No one knows for sure who first invented money, but historians believe metal objects were first used as money as early as 5,000 B.C. Around 700 B.C., the Lydians became the first Western culture to make coins. Eventually, societies moved away from using precious metals to make money – the first paper money issued in the United States occurred on March 10, 1862. The $5, $10, and $20 bills were made legal tender by an act of Congress on March 17, 1862. However, as the value of money grew with time so did the interest of people in it – money became so attractive to individuals that greediness towards it escalated and it began to be used as a corruption instrument.
As money plays such an important part in the fulfilment of our daily life and short-term pleasure, people’s tendency to prioritise the latter to abstract values and long-term satisfaction can be observed. In the area of developmental economics, the contrast between these objectives is known as ‘economic growth’, or the sustained increase in the realised and potential national income over a period of time, and ‘economic development’, which occurs with an improvement in the quality of life and access to non-monetary goods such as freedom, opportunity, health and education, for all members of society. So, is economic growth being prioritised to development? In other words, has income become more important than our quality of life?
Income can be used in various ways, such as by acquiring personal utility for oneself, or by donating utility for others, which can manifest itself in various ways, including as non-monetary assets. Some examples of his type of utility which we usually value the most are health and education, main determinants of the economic development of a country. These can be analysed through indicators such as the HDI, which measures life expectancy at birth and the average years in school for the population of the country. These two aspects of our lives can be influenced with the appropriate use of money, for example, by providing a better education for our children or being able to afford medication and health treatments. Moreover, as national income increases in a country, thus economic growth occurs, workers will pay more taxes, allowing the government to increase its budget, thus its spending on supply-side policies, for example building infrastructure such as hospitals and schools. This can improve the quality of life for the population of the country, showing that increased economic growth may result in increased economic development. It may also to be argued that development, in the long term, could bring further growth, as when people are more educated and healthier, their productivity will likely increase. This confirms the mutually stimulating relationship between growth and development.
All the above would occur with several preliminary assumptions. For one, governments and consumers are assumed to spend on merit goods and services, such a health and education, and not on demerit goods, such as cigarettes, fast food, or other products whose consumption generates negative externalities. It also assumes that such merit goods are produced in a beneficial way, without causing deforestation, water pollution, climate change, or other production-side negative externalities, and that the income derived from the production of these goods and services is distributed equally, without worsening the country’s income distribution. In reality, these assumptions are true only to a certain extent, in some countries more than others.
The product, the means of its production, and the group of beneficiaries greatly affects the degree of improvement in the quality of life that can be derived from income. If income is not a driving factor of development, then our quality of life should be prioritised. In countries where the main source of income is the extraction of natural resources, development tends to not be the consequence of growth. In these cases, growth happens as commodities are price inelastic, as global income grows, the demand or need for commodities remains at similar levels.
Furthermore, in some cases countries with low rates of growth may achieve better development figures than countries with high growth rates. For example, India has higher growth figures than Bangladesh, but Bangladesh has higher development figures than India. Statistics suggest that Bangladesh, in contrast to India, pays greater attention to institutional factors such as their court system and banking system, has higher educational attainment, and makes wise investments in health such as in prenatal care of mother and children. These factors improve figures on the average number of years spent in school and the life expectancy at birth, driving the Human Development Index (HDI) up.
Coins, notes, checks, and credit cards have no true value until they are used as an exchange means to purchase or to invest. As W. Wilkinson points out while talking about the topic of financial inequality, ‘the main benefit of income, saved or invested, is flow from consumption’. These words suggest that although money may at first thought seem as if it has an objective value, its true worth is almost completely subjective. Money acquires greater value when the result of its spending is positive for not only the individual, but for and all members of society. However, as anticipated in the introduction, people today are increasingly interested in short-run pleasure, which is often provided by demerit goods bought through income, precluding development.
To conclude, growth and development, or income and quality of life, are closely linked until income is spent on merit goods produced without causing negative externalities and whose profit is distributed equally. Otherwise, the two might lose their link, and if development doesn’t occur, society loses its potential for long-run sustained economic growth.