Mo’ Money, Mo’ Problems
Money is worthless. Despite our society being completely reliant on the exchange of dollar bills, currency, in the United States and in many other countries around the globe, does no retain any value. Throughout most of American history, our currency and the quantity of it was based on the amount of gold present in the Federal Reserve. However, in 1933, the Federal Reserve transitioned to a more abstract currency as the amount of money in circulation was now determined by the Federal Reserve. This resulted in the US Dollar being essentially meaningless.
The NPR Broadcast, “The Invention of Money” further explored the question what is money? It did so by providing three stories, each showing how the value of money is dependent entirely on the user. The first of which was a telling of currency used by a tribe known as the Yaps. In this tribe, large stones are used as currency among the population. The currency belongs to the user and it is understood by the entire tribe who the stone belongs to unless the stone is willingly passed onto someone else. Therefore, the value of a stone is the same as every other stone owned on the island and the owner of the stone remains the same regardless of the location. The second story explained was that of the Brazilian transition from the Cruzeiro to the Real. This transition was dependent entirely on the belief that an electronic currency had value. After decades of financial turmoil, a brilliant solution was proposed; create a new currency. This new currency would replace the Cruzeiro over time and would reduce the inflation that had crippled the economy. The implementation of the new currency depended entirely on the acceptance of the people. They needed to believe the currency was worth what they were told. In time, inflation was reduced and the Real became the only currency in circulation in Brazil. The final story told was an explanation of how the United States Federal Reserve works which, since 1933, has been entirely dependent on the belief of the citizens. The Federal Reserve can create or subtract money if they believe it will benefit the American economy. However, this money is created virtually out of thin air as the US is no longer on the gold standard. Therefore the money is only of value because the population believes that it is.
In 2013, Paul Krugman wrote an article analyzing the debt crisis and a solution proposed by their Prime Minister. The plan involved printing more money in order to attract investors and create an economy boom. However, the question remains where is this money coming from? As was the case in Brazil and the United States; nowhere. The money is created because the central bank in Japan deems that more money should be created and circulated through the country. In “The Island of Stone Money” by Milton Friedman, a situation is retold in which Germans needed roads repaved on a island inhabited by the Yap tribe. In order to coerce the Yaps into completing this task, black crosses were placed on the stones used as currency. The crosses signified that the money had been taken under government control until further notice. This plan was successful as the Yaps became motivated to repair the roads.
In conclusion, the value of currency is dependent entirely on the individuals that use it. As shown by the two stories with the Yaps, money is created when an item of valued is adopted by a community. This is why currency is not of value. Whether it be a bag of dirt or a United States dollar, the worth of currency is nonexistent unless the people using the currency has agreed upon its worth. As seen in during the resolution of the inflation crisis in Brazil as well as during the transition from the gold standard in the United States, money becomes of worth when the people decide to adopt the form. The United States dollar, stone currency of the Yaps, and a mountain of gold are all worthless until it is agreed upon by the people that this resource is of a certain value. Money has become abstract as there is no true way of determining how much a certain currency is worth other than by having the citizens of the civilization agree upon the value. This also leads to a discussion on why certain objects are “worth” more than others. Yet again, the answer is simply due to the value that is put on objects that we purchase. The US Dollar used to be an indicator of gold in the Federal Reserve, but has evolved to simply indicate how much we as a society have agreed a certain amount of money is worth. Therefore money is only worth something because we are told so.
Glass, I. Chana, J.W. Blumberg, A. Kestenbaum, D. (2011). “The Invention of Money.” NPR.
Friedman, M. (1991). “The Island of Stone Money.” Stanford University.
Krugman, P. (2013). “The Curious Case of Japan’s Economic Stimulus.” truthout.
Your confident authorial voice makes us willing to accept the claims you will make, RowanStudent6. You could convince us that money is worthless, or meaningless, or lacks value, or depends for its acceptability by an entire culture or by an individual to whom it is presented, but for that, we’ll need clear claims and evidence to support them. For that, you’ll need to revise.
P1. Money is worthless. This resulted in the US Dollar being essentially meaningless.
To demonstrate that money lost worth or value by being decoupled from gold, you’d first have to explain why gold is valuable. You might also want to create a distinction between something worthless [nobody will accept it in trade for something worthwhile] and meaningless [isn’t clear what it represents, but is somehow considered valuable anyway].
P2. The NPR Broadcast, “The Invention of Money” further explored the question what is money?
You immediately undercut your claim “money is worthless” by pointing out that “the value of money is dependent entirely on the user.” That might mean the value is variable, but probably doesn’t mean “has no value.”
The Yap Anecdote doesn’t demonstrate that stones depend for their value on individuals. It says the opposite: “The value of a stone is the same as every other stone owned on the island.” What the anecdote does demonstrate is the abstract nature of the transaction: value changes hands while the stone stays put.
The Brazil Anecdote mentions but doesn’t capitalize on the idea that Brazilians lost faith in their cruzeiro when retailers demanded more of them every month for the same bread. It was the “buying power” of the cruzeiro (it’s actual value) that was diminished. They were convinced of the reliability of the URV because 1 URV bought a loaf of bread every month for several months running. That’s all we want our currency to do. It’s a way to count what we’ve earned and what we can buy.
The Fed Anecdote would benefit from the observation that most Americans don’t know what the Fed does or care how much gold the Treasury owns. They want fiscal stability. If the Fed does that by printing money to lend to banks, nobody needs to know how it works. What is it that the citizens believe in? That their landlord, creditors, suppliers, retailers, will honor their money transactions. “That the next guy will take my money” is what we have faith in.
P3. In 2013, Paul Krugman wrote an article analyzing the debt crisis and a solution proposed by their Prime Minister.
—What country or economy did Krugman advise? Unclear.
—What is the point of the Krugman anecdote? That printing more money would bring on the Japanese inflation crisis? Or that doing the same thing under different circumstances would SOLVE the real estate crash/bank crisis of 2008?
—The German/Yap anecdote could be salvaged for its contribution here. It demonstrates that the government can BOTH add money to the economy or pull money from the economy, right?
P5. In conclusion, the value of currency is dependent entirely on the individuals that use it.
I don’t think so.
The value of currency is determined by the individual IT’S PRESENTED TO. Like the guy at the pawn shop trying to pass off his cruzeiros as URVs, the presenter has zero control over the transaction. Do we need faith in money? Not really. We need Other People to have faith in money.
When I show you three surfboards in Good Better Best categories, and you try to decide which one to buy, you’re trying to determine the worth of the boards. The seller could care less. The seller cares about the worth of your money. He needs more of it in inflationary times than in deflationary times.
The conclusions you draw in your last paragraph could be better used in the Introduction, I think, RowanStudent. You do a better job of being convincing just making claims than drawing inferences from evidence, at least in this piece. Readers might be more likely to read your illustrations more receptively if they knew in advance what you want them to prove.
Always reply to Feedback, please, RS6. It’s the primary value of the course, and I love the conversations, but I tire of them when they become one-sided. Thanks!