On the direction of money flow

When Adam goes to the potato farm and buys potato from the farmer, the potato transfers from the farmer to Adam. And something else transfers in reverse, from Adam to the farmer as well. It is money.

When Sam buys ice cream from ice cream truck, the ice cream is transferred from the truck to Sam. And money is transferred from Sam to ice cream truck. In the reverse direction of the ice cream.

In these two cases, the money moved in the opposite direction of the material. This is the case in the whole society. Money flows toward the opposite direction of the material flow.

Material flows from service provider to customer. Eg. Restaurant providing food to the customer. Food is transferred from restaurant to customer but money flows the other way, from customer to restaurant. Eg. When customer pays the restaurant bill, money flows from customer to service provider. In this case money traveled in reverse direction of the materials.

[Note to Nerds: This is the C-M-C relation discussed by Marx in Capital, Chapter 3.]

Even though I say material, I’m using the word in a much broader sense, which include goods as well as services.

For example, if you get a hair cut, you are receiving a service. The service passes from service provider to you. In this case also the money passes in reverse. It goes from your pocket to the barber’s pocket.

If any service or goods move to a direction, it’s equivalent amount of money moves in the reverse direction.

This applies to individuals as well. If an individual is receiving a material, the money goes out of his pocket. If he produce a material and pass it to someone else, money goes into his pocket. The more he produce, the more money flows toward his direction. On the other hand, the more goods come to his direction, the more money goes out from his direction.

When someone says ‘I don’t have money’ what is the first thing he needs to do? First thing he needs to do is to increase his productivity and increase the production. When you produce more, it’s equivalent of money will flow towards you. On the other hand if you increase consumption, the money moves away from you.

I would say this is the first principle of money circulation. Everything else is on top of this basic rule.

Reference:
Marx K. Capital. vol. 1. 1976.

Marshall A. Principles of economics: unabridged eighth edition. Cosimo, Inc.; 2009.

Smith A. The wealth of nations [1776]. na; 1937.

Revisions: Original 31-03-2022