meaningfu l sense is subsumed in our defini t ion of non-monetization.
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THE ECONOMIC WEEKLY June 23, 1956
money is u t i l i sed as money-capital in the 'process of product ion itself. T h a t means unless the i n f i l t r a t i on of money in to a non-money economy 1B at the same t ime accompanied by the emergence of capi ta l is t re la t ionships, we get on ly a very pa r t i a l l y monetized sector where only a smal l propor t ion of t o t a l output is exchanged against money.
The fact that we have such a wide non-monetized sector in India in at bo t tom due to the tardy development of capi tal is t relationships in this country . Non-monet izat ion is only a subsidiary characterist ic of precapi tal is t relationships. I t is, of course, not suggested tha t for purposes of economic development, con-t r ac t ion of non-monetized sector or the emergence of a capitalist economy is either inevitable or desirable, Our discussion relates only to the i m pl icat ion of a non-monetized sector.
The above discussion has certain interes t ing implicat ions. One pa r t i cu la r ly obvious policy impl ica t ion is Connected w i t h the question of deficit spending. Creat ing new money need not necessarily lead to as high an increase in prices as may be expected on ord inary considerations since the ra t io of the to ta l value of f ina l transactions in terms of money to the to t a l nat ional output is ex-pec ted to rise. On this point, the Japanese experience dur ing the late 19th century fo l lowing the Mei j i res torat ion is quite relevant,
A p a r t f rom this above all-too-apparent, impl ica t ion , we have some other interest ing implicat ions. They relate to the concept of nat ional income and the use to be made of na t ional income data.
The va lua t ion of the to t a l net output of the non-monetized sector raises a l l sorts of a w k w a r d questions. The current practice of accounting has its theoret ical basis in the neoclassical approach to the economic problem, viz., the satisfaction of consumer's needs w i t h scarce resources. F r o m tha t point of view, there Is no other logical way out but to include the output of the non-monetized sector in the to t a l na t iona l output . B u t t h a t does not solve any of the complicated questions t ha t arise in this connection: H o w are we to Ascer ta in the to t a l output? H o w are we to 'net ' i t? W h i c h -set of prices are we to employ for converti n g the heterogeneous collection of Items Into a homogeneous mass? The general practice is to evaluate them at prices r u l i n g in the mone
tised market -bound economy. But wh ich set of prices; wholesale or retai l?
P ro f Kuznets suggests t h a t they should be valued at r e t a i l prices, In order tha t due account may be t aken of those services usually performed in peasant households, but w h i c h are cus tomari ly discharged in developed economies by 'specialised ins t i tu t ions . This suggestion may be quite s ignif i cant for the problem of m a k i n g detailed comparisons between indus t r ia l and pre-industr ial economies. Bu t i t is difficult to see how it solves the basic problem of the meaningfulness of totals so ar r ived at as indications of economic welfare. This is the point tha t has been raised by P ro f F r a n k e l . On the basis of neo-classical reasoning, which provides the theoretical scaffolding to the current practice of ca lcula t ing na t ional i n come, it can hardly be denied tha t in applying the techniques of nat iona l income accounting to the non-monetized parts of the economy, there is generally a passage, not too legit imate, f rom one -set of logical categories to another,
But the whole problem looks a l together different if our central (jiijiesitum is economic g r o w t h . As we have already seen, the categories of accumulation fit. a w k w a r d l y into the scheme of an economy where the characteristics of money are so diffuse. In this sector, the surplus of production above consumption, i f there be any, is a physical surplus and not an economic surplus for the value categories are s ingular ly i n appropriate in this context. As such, the question of the productive deployment of this surplus does notarise. Now, if our purpose is to find out a. concept of na t ional income wh ich may be used as an index of economic g rowth , we need consider only such sectors of the economy as employ reproducible Capital and as augment the to ta l stock of reproducible Capital in the process of accumulat ion. So far as the non-monetized sector is concerned, it does not face the above test. As such, it cannot logical ly f o r m a component of a growth-or iented na t iona l income to ta l Est imates of na t iona l income, l ike the G.N.P.. etc, wh ich a t tempt to include the non-monetized sector, stand on an altogether different conceptual foot ing f rom the approach here suggested.
Supposing, however, tha t the cur-rent practice is unobjectionable, i t is easy to see t h a t it makes models of economic g r o w t h baaed on pos
tula ted relationships between income, investment and savings extremely precarious. If one leaves out the savings question altogether, and concentrates merely on the investment —income relationships, one is deal ing w i t h an incomplete description of economic r e a l i t y Because in such models as these, the demand aspect of the question i s t o t a l ly ignored. I f the economy is cent ra l ly planned, we m a y have some jus t i f icat ion for assuming away the worries of a deficient or excessive effective demand but t a l k i n g about a mixed economy, one realizes at every step the inadequacy of a model of economic development hav ing no demand component.
Fo r accommodat ing demand aspects, we have to introduce savings expl ic i t ly into the picture. But how stable is the savings income relat ionship in an economy hav ing such a wide non-monetized sector? In t r u t h , the process of economic development implies in i tself a v a r y i n g coverage of the non-monetized sector. As such, i t w i l l au tomat ica l ly lead to discrepancies between the postulated savings-ratios and actual savings ratios. F r o m the mathemat ica l point of view, we may be in a posit ion to employ some more fo rb id d ing techniques to take account of the s i tuat ion but, in practice, the models reduce themselves to empty formal isms. To be on such grounds, we must be in a posit ion to relate the changes in savings-rat io to changes In the nature and extent of the non-monetized sector, B u t in the nature of the case, it is difficult to establ ish any precise relat ionships. Should we then break up t o t a l savings in to two components: monetized and non-monetized? This procedure is not meaningful either for the non-monetized sector is not accumulat ion-oriented, as we have seen.
The w a y out of the impasse appears to be in adopt ing a definit ion of na t ional income tha t comprises only such sectors as are direct ly relevan t f rom the point of view of economic development. Sectors wh ich are remotely connected w i t h the process of accumulat ion viz. the non-monetized sector, w i l l be au tomat i cal ly left out. The result w i l l be a loss In the comprehensiveness of the to ta ls a r r ived at but this loss w i l l be more than compensated by the greater accuracy of the relevant data as w e l l as by the heightened meaningfulness of the economic m a g n i tudes involved.
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