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.

703

June 23, 1956 THE ECONOMIC WEEKLY

704

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.

705

June 23, 1956 . W E E K L Y

704