A World of Pure Imagination
One may think the economic world consists of a complex system of inner workings that function in a precise way. That is exactly how humans of the modern world have assumed it to be for the entirety of their existence. However, the reality is that those finely greased wheels we believe to be running our society are not so complex…or even accurate for that matter. Money isn’t something that is flowing in and out of banks and circulating across the planet. It’s only present in our minds and the money system is an imaginary network set up to allow humans to barter on a large scale. Essentially, money only exists as long as we believe in it-similar to bigfoot or the loch ness monster.
Examining some past examples of the financial world may make this idea easier to comprehend. As explained in the NPR podcast This American Life in the episode “The Invention of Money”, the ancient South Pacific civilization of Yap utilized its own version of currency in the form of massive coin-shaped stone sculptures-a seemingly counterintuitive form of money which actually worked beautifully for the people of Yap. The ownership of this currency was simply a mental acknowledgment of possession. Everyone respected this rule and the economy of Yap ran this way for years. This system may seem absurd, however, the current economy of the world does not differ much from that system. Consider this: the Yap islanders based their wealth on stones, which were physical in some respect, however, their value was entirely based on mentality. Citizens of the world use coins and bills as a representation of money, however, the value of those items is only a universally understood amount. Similarly, every time we make a transaction online, those numbers are not doing anything-they just symbolize cash. Now, what is increasingly interesting about this system is that as easily as the Yap islanders could own the stones, they could lose the stones. This is explained in the article “The Island of Stone Money” by Milton Friedman. When Germany acquired the island, officials painted crosses on the stones to represent the money being taken away. These crosses were taken incredibly seriously, proving how the Yap’s form of money was entirely mental-those crosses didn’t actually change anything, but the islanders believed that their wealth had altered. This is no different from similar occurrences in the United States in 1923-1933. As described in the same article by Friedman, the French bank asked the US to convert any French dollar assets in the Federal Reserve Bank of New York to gold. In response to this, “officials of the Federal Reserve Bank went to their gold vault, put in separate drawers the correct amount of gold ingots, and put a label or mark on those drawers indicating that they were the property of the French—for all it matters they could have done so by marking them ‘with a cross in black paint’ just as the Germans did to the stones.” These labels on the drawers did not affect the US gold supply, however, the US became extremely worried because they took this as seriously as if the gold had been snatched away by a Frenchman. As long as everyone agreed that someone else owned the money, no trade-off had to be made. This kind of thinking makes our economic system seem ridiculous, and honestly, it is.
To understand how this mentality begins, it is useful to examine Brazil’s economic history. As outlined in the podcast “The Invention of Money”, the value of cruzeiros-the Brazilian currency-was constantly declining, causing inflation to rise. This was until the URV, or Unit of Real Value was introduced. Cruzeiros were converted to URVs and no matter how the cruzeiro value changed, the URV value stayed the same. Inflation decreased. The economy was saved because people conceptualized money differently. Eventually, the currency adapted to the real and the economy has thrived ever since. The fluidity of this form of money is frightening but also intriguing-Brazil proves that an entire country can be pulled out of decline because of a mental switch-a new way of thinking. That says quite a bit about the intensity in which currency is valued. People value this form of currency so much that they fully convince themselves that it solves all of their money problems, when in reality it just exists as an imaginary bandaid on the gaping wound of the Brazilian economy.
Just as mind-boggling as the URV, recent development in the economic world comes in the form of Bitcoin-a form of e-money created from a string of code stored in an e-wallet. In the yahoo!news article “The bubble bursts on e-currency Bitcoin” Anne Renaut states, “Bitcoin users can only cash out their money if other people want to buy their Bitcoins.” People use bitcoin to make money, but there is no concrete proof of any wealth being accumulated. Everything gained from Bitcoin is represented through virtual currency; numbers on a screen. It is as if humans convince themselves that an inanimate object is alive. Bitcoin is one of the first examples of how physical objects like bills and coins are becoming a thing of the past. No longer do people need to hold a tangible object to believe they have money, they only need to see the dollar sign next to some numbers on their device and they will automatically find value in it.
The items in which humans find value to be held are frankly preposterous. Whether it is a giant stone wheel, a labeled drawer, a slip of paper, a metal disc, or a glowing digital number, humans have at some point found worth in it. These items are only representations of wealth, yet they are valued so intensely that there is no telling what the future of currency holds. With this newfound understanding of money, there exists a simultaneous sense of comfort and fear knowing that money does not exist and our minds control the ever-changing aspects of the economic world.
Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University , 1991.
Renaut, Anne . “The bubble bursts on e-currency Bitcoin.” Yahoo.com. 13 Apr. 2013. 30 Jan. 2015. https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html/
“The Invention of Stone Money.” 423: The Invention of Stone Money. This Is American Life, WBEZ. Chicago . 7 Jan. 2011.