How Demonetization Changed My Life

Do you write as well?

It was November. Shorts were fading rapidly out of the streets. Many girls queued to the ATM machines near my home in night clothes around midnight, their t-shirts knotted at their waist. Aren’t their parents home? I don’t read newspapers, and I don’t watch TV. The bright fellows I follow on Twitter and Facebook don’t like news either.  So, I didn’t know what was coming. I slept for many hours without knowing that those clever girls were trying to get cash before the news got through to everybody.

There are always enough such girls to go around in Noida. My landlady’s niece is one of them. When I first met her, she was sitting on the bed, pouting and sulking, complaining about some ridiculous thing. My landlady and her mother tried to calm her down, but that didn’t have any effect on her. I, the scholar and gentleman, was at my desk, poring over tomes on economics of culture. It was not that I did not see her, but my mind wasn’t there. When her mother said that it was time for them to go, she snapped straight and scratched her back, raising her top. She then turned  around  and  smiled  at  me,  her  eyes  twinkling.  I  raised  my eyebrows, glanced at her and smiled. “Bye”.

She started turning up often. One evening, she barged in asking what I was reading. I put aside my scholarly pursuits and said, “I didn’t see you for long.” She was in college in Pune, studying psychology or some such fraud this kind of girls study to kill time. Now, I read many psychologists. “Steven  Pinker,  Roy  Baumeister,  Daniel  Kahneman,  Geoffrey  Miller, Satoshi Kanazawa, David Buss, Paul Bloom…..” All eminentoes in her field. So I set my eyes on her face to see a glimpse of familiarity, a spark of intelligence. But all this was ear in and ear out for her. If they had all died in the cradle, her life would have been much easier. And a lot more fun. 

She asked, “You’re always reading. Even when you are on your laptop, you are reading. Do you write as well?” I asked, “Oh, Munchkin. How did you know?” I write for a living. Now, like all those girls who are noobs at everything, she wanted to take to writing. I asked her to mail her short stories to me. By then, she had crawled into my bed. A chill ran through my spine. It was then she pulled a trick on me. “Can I have your WiFi password?” I quickly forked over my password to her.

Now, this is a really beautiful girl. She’d somehow collected so much information about me. She’s a flirt, and—shall I say—very liberal. This is in striking contrast to her lame mother who watches over her like a hawk. Her  frequent  visits  are  the  only upside  of  living  in  the house  of  this landlady whose attitude toward money is eerily reminiscent of an old Calvin  Klein  ad:  “When  I  get  money,  I  buy  Michael  Kors.  If  I  have anything left over, I pay my debts.” 

Soon her grim, joyless mother walked in, asking what was going on. This girl hemmed and hawed and said that she was trying to find a summer internship. Her mother glowered at her suspiciously and walked her out, grabbing her by her elbow. 

“Don’t go”. 

I’m sure her mother asked her not to mail me, weighing the pros and cons of a baby which is half Punjabi and half nerd. 

When I was back from work the next day, my WiFi was too slow. This smarty used up my data when I was not around. When her mother came home later, she pointed at me and started drooling, “He’s such a straight- forward boy.” I smiled thinking, “But you didn’t say that when your brat was around.” 

Everybody lets me down. 

It is in this world I decided to go cashless—to go cold turkey. I have always fought off such people with my stratospheric IQ. Money is not just a medium of exchange. Money is not just the common denominator of all transactions. Money humanizes people. Money is the single biggest humanizing force in the lives of such people. If money didn’t exist, they would have gone really, really crazy.   So, what happened when the government  banned  high  denomination  currency  notes?  My  landlady took my coin collection, and my maid took the biscuits in my cupboard. 

I haven’t used currency notes for a month. I haven’t withdrawn money from an ATM for a month because there is always a long queue. It is not that the teen girls queuing to ATM’s haven’t tempted me. But this was always a battle that my commitment to literature won. I use my debit card or mobile wallet to make payments. I order my food from Swiggy, travel in Uber  cabs  and  buy  pretty  much  everything  from  the  supermarket.  I haven’t learnt to cook or drive, and I don’t want to. My time is too valuable to be spent cooking. It is much better to be driven around. The truth is that I don’t know to do anything other than reading and writing. If I were born a generation ago, I would have died. 

In an ideal world, going cashless would have made my life easier. But I do not live in that world. Going cashless eats into my time, because not everybody accepts e-payments. These devices do not always work. Sometimes the GPS doesn’t work. When I go somewhere nearby and don’t have the time to book an Uber cab, I run. I’ve become a fast runner. When things go really awry, I spend entire days negotiating agreements with people

I spoke to a man who runs a small restaurant in Delhi. Let’s call him Mr. Tax  Evader.  Every  month,  Mr.  Tax  Evader  earns  about Rs.  50,000.  In November, he earned only 30,000. He’d be out of business if he earns less than Rs. 50,000. The rent is damn too high. This can’t go on for many months.  He’d never had a bank account, because the money he earns every day is spent buying vegetables, fish, meat and other stuff for the next day. The bank manager tells him that it would take him at least 15 days to create a bank account for him. The root of the problem is that his restaurant was registered in his brother’s name. He’s a migrant. Because his brother is a doctor who had been living in Delhi for 15 years then, he just registered the restaurant in his brother’s name for convenience. But, the food licence is in his name. There are many other complications too. So, he hesitated for about a month. He’s not a poor guy. He’s more resourceful than most Indians. Now imagine how difficult this would be for most Indians who are not part of the formal economy. 

I used to go to Mr. Tax Evader’s restaurant almost every day, because I liked the food. Now I can’t go there, because I do not own currency notes. Yesterday when I went there, he had started using Paytm to accept payments. But he can rely on this only as a last resort. That’s because he can’t use his Paytm wallet to buy vegetables, meat or fish at a reasonable price. He can transfer the money in his mobile wallet to his bank account, but he can’t afford to queue before the ATM every day. He hasn’t paid his employees this month. This never happened before. This is hard on them, because they probably live pay check to pay check. If a customer pays through Paytm, he charges them 10% more. A customer lost his temper when Mr. Tax Evader asked him to pay more. That fellow said that he is a Supreme Court lawyer, and that he will sue the restaurant. A stream of invectives gushed out of Mr. Tax Evader, and the Supreme Court lawyer ran away. 

Let’s suppose Mr. Tax Evader is actually a tax evader. That’s the “worst-case scenario”. But I don’t believe the government deserves a share of Tax Evader’s hard-earned money. I don’t believe in taxation, or any of that kind of nonsense. I work eighteen hours a day. I don’t think anyone has a claim over my money—or that of anybody else’s. Everything should be privatized, including money, roads, highways, the metro, the police and the courts.

I don’t believe in tax-funded, lame policies like “housing for all” or the “right to education”.  You don’t own a house? Buy one. If you can’t afford it, rent a house. If you can’t afford that either, rent a room. If you can’t afford even that, share a room. Is this so hard? Even well-to-do college students do this. If you can’t afford to send your child to school, please don’t. I’m sorry. I don’t work to send your child to school. When Steve Jobs dropped out of college, he slept on the floor of the college dorm and sold empty coke bottles. Steve Jobs didn’t whine saying that the government never gave him enough. Successful people don’t whine like that, and that’s why they are called successful people

But, even if you believe that taxation is justified, this is not a good enough reason to shut down Mr. Tax Evader’s restaurant. His enterprise engages in an activity which is legal—Production of food. This is beneficial for everyone concerned. He employs three people. If taxing him is big deal for the government, bring him to the formal market, and tax him reasonably. Make it much easier for people to start and run a business.  By shutting down the enterprise, tax payers do not gain anything.   Mr. Tax Evader loses his restaurant, and his employees lose their jobs. If the cash crunch lasts long, this is bound to happen. Nobody will benefit from this, and many will lose jobs for no fault of their own. This is not a minor inconvenience. This can change the course of their lives. If someone puts you in a prison or a mental asylum for a day and then lets you go, that is probably a minor inconvenience in purely physical terms. But in the real world,  this  will  probably  have  consequences  that  last  years  or  even decades. 

In my teens, whenever I felt drained, I used to read a speech in Ayn Rand’s Atlas Shrugged which used to give me courage to go on. This perfectly fits what is going on now. 

“Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor—your claim upon the energy of the men who produce. Your  wallet  is  your  statement  of  hope  that  somewhere  in  the  world around you there are men who will not default on that moral principle which is the root of money. Is this what you consider evil? Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue  of  the  victims.  Watch  for  the  day  when  it  bounces,  marked: “Account overdrawn”. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns—or dollars. Take your choice—there is no other—and your time is running out.” 

Demonetization has had such a corrupting influence on the society which is already too corrupted. Now, people don’t feel bad about not paying their maids, and then putting up servant jokes which trend on Twitter. They don’t feel bad about not paying their debts. Shopkeepers don’t feel bad about turning down people. People don’t feel bad about not paying their bills. My landlady couldn’t pay her construction workers or take in boarders. She is so strapped for cash than she hasn’t recharged her phone for many months. So, no one opens the door when I turn up after 11 in the night. My laundress flirts with the men in nearby shops to get Rs 500 notes exchanged at the bank. This is exactly the sort of incentives that lead to corruption and fraud. 

The lady who washes my clothes is an entrepreneur in her own right, but she doesn’t accept digital payments. When I went to collect my clothes, she said she won’t accept banned notes. She doesn’t want a bank transfer. She doesn’t use Paytm either. I said it won’t take more than two minutes to set up a Paytm account. She said that the money in her Paytm wallet can’t be withdrawn from the ATM. I can’t tell whether that’s factually true,  but  she  seems  to  have  thought  through  this  deeply.  Then  she pointed at the ATM and said naively that it will open at 10 O Clock. 

How do I trade with her? Imagine how easy it would be for me to find a laundress who wants to purchase a sentence from my novel for many months of laundering clothes. Imagine how easy it would be for me to find a laundress who would toil hard for an hour-long lecture on evolutionary psychology, economics, urban policy, the philosophy of Ayn Rand, neurodiversity, behavioral genetics or any of the beautiful subjects that interest me. That’s how far barter would get me. It’s impossible to produce great literature in a barter economy. Writers, artists, thinkers and scientists do not have a place in a barter economy.   I’m  not  surprised that Tide detergent became the underground drug currency somewhere.

If money didn’t exist, beyond a point, trade wouldn’t happen. Because everybody would run into this sort of problems every day. People used women  as  money  long  ago,  but  that  didn’t  work  really  well  because women aren’t divisible. As economist Gary North pointed out, half a woman  is  worse  than  none.  Money  solves  much  of  these  problems, because it is divisible, acceptable, durable and portable. Demonetization has tampered with all this, to a large degree. 

A 2,000 Rs note can’t easily be divided into many different parts. It is not very acceptable now because there is a severe shortage of cash. This is true of even 500  Rs notes. Paytm and  debit cards are not  very acceptable either. More than 90% of the retail shops don’t have card reading machines. Over half the population is unbanked, and most people with bank accounts don’t really use them. About one-fourth of the population uses the internet, and most of them don’t use it regularly. The money in my bank account is not easily portable. I can’t easily move it to the wallet of my laundress. The transaction costs of cashing checks or withdrawing money from an ATM are very high. Some of the money in my wallet is not even durable, like money usually is. The 500 Rs notes I had in my wallet would have become worthless in two weeks. I just sold them to the fruit seller for a 40% discount because I can’t stand in a queue at the bank.

It is true that the government hasn’t really abolished money. But the difference is just a matter of degree. For many people, this will make the difference between life and death. For many, this will make the difference between gainful unemployment and joblessness. Many small firms and shops will go bankrupt. People underestimate all this, because they don’t understand how the economy works. They’re happy to watch the world burn if the rich who have black money stashed under their mattresses suffer. But much of it is parked in real estate and in bank accounts abroad. Even if currency notes are banned, people have Bitcoin and precious metals. Even if it is true that demonetization punishes many criminals, this is such a huge price to pay for it. Envy and ignorance induces a certain kind of blindness. Even most economists don’t understand how the economy works. 

Any economist with half a brain should have known right from the beginning that this is bound to be a disaster. This shouldn’t have been a retrospectively obvious fact. This is just common sense. It is impossible to really understand how this can ruin the lives of people without a fairly nuanced understanding of how money evolved, how most people trade, how they handle money, and how familiar they are with the banking system. 

Let us suppose a caveman sees another caveman buying a piece of meat from a hunter, paying for it with a piece of a paper. Our caveman won’t be able to make heads or tails out of this. He’d be surprised seeing someone accepting a worthless piece of paper for hard-earned meat. But today, meat sellers are not just willing to sell meat for money. They are happy when someone pays them for meat in pieces of paper, so long as the central bank sees these pieces as paper as legal tender. This has been the norm for many generations. We go about our lives without even noticing it. Today, if I go to the market and offer some cabbage in return for meat, the meat seller would be outraged. He’d think I’m crazy. He’d refuse to accept it. This is because cabbage is less acceptable, durable, portable and divisible when compared with paper money. But paper money didn’t become acceptable overnight. 

It took millions of years. People used sugar, cattle, tobacco, nails, grains, beads, fishhooks, cowrie shells and tea as money at many different points in history, in different parts of the world. Slowly, gold and silver emerged as money. Dollars, francs and marks were just other names for different units of gold or silver. But gold and silver cost a lot to carry around, transport and exchange. So, warehouse owners started issued warehouse receipts that correspond to gold or silver locked up in their warehouses. This is how paper money emerged. Later government monopolized the production of money. Not a good thing, but I will not get into all that here.  Today, if you swipe your card on a card reading device, money will be debited from your account and credited to the account of a retail store owner. By pressing a few keys on your phone, you can transfer money to someone’s mobile wallet or bank account. But these are just offshoots of progress. 

When societies become prosperous, people find better ways to trade with each other. You can’t reverse the process, by legislating paper money out of existence, and asking people to go cashless. You can’t bring progress into existence by forcing people to use smart phone applications. That’s like trying to improve housing standards by forcing everybody to live in better houses. Governments do this, and that’s why we have slums. People who can’t meet housing standards just move into a slum where these rules don’t apply. If the government asks everybody to drive a Rolls Royce, most car owners would be driving illegal vehicles. This won’t raise automobile standards.  People  will  just  drive  awful  illegal  cars.  Similarly,  forcing people to go cashless won’t make people trade more efficiently. Trade has come to a standstill now. The Indian government has always asked people to comply with many such idiotic laws. This is why black markets are there. 

Most people think that black markets are limited to some criminal enterprises, tax evaders and real estate. Westerners think black markets are limited to premium clothing. Actually, without black markets, most Indians would be unemployed and starving. Black markets keep people alive.   Even in the west, without under-the-table payments at certain stages of production, production wouldn’t happen. Without black markets, most Indians wouldn’t have been able to afford the houses they live in. Because regulations and tax norms have made housing so expensive. Without black markets, the economy will not function very well. Black markets act as some kind of a safety valve in an economy which is tightly regulated. 

So, demonetization is not a solution to the problem of black money. Black markets are a solution to the problem of idiotic policies. As economist Hernando de Soto points out, assets in the informal economy “not only far exceed the holdings of the government, the local stock exchanges, and foreign direct investment; they are many times greater than all the aid from advanced  nations  and  all  the loans  extended  by  the  World  Bank.”  The informal economy has great potential for growth and development. This is a compelling reason to reform laws to bring them to the formal economy. This is not a reason to put them out of business. 

Demonetization  is  just  one  of  those  policies  which  generate  black markets. There is now a black market for Rs 500 and Rs 1000 notes. Fruit sellers in the market near my home ask me to take a 40% cut when I give them a 500 Rs note. Fruits perish soon. If they are not able to sell them off quickly, fruits will become worthless. So, they can’t afford to not sell just because the government demonetized currency notes. So they accept the banned notes at a discount, and sell them in black market to someone who knows how to make the most out of it. So, many small traders have found a way to flout the law and stay afloat. Otherwise they would have gone bankrupt, losing their space in the market forever. The irony is that instead  of  abolishing  black  market transactions, demonetization had  led  to  a vibrant black market in currency notes. To paraphrase Murray Rothbard, this is like curing bronchitis by shooting the patient. 

Post Script: When my girlfriend heard about demonetization, the first thing she said was that this is a form of income redistribution. She is a psychologist, and not an economics nerd, but this is one of the most important effects of demonetization. Demonetization redistributes money from citizens to the government. This is theft. Economist Lawrence White too makes this point. Mainstream journalists and most Indian economists are too dull to see this. She also finds it strange that hardly anyone finds the phrase “black money” racist. This is bizarre. 

Economist Scott Sumner also has a very interesting take on this:

“In my view, this is the sort of monetary shock that is correctly described as a “shortage” of money. In some ways it’s even worse than an ordinary garden-variety recession. At least Americans were able to get cash in 2009. But in other respects it less severe, as it’s expected to be a temporary monetary shock. It would not surprise me at all if the Indian economy almost immediately returned to full employment after the cash shortage ended. I do not think it will take 5 or 6 months to replace the money (these early official estimates are usually too pessimistic in this sort of situation.). But even if it takes 3 or 4 months, it’s big problem for the Indian economy.”

One thought on “How Demonetization Changed My Life


    The quote at the end does not fit in the sense that your article stands better by itself His English irritates me. You missed out a word you have to put in after idiotic. Apart from that, what you have written is brilliant. Thanks for sharing it with me.

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