Stone Money -zipemup1

As Real As We Make It

Some individuals confuse money  such as gold and silver, with real dollars. Money is a concept that, at its core, is an IOU that entitles the possessor to a set quantity of goods and services. As a notion, it is “real,” but not in the literal sense. Physical currency is just an idea that has been manifested into something concrete. When, in reality, money is only a figment of our imagination, and it is only as real as we make it. Money only becomes real when society gives it a monetary worth.

In the podcast “The Island of Stone Money,” Milton Friedman analyzes the extremely abstract money system used on the island of Yap. They recognized the islanders’ mysterious money, known as fei, which was centered on the sale of enormous stone wheels varying in size between one and twelve feet. The most perplexing aspect of this system isn’t the fei’s numerous physical qualities, but the fact that real possession was not necessary for ownership. To establish ownership, barter was used, and a verbal agreement sufficed. A narrative in the book told of a wealthy family on the island whose money was known to everybody, despite the fact that they were never seen. One of the family’s forebears died at sea while transporting their enormous and precious treasure. This incident had no financial ramifications for the family. The inhabitants of Yap placed their confidence in these massive stone objects, which gave them inherent value. This outlandish system resembles our modern civilization in many respects. Someone possesses that piece of stone money, despite the fact that no one has seen it in many years. When you pay your energy bill online, the only thing that changes are a few figures in your bank account and a few digits in the power company’s bank account. In other words, the power company now owns the stone money you formerly had at the bottom of the sea.

Brazil’s economic history was covered in NPR’s This American Life: The Invention of Money. Brazil’s economy has been burdened by high rates of inflation for many years. An economist and four colleagues duped the public into thinking they were protecting the country from runaway inflation. They devised a wild, improbable strategy that worked. They sought to establish a new money that was steady, dependable, and reliable. They dubbed it a URV, despite the fact that it didn’t exist. This technique gave their money a feeling of stability and regularity that it lacked earlier.After a while, the government was able to create a new currency known as the Brazilian real, which was largely accepted by the populace and greatly reduced inflation. These four men invented URV, which became a reality while being totally fictional. In other words, money is only as real as we make it by imbuing it with monetary value via society.

Both texts show that the worth of money is defined by a concept rather than a real thing. Money is a social construct. It’s worth is determined by the number of individuals who accept it as payment. Monetary value is transient; it can be wiped away and rendered useless by inflation or deflation, or it might become highly valuable as a result of the opposite happening. Through general agreement, the people decide the value of the world’s currency. All of this works as long as the majority of people believe in the system. The system will crumble if we collectively lose trust.The issue is that the majority of people do not want the system to fail, therefore they will continue to support it. Society is based on intangible, and at times abstract, concepts. Law and order are mostly theoretical ideas. Authority, responsibility, norms, and trust all exist only because we all agree they do, and our society could not operate without them. Money is also a theoretical concept, but it exists because most of us believe that it should. Money exists because we created it.

In today’s culture, the concept of money is still a crucial requirement. Money allows you to move beyond a strictly transactional connection. Money allows for the easier exchange of commodities and services. Physical  money may not be required, but currency is. All interactions would involve an exchange of commodities or services if there was no currency. You would also be unable to exchange goods or services of uneven worth. Without currency, a free market would be stymied by the task of determining the fair value of every trade. Therefore, each item is valued by the free market’s supply and demand, and transactions are based on that established worth. With money, each individual may sell their work and talent for an agreed quantity of money, and then buy anything they want – this is far more practical and results in a greater quality of life for everyone.

In simple terms physical money can be defined as just a current medium of exchange in the form of coins and banknotes. But in reality money is more than that it is a concept we have invented to help us to distribute real wealth. Currency only works if we agree on the system and play by the economic rules that create it. Paper bills and metal coins have this hold over society only because we let it. No one else can be held responsible besides society. Many individuals overlook the fact that money has no intrinsic worth and should not have any. Money’s principal role is to provide a common standard for people to trade commodities, services, and talents. All money does is enable such trade by providing a mechanism to communicate the worth of one’s talents as well as a means to spend it on other products and services. A country is never wealthy simply because it has a lot of money. It is wealthy because the underlying real economy is held in high regard and efficient.Money just serves as a convenient means of exchanging things. As a result, the paper banknotes we all hold are completely useless. They do, however, reflect the worth of our abilities and ability to contribute economically, and they allow us to acquire the valued skills of others since they, too, wish to purchase the skills of others. Money just facilitates such trade by providing a single norm that everyone has agreed is effective.

References

Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University, 1991. https://miltonfriedman.hoover.org/internal/media/dispatcher/215061/full 

The Invention of Money – This American Life. (2018, February 19). This American Life. https://www.thisamericanlife.org/423/the-invention-of-money 

Milton Friedman, Money Mischief, pp. 3-7. New York: Harcourt Brace Jovanovich, 1992

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