It seems absurd that we can trade thin green paper or a number on a screen for goods or services. However, as long as people continue to believe in the value of money, it will continue to represent a device of trade. Even when questioned on its abstract nature, money will hold true to its value and desire. Money, with nothing behind it, is truly represented by trust. When making a transaction with money, both parties must trust each other and the rest of society that the money involved will be valuable as it circulates through a marketplace, otherwise your trading paper for goods.
Before the 1930s, every dollar’s worth was represented by gold in a bank somewhere, called the gold standard. It was easy to understand how money worked as well as a concrete answer to what it was worth. Since the end of the gold standard, each dollar now corresponds to nothing. During an NPR Broadcast called The Invention of Money, the reporters ask the question, “how much money is out there, in dollars”. This question cannot be answered due to the fact that if you put money in the bank they will loan it out to someone else who will then spend what is technically your money, which then ends up in someone else’s hand. Meaning the same dollar will go through this path of usage and ownership while still holding its value on a digital platform as well as in cash. If the same dollar can be used simultaneously by different people it cannot possibly have a true value. The value is created by the people of a society.
In The Island of Stone Money, Milton Friedman uses an excerpt written by William Henry Furness III to talk about the unusual use of stone asm money on the Island of Yan in Europe during 1899 through 1919. Friedman eventually concludes that paper money used today is almost the exact same thing. Once a transaction of stone money, called ‘fei’, was completed there was no need for the owner to physically take possession. Everyone on the island trusted those who owned the fei and its true value. Furness III explains, “there was a village near-by a family whose wealth was unquestioned”. The island had acknowledged this wealth without ever seeing the actual fei. This was interesting because everyone seemed to understand how the system was abstract and that if they did not trust or be trustworthy the stone money economy would fall apart. Once people quit believing in the value of the stones, bargains will become impossible and trades would likely be unfair.
The Federal Reserve, “can create money out of thin air, whenever it decides to do so.” explains David Kestenbaum and Chana Joffe-Walt, who wrote How to Spend $1.25 Trillion, an article on how the US Federal Reserve added money to the economy. There was a meeting of officials gathered into a room to discuss a number they were going to inject into the economy. You can’t help but think that the number of $1.25 trillion dollars is totally b.s. Well it is, there is no way the economist could figure out a true number to improve the economy because money has no value. If it did it they wouldn’t be able to inject this money in the first place.
Money only has value because we give it value. We can use it to buy goods that may have worth to an individual with money, while the seller decides that x amount of money has the same value as the good that has been sold because he knows that other people will give the money the exact same value, otherwise money would not exist
Kestenbaum, D., & Joffe-Walt, C. (2010, August 26). How to spend $1.25 trillion. WBUR. Retrieved September 30, 2021, from https://www.wbur.org/npr/129451895/how-to-spend-1-25-trillion.
The invention of money. This American Life. (2018, February 19). Retrieved September 30, 2021, from https://www.thisamericanlife.org/423/the-invention-of-money.
Friedman, M. (n.d.). 1991 island stone money – hoover institution. Retrieved September 30, 2021, from https://miltonfriedman.hoover.org/internal/media/dispatcher/215061/full.