Communal Power in Money
Money is based in the mind. The physical dollars and coins we carry around with us day to day only have value because we as a community agreed and made it so. Whether a strip of paper, a hunk of metal, or a towering, chiseled stone, money’s value has never resided in the physical form, but rather in communal trust. Trust in one’s community has, since the invention of a monetary system, dictated the value of an area’s currency. In this context, asking ”Where did the money go?” in times of crisis has a simple answer: we stopped believing in it, so it no longer exists. This concept that has ruled our civilization is no more than an abstract thought, accepted as fact.
There are a few dictations a community decides on in terms of money, including it’s value and how it is transferred from person to person. With many different cultures around the world, money may seem to differentiate in a vast way, but upon closer inspection, our systems all work in a similar way. Let us begin with the Yap islanders, a society that has based their monetary system on gargantuan chunks of stone worth a tremendous value to their owners, named the fei. The stones were physical, while the ownership was imaginary. Large transactions would have no effect on the physical world, as some stones of larger value would be too heavy to move. The people were content with the knowledge that the ownership of the stone was traded, and that trade was honored and respected, without the stone moving so much as an inch out of place. Without any documentation, there is no physical proof that a transaction truly occurred, leaving many to believe this practice is ridiculous, idiotic even.
Even so, this imaginary transfer of wealth is not very different from our own system in the U.S., which started out with chunks of metal rather than stone. Gold was the prime currency in the U.S., however, would be too heavy to carry around in our back pocket. This gold was deposited into banks, leaving it’s previous owner with however many dollars, a piece of paper determining how much gold a person owned. Over time, the value we placed in gold was traded to the dollar, leaving us with the system of paper and coins that rule today. This is the money I hand over when I buy a car, a house, or other large purchases, but much like the Yap currency, these purchases cannot be carried around like my dollars can. The difference between my car and the Yap’s fei is that I have documentation proving I am the owner of my car, whether it be parked in my driveway, the parking lot across campus, or across the country. Even then, my certificate of ownership has no real value outside of piece of mind that I can get my car back if someone tries to steal it. In this way, the Yap islanders are far more trusting of each other than the U.S. population in their transactions. However, given the size difference, if the Yap population were to grow, perhaps they may have to follow the same methods of documentation we in the U.S. use today to protect their assets.
This idea that monetary value comes from trust is evident in several instances. Take the Yap islanders, once again, for instance. These people encountered a deadly storm during a voyage that led to a ridiculously valuable piece of stone falling overboard on a trip back to the island. When those on the ship shared their story that could have very well been faked, the people of the island had the power to deem whether or not this family would have possession of this money, even though the physical evidence of it was at the bottom of the ocean. The people made that family rich, without so much as a second thought, a true testament to the overwhelming trust these people have put in one another. The same would never hold in the United States, or at the very least would be incredibly unlikely. Our modern equivalent would be winning the lottery and losing the ticket stub on the way. There is no conceivable way anyone would believe a story like that without any proof, and even if they were to believe this person, they would never see that money without the proper documents. I suppose our system is a bit more strict in this way.
On the flip side of this, Brazil was recently in a bit of turmoil in their economy. Inflation was rising to ridiculous percentages, and the people were losing faith in the value of their hard earned cash. Every day prices rose, but thanks to four friends, crisis was averted. They had created a new unit of money which they referred to as Unit of Real Value, or URV, which, in my opinion is hilarious due to the fact this money was as fake as fake can get. This system worked as follow: URV’s were a constant value that did not change, as opposed to the current in place currency. Because the URV prices did not rise, the people were much more comfortable in spending their money, and the value of their URV would skyrocket over time due to the sheer confidence and trust that this money was real. Then, in some weird otherworldly way, the overpowering idea that URV was real actually made URV real, viable currency in Brazil. Our own power in the U.S. lies in credit, much to the same effect. Credit is money that truly does not exist, much like the URV, but instead acts as a placeholder for money owed to a vendor or company. Those in the United States use credit because it evokes buyer confidence. We feel there is power and control in being able to determine for ourselves when and how much we pay back. The use or the URV and credit keeps money circulating while still maintaining the public’s faith in the value of their currency. In a way, when the imaginary is pleasing, we make it real.
A new currency has been trending within the last few years, and gives us an interesting look into the communal aspect of money. This currency, referred to as a bitcoin, is strictly numbers and code, only existing virtually though the internet. It is not based in any country, and is a stand-alone monetary system, the power of this currency resting solely on those who use and exchange it. In one article, the nature of this unregulated system is criticized, “Proponents like to talk about how bitcoin has no central bank or authority behind it as a net positive, but that fact also means a lack of true value” (Reeves, 2015), meaning while the lack of authority could be a good thing, nothing changes the fact this this money has no real value. While monetary systems around the world base the currency value through this trust within the community, this population of bitcoin users manipulate and take advantage of that trust. The same author mentions what is called the “greater fool” theory, meaning when transferring bitcoins, one has to find another who is foolish enough to buy your bitcoins at a higher price. Because of this, the true instability of this currency rests in it’s fluctuating values. In just two years, the value of a bitcoin went from $13 in January 2013 to $1,150 in November 2013 to $178 at the end of December 2014 (Reeves, 2015). While transfers of bitcoins are easy and instant, they are also dangerously drastic and shows how powerful trust in an idea can be.
The power of trust in an idea is truly remarkable, especially when viewed through such a short window as is with the bitcoin. Perhaps, this is where the future of money is headed, a high-paced, instant transfer of terribly unstable currency. The bitcoin, in this case, is the perfect example of how feeble a monetary system can be. After all, the value is simply imaginary, and accepted within their community without much debate by those who use it. By a simple shift of the mind, a society can flip its economy right side up. An island can give a fortune to a family without actually handing them anything. A country can put itself on the edge of economic collapse all because we have collectively lost faith in our currency’s value. Money, while based on this idea of trust, truly is intangible, dangerous, and a spectacular display in the power of a community.
“The Invention of Stone Money.” 423: The Invention of Stone Money. This Is American Life, WBEZ. Chicago . 7 Jan. 2011.
Friedman, Milton. “The Island of Stone Money.” (1991): 1-5. Feb. 1991. Web.
Glass, Ira, and Chana Joffe-Walt. “The Invention of Money | This American Life.” This American Life. Planet Money, 17 Jan. 2011. Web. 07 Sept. 2015. <http://www.thisamericanlife.org/radio-archives/episode/423/the-invention-of-money>.
Joffe-Walt, Chana . “How Fake Money Saved Brazil.” NPR.org. 4 Oct. 2010. 30 Jan. 2015. <http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake-money-saved-brazil>.
Reeves, Jeff. “Bitcoin has no place in your—or any—portfolio.” Market Watch. N.p., 31 Jan. 2015. Web. 4 Sept. 2015. <http://www.marketwatch.com/story/bitcoin-has-no-place-in-any-portfolio-2015-01-28;.