Money: The middleman of all Trade

What is money?  When one thinks of money, they most likely think of dollar bills and coins. Small metal disks and paper rectangles that we exchange goods and services for, but those are just the concept of money materialized into something physical. Money as a concept is abstract and cannot be represented by one particular object. By no choice, everybody learns about the idea of money because everything revolves around the idea of money. Before this idea was established you needed to do things or sell things to buy other things.  Money is like an extra step in that process; you need to do things to get money to buy other things. How do you visualize this idea of money? Money is an idea that some object without inherent value has value and can be used to purchase something else. Money is like a middleman in a trade. Instead of trading something you own for something someone else owns, they give you money for it equal to that of the value of what you owned. Then you can use this money to buy something else. However, for a trade deal revolving around a middleman to work, both parties must put trust into that middleman. Likewise, everyone has trust in the idea that those paper bills and coins do indeed hold value.

Just about anything can be considered money so long as enough people put trust into its value. For instance, in the NPR broadcast This American Life, they claim that money is fiction and continue to go over how the Brazilian real started as a fabrication known as an URV. Prior to the URV the value of the Brazilian cruzeiros was rapidly fluctuating day to day. This caused insecurity and disbelief among civilians. Originally a trick by four men for Brazilians to buy into a new currency, the URV was created as a virtual currency. To the men’s surprise it completely flipped the entire Brazilian economy. Since more and more people gained trust in the currency its value became a real thing rather than just a fabrication. These men managed to create a consistent currency that the people of Brazil could rely on more than the old currency. It was a trusted middleman to replace the old inconsistent middleman. After the URV gained value due to trust among the citizens, the government was able to turn it into the official currency now known as a real.

The only reason the government was able to do this is because the people now saw the Brazilian real as a placeholder of value. However, if nobody trusted this new form of currency it never would have been able to take prominence as the currency of Brazil. The manner of trusting a currency can go for anything physical. For example, the people of the Island of Yap trusting in the value of fei. While traditional money is materialized as paper bills and coins, the Island of Yap used a less traditional monetary system of large stone disks called fei as their materialization of money. For generations people have believed in the value fei disks therefore the monetary system was a success. At first glance most say that this is ridiculous and question why these people see fei with value. Given more thought you can ask the same question about our traditional currency and all materializations of money. We look at paper bills with value for the same reason these people look at fei with value. In Milton Friedman’s essay “The Island of Stone Money,” Friedman references an incident in which the German Government physically marked the fei with crosses, symbolizing ownership, in order to get the people to fix the roads. Once again this seems crazy, but it “worked like a charm” said Friedman. After the roads were fixed “the government… erased the crosses” to symbolize returning the fei to their owners, even though they were never actually moved. This seems less illogical when related to countries paying each other in actual gold without the gold ever leaving a vault in either country. It’s simply said that the gold now belongs to said country. Essential the two are the same situation just with different objects symbolizing the idea of money.

Modern society uses bank accounts rather than stone disks, where a number goes up and down with deposits and withdrawals. This system works because people trust that their bank accounts will be a trusted middleman in the transactions they wish to make. In this case there is no physical representation of money. It is purely an idea and number in an account that represents how much stuff someone can buy. Similarly, and more recently, virtual currencies such as Bitcoin, Ethereum, Dogecoin all hold a certain unit value that changes rapidly. The idea of trust is heavily present in virtual coins, for investing a stable currency such as the dollar is a risk as it could go down in value at any point. In Nathan Reiff’s article “why bitcoin has a volatile value” he explains how all currencies are just a method of value defined as “any object or concept used to transmit property in the form of assets” These virtual coins are a method of value and they exist because people trust that their value will increase along with their spending ability.

That being said we can come to a vague conclusion that money is the idea that there is a mutable value in any given physical or nonphysical object. Objects that gain popularity and trust among civilizations become currencies. I constantly grapple with the illogical ways of modern society, but the idea of money has always made sense to me. While a dollar in its own form may not have inherent value it makes sense as a middleman. The majority want money because they see it purely as value rather than say a ticket to goods and services. After obtaining this metaphorical ticket worth however many dollars, you can buy 1 or more goods or services equal how much the ticket is worth. Materialized money is meant to be spent and it makes more sense logically when it is spent. You did work or sold something to get a value stored in some form of money, and when you need it you use that value to live.

References

“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.” Diss. Hoover Institution, Stanford University , 1991.

Reiff, N. (2021, June 11). Why bitcoin has a volatile value. Investopedia. Retrieved September 29, 2021, from https://www.investopedia.com/articles/investing/052014/why-bitcoins-value-so-volatile.asp.