Qazi Nazrul Huque

The poor jobless mother whose child is hungry knows one thing: She needs money to buy food for her child.

The rich man’s teenage son who has taken fancy of the latest model smartphone in his friend’s hand also knows one thing: To buy such a phone he needs money.

The desperate mother, if all her normal efforts to earn the money fail, may go to such extreme as selling her honor. The rich man’s son, if all his stunts to persuade his parents to buy him the phone do not work, may decide to mug someone in the street.

What is money?

Money is the set of assets in an economy that people regularly use to buy goods and services from each other (Mankiw 2015, p 610). Besides a commonly accepted medium of exchange, the “ideal money” is also a unit of account, a common measure and store of value, and a standard for deferred payment. It must also be generally acceptable, homogeneous, portable and divisible into small units.

Is money essential? The Incas developed one of the biggest civilizations of the world without money and even a market system (Gordon 2006, p 83), but modern civilization is unthinkable without it. Our whole economic system stands on the idea of money. An elaborate division of labor, the idea of business, and a price system without which no economic system can work, would be impossible without the introduction of money. According to Geoffrey Crowther, “Money is one of the most fundamental of all Man’s inventions.” (Crowther 1962, p 4).

Evolution of money

Money, what we now see in the form of printed paper, coin, bank check, debit card etc., passed a long way in its evolution before it came to its present phase. For thousands of years, before money was invented, transactions would take place through a system called “barter” – simply exchange of goods for goods. Money as a medium of exchange came into human history in the form of commodity, i.e. money with some intrinsic value in items like cattle, olive oil, beer or wine, copper, iron, gold, silver, rings, diamonds, cigarettes serving as money (Samuelson 2010, p 459). Metals like bronze, copper and iron which were becoming precious to primitive man emerging from the Stone Age formed a strong and wide bridge from primitive to modern or coined money (Davies 2002, p 45). By the eighteenth century commodity money was exclusively limited to metals like silver and gold (Samuelson, ibid). Such metals were used as money in many societies because of their material and symbolic value. The basic difference between barter and commodity money was that in the former people would exchange goods for their intrinsic use value, while in the latter some commodities were accepted as means of payment so they could later be used to purchase some other commodities that the consumer finally wanted.

The age of commodity money gave way to the age of paper money – the final progression toward the “ideal money.” Money is now wanted not for its own sake but for the things it buys, with its power of transaction backed by the state. Paper money issued by government is now being overtaken by bank money – the checking accounts. Currency and bank checks today comprise money although electronic transfers, debit cards and e-banking have replaced paper checks to some extent as ways of using checking accounts (Samuelson, ibid).

In modern time, generally, we use two common definitions of money: (a) narrow or transactions money or M1 which is made up of currency and checking deposits, and (b) broad money or M2, which includes M1 plus highly liquid near-monies like savings accounts. These definitions of money have changed over the last few decades as a result of rapid innovations in the financial markets, with significant implications for monetary policies and management.

The agricultural revolution and the origin of money

The agricultural revolution which started about twelve thousand years ago (Harari 2011, p 3) was followed by increased production and well-being and eventually paved the way for the invention of money. The rise of cities and kingdoms and the improvement in transport infrastructure brought about new opportunities for specialization and the system of barter was becoming insufficient to facilitate the innumerable exchanges of the multitude of commodities and services, as well as to form a basis for a complex economy (Harari, ibid, p195-196). Huge transactions, both commercial and non-commercial (payment of taxes and fines, personal gift, contributions to religious and other charities), necessitated some common medium of exchange, as a way of condensing wealth (Ember et al 2007, p 318), which gradually paved the way for the “ideal money.” Thus trade led to markets, markets to money and, as some scholars believe, to writing (Ehrlich 2000, p 266). The industrial revolution about two and a half centuries ago accelerated this need and the revolution of the information technology in the latter half of the twentieth century helped the emergence of modern financial markets and electronic transaction. Markets, money and literacy are, together with their offspring science and technology, primary shapers of our world and our natures (Ehrlich, ibid).

Money: separating value from product

One fundamental consequence of the invention of money was the separation of value, in the form of money, from the product: the dual nature of product – something with the potential of fulfilling a need, and of commodity – something that had a selling value. Money made the separation complete by gradually alienating itself, as the symbol of value, from the product, distorting the eternal relationship between product and value, and along with it, that between nature and the humans. Previously humans would produce to survive; now they began to produce to sell. The agricultural revolution and much later the industrial revolution expedited it by creating more and more affluence for humans. And modern banking and financial systems, as David Korten describes it, have made money almost a pure abstraction, delinking the creation of money from the creation of value (Korten 1995, p 187).

The idea of separating value (in the form of money) from product was a historical mistake like the mistakes of slavery, monarchy and numerous religious superstitions that have haunted society for thousands of years, creating innumerable social, political and economic evils. Money has made what Collin Wilson calls “Taking short-cuts” and “A smash and grab raid” (Wilson 1984, p 5) – from picking someone’s pocket to robbing someone of his wealth to hacking a bank – a profitable business for criminals. The spillover of money crime has pervaded almost all spheres of society.

Money and business

The separation revolutionized our method of business too. The process of organizing a business or production depends on calculations of various factors of production in money units and the production decision in modern capitalism is largely determined not by what society actually needs, but by what will yield maximum profit, in money terms, for the entrepreneur or investor. The invention of money – despite the crucial role it played in the growth of the market and economy – and its evolution not only as an independent entity but also as a wealth in itself, helped in the process of complete separation of profit from production and helped profit to be sought for its own sake. The idea of money and the idea of profit go hand in hand and profit, originally devised as a tool for measuring efficiency of business by working out the best combination of the factors of production, became the end in itself.

The idea of separation of value from product has also resulted in the creation of distorted needs – ascribing artificial value to a product, creating artificial demands, boosting value of a product by deceptive means, producing unnecessary and even harmful products – and numerous other market distortions and anomalies like wrong and misleading market signals. The worst sufferers of the system are the poor, who usually produce and trade in basic commodities whose demands cannot usually be artificially boosted and manipulated.

Laborer-entrepreneur dichotomy

Another consequence of the separation was the laborer-entrepreneur dichotomy. The idea of factors of production alienated labor from entrepreneurship. The industrial revolution turned labor into a commodity (Ball 2004, p 227) – a complete injustice to human creativity. Every human being, as Nobel Laureate Professor Muhammad Yunus, founder of the Grameen Bank rightly observes, is an entrepreneur (Yunus 2017, p 16) and the laborer-entrepreneur dichotomy denies the endless capacity of most human beings, reducing them to the position of mere suppliers of labor in the production process (Yunus, ibid, p 264) – whose role is molded by the employer.

Once the value of product was artificially and forcibly separated from it, the workers who labored to produce it became marginalized, and again when the decision of what to produce was determined not by what society actually needed but by what would yield maximum profit for the entrepreneur, the laborer became even more marginalized. Now money was used to make more money, and the laborers became more and more marginalized in the production process for they owned neither the capital nor the profit and also because the social value of their labor was now totally denied. Since money begets power and since money and power tend to concentrate and to reinforce one another, this created a chain of wealth concentration. The result is the exponential rate of concentration of wealth. According to an Oxfam report published in January 2017, only eight men owned the same wealth as the 3.6 billion people who made up the poorest half of world population (Oxfam 2017). In another report published in January 2018, Oxfam says eighty-two percent of the wealth generated in 2017 went to the richest one percent of the global population, while the 3.7 billion people who make up the poorest half of the world saw no increase in their wealth (Oxfam 2018). Economics, as Robert Dorfman observed more than half a century ago, contains no criterion for judging the adequacy or inadequacy of a distribution of income, and economic systems do not contain any mechanism for rectifying it (Dorfman 1965, p 142).

The money mechanism and the role of banks

Money, as we already know, is the blood of modern economic system. The vigor of an economy is determined by how much money is changing hands, not by how much wealth it represents: as long as money keeps flowing, an economy may remain buoyant (Ball, ibid, p 237). The invention of fiat money, i.e. currency that a government has decreed to be legal tender but which is not backed by any physical commodity was an even stranger idea. The question of how millions of products produced by millions of people could be coordinated with money – under an inherently imperfect price system (Dorfman, ibid, p. 104) which knows neither limits nor morality (Piketty 2014, p 5) – which is issued by the central bank, distributed through commercial banks and exchanged among people has never been satisfactorily answered. If money is considered as the blood of the economy, then how does the blood reach all corners of the economic body of society with their respective claims? Why do food grains produced by small farmers in a remote village of Bangladesh remain unsold after harvest while rich people in its cities rush to fast food shops to buy corn soup?

The system is made more complicated by the power of banks to create money. Coins and bank notes today comprise only three percent of the total money supply in the economy; the remaining 97 percent is created by private banks through the process of loan creation (Doorman 2015, p 13). Under the fractional-reserve banking system, banks can create money by issuing loans and the total bank money is generally equal to the total reserves multiplied by the inverse of the reserve ratio (Samuelson, ibid, p 465). The system is generally biased against the poor who are always marginalized in the economic system and are usually denied access to bank loans (Yunus 1999). The almost unlimited power of commercial banks to create money by issuing loans and the introduction of electronic money have made the monetary system not only too complex, they have even more marginalized the poor in the financial system.

Another consequence of the existing money system is that banks and other financial players pump most of the money, almost 98 percent, into the financial or virtual economy, where it is used for speculation rather than production and consumption while the real economy of production and consumption of goods and services faces a money shortage (Doorman, ibid, p 16). More than two decades ago David Korten warned how the financial markets had largely abandoned productive investment in favor of extractive investment and were operating on autopilot without regard to human consequences, how the productive sector of the global economy had become dwarfed by the financial system because of the massive waves of money that the money game players were moving around the world with split-second abandon, how the global financial system had become a parasitic predator living off the flesh of its host – the productive economy, and how manipulation of the banking and financial systems, as a result of their increasing dependence on computer technologies and electronic transfer, were contributing to concentration of wealth and rendering the economy more and more vulnerable (Korten, ibid, p 185-193).

Our system of money has molded the economic structure in such a way that those who are already privileged in this system can elicit more privilege from it. Every financial bubble in history is created by the rich, not the poor, and all economic booms followed by recessions are created out of the uncontrolled movement of money that has nothing to do with the poor, who are eventually the worst sufferer of any recession.

The value of money

One of the strangest theories in Economics is the value of money. How can the value of a thing, which has no intrinsic value of its own, be determined by its supply and demand like that of a loaf of bread while its creation entirely depends on the will of the government and the banks? By doing so money, although not created out of any economic activity, is given a kind of omnipotence to be readily exchangeable with any other commodity. It is given the status that was once given to “ether,” the hypothetical, ubiquitous medium, to explain the propagation of electromagnetic radiation in “empty” space. Every time the central bank decides to reduce or increase money supply the poor are harmed more than any other section of society. History is replete with instances of indiscrete and unscrupulous overprinting of paper money leading to hyperinflation, which takes enormous toll on workers, along with business, because of the huge variation in relative prices and real wages (Samuelson, ibid, p 612-3). In the past kings, who had the absolute authority to mint gold and silver coins, would use deceitful methods called “debasement” – calling up existing coins and then re-issuing them with the same material but higher nominal value, or minting coins in smaller size or of lighter content keeping the same designated value, or using cheaper metals than were previously used, or using more than one of the three methods – to accumulate wealth for themselves (Davies, ibid, p198-200; Crowther, ibid, p 9). The separation of value from product and government’s methods of injecting money into the market or reducing supply of money in the market through the banking channel highly favor the rich, who have more access to banks, and the opportunist, the unscrupulous and those who have connections and can manipulate the system. India's recent crackdown on black money by calling up high value currency notes turned out to be a nightmare for millions of low income working class people whose need for liquidity to run their lives and businesses, because of lack of banking services in their neighborhood, required them to hoard cash. It reminds of American comedian-writer Groucho Marx’s famous comment: While money can't buy happiness, it certainly lets you choose your own form of misery (BBC News 2016).

Perhaps a few decades from now our children will laugh at how their ancestors had followed this ludicrous system of transaction for so long just as we now laugh at the idea of ox-cart for travel and as our children will one day laugh at our having used Newton’s laws of motion to travel in space.

Money and macroeconomics

Like business or the microeconomic system, the macroeconomic system also heavily relies on the system of money. Both fiscal and monetary interventions work by affecting the aggregate demand, leaving the aggregate supply to the market. All fiscal and monetary tools like taxation, government expenditure, open market operation, interest rate etc. with the objective of controlling inflation and increasing employment and output work through a process of deliberate flow of money – increase in or reduction of money supply in the economy in the form of income, savings and investment. History bears out that these objectives have never been successfully attained. Such policies rather tend to marginalize the poor even more and safety nets like transfer payments to stop further impoverishment of the poor never help empower them in the long run.

Occasional booms in the economy followed by recessions, the non-Gaussian distribution of market fluctuation (Ball, ibid, p 242-7) and unpredictability of the market (which makes “rational expectation” often impossible), trade-off between inflation and unemployment in the short-run (the Phillips Curve), allowing of an unemployment rate consistent with a constant inflation rate in the long run (the NAIRU) and a targeted low inflation for stabilizing economy and maintaining growth and maximizing efficiency of the price system, development of derivatives like options and futures and loss of billions of dollars in derivative trading, financial bubbles from time to time invariably followed by recessions, unprecedented accumulation of national debts vis-à-vis occasional bailing out of “too big to fail” banks,  counteracting fiscal and monetary policies (crowding out of one another), liquidity trap, time lag between actions and results of fiscal and monetary interventions, accumulation of huge amount black money in the economy, rampant money laundering all over the world – all admit to the fact that managing the economy with money is a highly clumsy business. Evidence suggests that money plays an important role in generating business cycles as well as in interest-rate fluctuations (Mishkin 2013, p 49, 52), and the economy has now become too complex to be governed by fixed rules and there is no single best approach for all time. There are also trade-offs between short-run policies for political support and long-run policies for general welfare (Samuelson, ibid, 648) – to make the situation even more complicated.

Money, trade, technology and the poor

The agricultural revolution that began about twelve thousand years ago laid the foundation for affluence and prosperity. At the same time it brought with it customs and institutions like slavery and empires based on enormous social, political and economic discrimination and division among humans, wars and mass killings, and massive deprivation of the vast majority by a small minority by force. The invention of money that kept on separating value from product all along its evolution finally ending up in paper and bank money was very instrumental in the process. Human labor lost its dignity as the laborer class – from the slave to the industrial worker – was treated like animals, adding money value to a commodity. Humans, who are born with endless potential and creativity, are, except a privileged few, relegated to the position of that of a cow or horse, working in the assembly line as an appendage to machines. Despite huge technological developments in the last two centuries, difference between the life-styles of the working class and the leisure class remains almost as it was a thousand years ago. The industrial revolution’s promise of  better life standards and the market democracy’s promise of nominal freedom, on the other hand, have failed to give a purpose to human life, and humans, despite the enormous intellectual progress compared to their ancestors’, have mostly remained emotionally backward like the Stone Age humans (Fromm 1965).

It is evident that the existing economic system has an in-built mechanism of creating, maintaining and augmenting disparity, and trade or the exchange of goods, as Philip Ball says, seems inevitably to place most wealth in the hands of a few, and when markets become global, there is an increased risk of all the wealth getting concentrated in one place (Ball, ibid, p 278).

Technological development has been tremendously fast especially in the last few decades and followed by, in the absence of a social orientation, an unimaginable concentration of wealth, leaving nearly a billion of world’s population still in poverty and hunger. Technology is considered by many as the main culprit in environmental deterioration (Kemp 2004, p 19). Artificial intelligence is already looming large with the threat of making billions of people jobless in the coming days, even making them dispensable on earth by the very super-intelligent machines created by humans themselves. Ironically, it is completely opposite of what E. F. Schumacher said about humans only about half a century ago: Man is far too clever to be able to survive without wisdom (Schumacher 1974, p 30). Economist and social activist Muhammad Yunus is already warning us about its fatal consequences, and is demanding for social direction for technology (Yunus 2017, p 178). Historian Yuval Noah Harari echoes a similar concern that technological revolution might soon push billions of humans out of the job market, and create a massive new useless class, leading to social and political upheavals that no existing ideology knows how to handle (Harari 2018, p 18).

Furthermore, developments in genetic engineering, nanotechnology and brain-computer interface are going to create a fundamental and unforeseen division among humans with the advent of a super-human class (Harari 2015, p 352-3). While nearly 800 million of world’s people go to bed hungry and between one and two billion suffer from malnutrition (Ehrlich 2017), technology is about to split humankind into biological castes – creating a new superhuman caste that will abandon its liberal roots and treat normal humans no better than nineteenth-century Europeans treated Africans (Harari, 2015, p 346-50). The structure of human society is going to be organically altered and threatened. The way human health is deteriorating and the way technology and diseases are reinforcing one another, turning themselves into cyborgs may be the only option for humans to survive on earth. Technology by now has drastically turned the structure of power against the majority; today’s governments are dominated by a highly powerful small group of people both at national and international arena, backed by the ever-growing military of their states. This super-elite class is fortifying itself with more and more developed weapons of destruction, and the ordinary majority, despite the tremendous development in information and communication technologies, is becoming more and more helpless before the ever increasing power of the state dominated by this military-economic super-power. Institutions of democracy like elections, public offices and sovereign authority have become ways of making wealth and consolidating it, and the absolute authority of the state, combined with its coercive power, is inviting tyranny back into societies especially those less experienced in democratic norms.

A serious limitation of the capitalist economic system is its over-dependence on demand. Businesses, by way of using people as “consumers,” fuel population growth (Ehrlich 1968, p 149), which has now reached an almost unsustainable level. During the Great Depression of the 1930s the market economy was found to be tremendously dependent on demand and since then keeping demand high in the market has been at the root of most macroeconomic policies. This has given rise to a culture of unnecessary production and overconsumption leading to unhealthy competition in market, wastage of earth’s resources, deterioration of human health and the environment, and making life difficult for both humans and other species on earth. Combined with the system of fiat money it has generated various market distortions with serious social, economic and political ramifications. According to Laurie Garret, “The extraordinary, rapid growth of the Homo sapiens population, coupled with its voracious appetite for planetary dominance and resource consumption, had put every measurable biological and chemical system on earth in a state of imbalance” (Garret 1994, p 550). Our system of money promotes only those technologies that can make money and, together with overpopulation and guideless technologies, is enough to destroy the world. The eternal dissatisfaction of humans with their life standards and accomplishments (Cantril 1961, p 7) and their penchant for making use of whatever is technologically possible (Fromm 1968, p 32) – in the absence of any ultimate goal for human life –  have already led society toward ethical and material degeneration. A balance-sheet of human existence on earth on the basis of its three capitals – fossil fuel, the tolerance margins of nature, and the human substance – as defined by E. F. Schumacher (Schumacher, ibid, p 18) should give us serious insights even if we make the blunder of ignoring the rights of other species to the resources of earth.

Is there a way out?

Money is said to have taken on an almost magical character during the past two centuries, conforming to its own laws that are beyond our control. We are afraid to intervene in the monetary system for fear that it will lead to uncontrollable events with terrible financial and economic consequences (Doorman, ibid, p 10). Money which was invented to facilitate transaction has now turned out to be a demon with unlimited power endowed to it by us.

The need for fundamental monetary reforms has been felt since the days of the Great Depression of the 1930s. The Chicago Plan, a proposal put forward by some leading US economists during the depression and supported and summarized in 1936 by Irving Fisher, called for separation of the monetary and credit functions of the banking system by requiring 100 percent reserve backing for deposits with the objectives of controlling business cycles, ensuring complete elimination of bank runs and reducing both public and private debts dramatically. The plan was later revisited in 2012 by IMF economists Jaromir Benes and Michael Kumhof, who claimed that their analytical and simulation results validated Fisher’s claims. The revisited Plan also claimed that its implementation could drop steady state inflation to zero without posing problems for the conduct of monetary policy (The Chicago Plan Revisited, 2012). Although the proposal of the Chicago Plan was not implemented for political expediency, its claim for 100 percent reserve plan via "narrow banking" or "core banking" keeps resurfacing in any serious discussion of monetary and banking reform.

But our economic system has become so colossal and complex and is making human life so complicated and the relationship between humans and the nature so distorted that our problems cannot be addressed, as Schumacher felt more than half a century ago, by just making marginal adjustments here and there or by changing the political system, and to address the problem we must look forward to a new life-style, with new methods of production and new patterns of consumption (Schumacher, ibid, p 19). As long as we do not recognize – as basic principles of human organizations – equal rights of other species to live and to the natural resources of earth, the right of nature as well as its environment to remain unpolluted and undistorted, and an economic use of world’s renewable and non-renewable resources, a sustainable life for humans on earth seems a far cry.

Jared Diamond, in his book “Collapse: How Societies Choose to Fail or Succeed,” says that human societies may make disastrous decisions for a whole sequence of reasons: Failure to anticipate a problem, failure to perceive it once it has arisen, failure to attempt to solve it after it has been perceived, and failure to succeed in attempts to solve it (Diamond 2005, p 419-440). Our system of money and all the perversions it has created in our social, political and economic systems have already made these systems clumsy and complicated enough – because of the “rational” and “irrational” behaviors of people arising from the clashes of interests between people and clashes of values of people as elaborated in Diamond’s analysis – to actively and positively respond to the pressing problems of humanity like overpopulation, depletion of natural resources, environmental degradation, wealth concentration, widespread poverty, threats from inappropriate technologies, increasing militarization of societies etc. It has helped war and hatred become two of the most profitable businesses of the world.

Can society survive this crisis? Components of a complex system, says Mitchell Waldrop, may never quite lock into place, but they yet never quite dissolve into turbulence (Waldrop 1992, p 11-12). Human society, like many other organisms, has a tremendous capacity to self-organize and adapt itself to the changing needs in an active way. But at the same time we should not forget Paul Ehrlich’s warning that many past civilizations were led to extinction by “cultural evolution” (Ehrlich, ibid, p 330), and that neither the genetic evolution of life nor human cultural evolution is deterministic, involving a straightforward unfolding of natural laws (Ehrlich 2000, p 270). Any effort to remedy the distortions of the existing economic system which have given rise to the numerous social, economic and political evils must start with recombining product and its value, rebuilding the structure of the economic system on the basis of the real economy of production and consumption of socially necessary goods and services and, as Muhammad Yunus emphatically puts it, unleashing the creative capacity of every human being. But this will need a complete reorganization of society based on proximity, mutual support and collective responsibility under a system of decentralized and community-based production, management and distribution – not on the current competitive system of mutual exploitation and profit-orientation in a so called “free” market. Given the developments in computer and information and communication technologies, it is technologically possible today, especially in this age of “Big Data” (Cukier and Mayer-Schoenberger 2013, p 28-40).

Grameen Bank: a bank combining the real economy and human creativity

An effort to strengthen the real economy was initiated by Muhammad Yunus in the 1970s with the establishment of the famous Grameen Bank with the objective of utilizing the unused manpower as well as the huge untapped potential of the rural economy of Bangladesh by combining them with microfinance. Credit to the rural poor for income generation, as argued by Yunus, was found to have stimulated production and business considerably and create backward and forward linkages, along with employment, to boost the economy and alleviate poverty. The bank also encouraged its members – borrower-shareholders – to make savings with the bank which increased with increases in their income. Today members’ collective savings are almost equal to their collective outstanding loans and the bank works like a cooperative of the members. The bank which has now grown into a multi-billion dollar business never gives out loans to be invested in the virtual economy or the speculative market, neither does it “create money” what conventional banks do.

The bank organizes people, mostly women who comprise 97 percent of its members, before giving them loans. Members are organized into Groups and Centers (five to ten women form a group and six to ten groups federate into a center). Sixty to eighty centers are served by a Branch office of the bank, which is situated in the neighborhood of the members. Each center has a center house where members assemble once a week to pay their loan and savings installments to the Center Manager, a bank staff representing the branch office, and to decide about new loans asked by members. Each group has a Group Chair and a Secretary who are elected from among group members and each center a Center Chief and a Deputy Chief who are elected from among group chairs. Group and center leadership are changed every year so vested interests do not grow and all members are given leadership opportunity by turn. Any new loan has to be formally proposed by the member at the center meeting, in the presence of the center manager, to her group, which scrutinizes the objective and feasibility of the project as well as the amount asked for it. Then the group recommends the loan to the center, which again scrutinizes the proposal. Utilization of previous loans of the applicant is also checked. Once both the group and the center are satisfied, the center recommends the loan to the center manager. Any disagreement, if there is any, in regard to the loan proposed must be settled at the center meeting. The branch office usually does not disagree with the proposal made by the center.

The bank which now has 2,568 branches, 139,000 centers and 9.00 million borrowers, has so far disbursed more than 25 billion US dollars with a recovery rate of 99 per cent. Its current loan outstanding is 1.80 billion dollars, against a total deposit of 1.70 billion dollars by members and another 764 million dollars by non-members of the community. Grameen Bank is a system through which the rural economy finances its own investment needs.

All loans of the bank are collateral-free and the bank, which is fully run on mutual trust between the bank and its members, has never filed any suit against a borrower for a default.

The Grameen microcredit model is now replicated in more than a hundred countries as a means of alleviating poverty and unemployment, empowering the poor especially the women, and boosting up the economy from the bottom.

The bank has proved that every human being – whether poor or rich, male or female, educated or illiterate – is a born entrepreneur and a community-based, real-economy oriented banking unleashing the creative capacity of people can be the cornerstone of a sound financial and economic system.

Social Business: business with a social purpose

Grameen Bank was created under the broader concept of “Social Business,” – a new approach to doing business with a social purpose. Proposed by Muhammad Yunus, social business combines the power of the real economy, the entrepreneurial potential of mass people and the dynamics of profit to address the pressing problems of society in a financially and economically sustainable and environmentally conscious way (Yunus 2010, p 3). The role of profit is very critical and instrumental in a social business. Social business is not opposed to profit, but instead of making money for the investor, profit in a social business is used to ensure efficiency and sustainability of the business as well as to expand it – without compromising the businesses’ objective of serving society – so it can serve more and more people. Social business is strictly about business addressing the pressing needs of society, not any kind of luxury, unnecessary production and wastage of society’s resources. Social business is about unleashing the entrepreneurial potential of mass people and thus financially empowering them, fostering cohesion among people through a feeling of camaraderie in their common efforts in establishing a better world for all and thus socially and politically empowering them toward an equitable society. Examples of social business in diverse areas like nutrient-fortified yogurt for poor under-nourished children, eye care hospital for poor rural people, solar home system for remote villages out of grid-electricity network, technology-based health care information and diagnosis services to rural women, technology-based insurance support to small farmers and data support on soil conditions and nutrient bear the proof that social business can address any problem of society in a business way. By denying any dividend to the investor, social business ensures that investors in a social business either invest in one or more social causes with or without participating in its management or run his/her own business with the joy of making the world a better place for all.

Social Business addressing the challenges of society

The history of social progress in the last twelve thousand years is predominantly the history of economic and technological development, bringing unimaginable material affluence and comfort to human beings. But it has also brought along with it evils like social alienation, crime, deprivation, militarization of society, unemployment, huge wastage and depletion of natural resources, environmental crises and unprecedented concentration of wealth that are threatening not only the core of society but also the biological existence of the human race itself. Our economic structure based on a strange system of money, profit, competition and unbridled consumption fosters greed, acquisitiveness, mutual hatred and exploitation that now have culminated in physical aggression of the powerful against the weak almost all over the world. Drawbacks of technological development are about to outweigh their benefits and seriously infringe on human freedom and justice. While a quarter of world’s population suffer from poverty, hunger, malnutrition, homelessness and death from war, arrogant demonstration of wealth and power by a small minority grins obscenely at the face of humanity.

More than 150 years ago Karl Marx wrote:

In the social production of their life, men enter into definite relations that are indispensable and independent of their will, relations of production which correspond to a definite stage of development of their material production forces. The sum total of these relations of production constitutes the economic structure of society, the real foundation, on which rises a legal and political superstructure and to which correspond definite forms of social consciousness (Marx 1859).

Marx was correct that the real foundation of society lies in its economic structure. All potentials and challenges of human society emanate from it and any effort to address the distortions in the present economic system must be sought in its structural reform. Such a reform cannot be done, as Schumacher said, by just making marginal adjustments here and there which have repeatedly failed in the last ninety years; it calls for a complete reorganization of the whole economic system to make it pro-people, pro-environment and future-oriented. Social business offers a complete framework, along with a specific agenda, for the reform.

Reference:

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