Money is not an unmixed blessing. Total dependence or misuse of money may lead to undesirable and harmful results. In the words of Robertson, “Money, which is a source of so many blessings to mankind, becomes also, unless we can control it, a source of peril and confusion. The following are the various disadvantages of money:
1. Instability.
A great disadvantage of money is that its value does not remain constant which creates instability in the economy. Too much of money reduces its value and causes inflation (i.e., rise in price level) and too little of money raises its value and results in deflation (i.e., fall in price level). Inflation distorts the pattern of distribution in favour of the rich ; thus, it makes the rich richer and the poor poorer. Deflation, on the other hand, results in unemployment and hardships to the working class.
2. Inequality of Income:
Money, through its excessive use and inflationary effect, creates and widens the inequalities in the distribution of income and wealth. This had divided the society into ‘haves’ and ‘have-nots’ and has led to a class conflict between them.
3. Growth of Monopolies:
The use of money leads to the concentration of wealth in a few hands and this gives rise to monopolies. Growth of monopolies results in the exploitation of the workers, brings misery and degradation to them.
4. Over-Capitalization:
Easy borrowing and lending facilities, made possible through money, may lead certain industries to use more capital than is required. This over-capitalization, in turn, results in over-production and unemployment.
5. Misuse of Capital:
Money, which is the basis of credit, leads to the creation of more and more credit creation. Credit creation, if not matched by the increase in production, results in inflationary rise in the prices.
6. Hoarding:
In the materialistic world, people give undue importance to money and, instead of utilising in productive activities, may start hoarding. This would adversely affect the growth of income, output and employment of the economy.
7. Black Money:
Money, due to storability characteristic, is the cause of the evil of black money. It provides people a convenient way to evade taxes by concealing their income. Black money, in turn, encourages black marketing and speculative activities.
8. Political Instability:
Wide fluctuations in prices and business activities, caused by money, may lead to political instability. This may result in the change of government.
9. Moral and Social Evils:
In the modern times, moral values have been sacrificed at the alter of money. People have become so much money-minded that they openly indulge in corrupt practices to satisfy their greed for money. Money is also the root cause of thefts, murders, frauds and other social evils.
To conclude:
The defects of money do not, however, indicate its elimination. The advantages of money far exceed its disadvantages. It is a good servant and a bad master. What is required is the proper regulation of money supply through a wisely formulated monetary policy to ensure the efficient working of the economic system and to achieve the socio-economic objectives of the economy.