Arjun Yadav's Webpage

Four ways to spend money


After a day filled with complete chaos, as I came to my room to relax and sleep for few hours, as usual I turned on my laptop and came across this video of Milton Friedman regarding ways in which one can spend money. I must confess it is one of those rare small-duration, interesting and thought provoking video.

See for example the first way he tells is when you spend your own money on yourself you are very conscious/careful regarding the value/price ratio of the spending. You would want to spend less and receive more. Hence it is the best way for efficient use of the funds.

Another was when you spend your money on someone else. Here you are more concerned regarding the spending i.e you don't want to spend too much. The amount which is being spent by you is a bigger concern than the value which the other person might receive. For example when you buy gift for someone.

Third one was when you spend someone else's money on yourself. Here money is not your concern, rather you are more concerned about the value you receive. For example- In India if you are a government employee, the government pays the money for your health treatment. In cases like this, the employee upon getting ill, rushes to some expensive hospital. In this case he might not care about the prices.

Finally, we encounter the final boss when you spend someone else's money on someone else For example - welfare fund managers. Here you don't have to care anything about the price or value. Of course you will be accountable in a strict sense. but overall its not your money, nor do you have to consume the product purchased by it. Hence this is the most inefficient among the all ways of spending money.

I think this is one of the best short criticism of that particular kind of economic experiment. It is only when your own money is on the table and you have to purchase stuff for yourself that best utilisation of resources takes place.