Money is Fiction
Money is a fantasy that people believe in. Money is an abstract concept that is created out of nothing. Money does not work unless people believe that it works. If people did not believe that money itself holds value, the entire idea of money would fall apart. The fictional quality of money is woven into every system of money in the world.
In NPR’s podcast This American Life, asks the question, “What is money?” They continue the podcast to discuss a story about how Brazil was struggling with inflation rates and how the country employed four economists to help with Brazil’s suffering economy. The economists invented a type of virtual currency called URV’s. Brazilians were taught that the value of URV in cruzeiros, the local currency. The value of cruzeiros fluctuated daily while the URV stayed the same price. The URV’s helped people trust in their money again. Instead of being scared that their money would lose its value and fearing inflation rates, people could have security and stability with their currency. The ability to instill a strong trust in the worth of the money changed the entire country. Brazil was able to use this new currency now and Brazil had a grip on the inflations rates in the country thanks to the instillment of the URV.
When the NPR podcast was discussing how online banking worked it completely changed my perception of using money online. There is no one physically handing over money to one another online. The only exchange of money is by numbers either going up or down. The bank does not send physical pieces of money over to the company that you are paying online. The only proof of a transaction is the number in the companies’ account increasing from your payment. This was a completely mind-blowing idea to me. I never thought about the process of the electronic transfer of money. Even when someone gets paid, they most likely do not receive a large sum of currency. Instead, when a person is paid, they may only observe the number in their bank account increase. The concept of money being sent over the internet only works if people believe in the fantasy of the money increasing or decreasing. All this information has made me rethink what I thought I knew about money.
In Friedman’s essay, he discusses a tribe of a few thousand people who live on the Island of Yap and use a unique system of money. The concept of money that they use is based around large, thick stone wheels that they call fei. The natives of this island carve the stones from limestone found on an island 400 miles away and bring the stones back to Yap on canoes. When the people of Yap bring the stones back, the stone does not move from place to place depending on its ownership. A person can have ownership over a stone without the stone moving from its place. Friedman writes in his paper that “After concluding a bargain which involves the price of a fei too large to be conveniently moved, its new owner is quite content to accept the bare acknowledgment of ownership and without so much as a mark to indicate the exchange, the coin remains undisturbed on the former owner’s premises.” This is an idea that is completely foreign to us. We are used to currency constantly changing hands and moving around to the location of the owner depending on who owns it. The mere concept of giant rocks being used as money and people having ownership over those rocks is an idea that seems entirely like something that is made up and would be written as a story in a children’s book.
Friedman also writes in his essay that the Germans came to this island and claimed ownership over the stones by marking them with a black cross. The Germans used this technique as motivation to force the people of Yap to repair their roads. This technique worked effectively, and the natives of the Island of Yap immediately fixed their roads to satisfy the Germans. Once the roads were repaired the Germans came back and wiped the paint off the rocks to give the people of Yap the ownership of their rocks back. I thought the practice of the people obeying the Germans just because of paint on rocks was absurd. Friedman goes on to say in his paper that a similar situation happened in the United States in 1932 with the gold in our Federal Reserve Bank. The Bank of France wanted to cash out the money they owned in gold in the Federal Reserve. Rather than inconveniently shipping it across the ocean, the bank just placed the gold in a separate place inside the Federal Reserve. This created a dramatic result in the United States with people having the assumption now that the U.S. dollar was worth less than the French currency. These two stories are very similar by showing how money is a theory. The value of each of these currencies was only changed by their physical stance, which in turn made people believe that they had changed in value. The illusion of money is active and drives both of these stories.
A form of currency today that has a lot of popularity behind it is Bitcoin. The article from the Market Watch describes bitcoin as a digital currency that is full of uncertainty and insecurity. Bitcoin does not have any tangible value behind it. Bitcoin is only worth how much someone wants to pay for it. The trust in Bitcoin as a valuable form of currency only works if people believe in the fantasy that it is. The worth of Bitcoin would completely disappear if people did not want to own Bitcoin and if it was shown as a dishonest source. If someone did not believe in the fantasy of money, money would have no value. This shows that money is an abstract idea that is highly reliant on the widespread acceptance of its worth. Money is the fiction that we all chose to believe in every day.
Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University, 1991.
“The Invention of Stone Money.” 423: The Invention of Stone Money. This Is American Life, WBEZ. Chicago. 7 Jan. 2011.
Reeves, J. (2015). Opinion – bitcoin has no place in your- or any – portfolio. Retrieved from https://www.marketwatch.com/story/bitcoin-has-no-place-in-any-portfolio-2015-01-28