The Illusion of Money
Is money even real? Things that at first may seem like stupid questions are often times not always as black and white as they seem. Money is something that everybody knows exists. Everybody has seen it, everybody has held it, everybody has spent it, and everybody has earned it. In that context, it is real. However, did you ever stop to think who decided how much a dollar is worth? What happens if a large group of people comes to the consensus that the dollar is worth significantly more, or significantly less, than what everybody else thinks it is worth? I suppose a better question may be “is the idea that money has a shared value real?” Who decides what is worth what, and why do people go along with it?
In the NPR podcast “The Invention of Money” by Milton Friedman they discuss the history of currency. The first story they discussed, in the prologue, was about the ancient currency of the Island of Yap. In ancient Yap, they used massive stone wheels, that they called coins, as a form of currency. This was interesting to me, because they sort of picked something that is naturally occurring in nature as their currency. What makes it worth anything, the thing that separates these massive stones from any other regular rock, is that they are carved into these massive wheels. So it is the labor that is taken upon the currency that creates its value. Another thing I found interesting about the stone currency was that they were never actually given to the people who owned them, as it would be quite impractical to move something of that scale that far. Instead, the currency stays in one place at all times, and the only distinction between owning it and not owning it is by word. So, if, lets say, you were to try to buy a horse. The man with the horse wants one stone. You would merely say to the man, “Okay, you can have my stone for your horse.” and that would be considered a finalized transaction. Nobody needed to physically own the stone in order for it to be considered their money. A quote made on NPR really highlighted why this is so stupid to me. “Value isn’t permanent; it can disappear”. If this sounds like such a foreign and alien concept, then how come we do the same exact thing with the digital currency that western civilizations seem to be so enthralled with. You don’t feel that money, and you can not see it. It is not even a tangible object, yet is accepted as a common form of currency.
The following article, “The Island of Stone Money” tells the same story as in the NPR podcast, but this time, from a more familiar point of view. The article points out that the now-considered archaic concept of valuating currency based on word is actually something that we do all the time. This article also discussed the fact that it is not always necessary to be in possession of the stones, as sometimes word of mouth is enough to transfer currency. They also relate the “Island of Stone Money” to an event that occurred in the earlier part of the 20th century. In 1933, the country of France was concerned that the United States would not adhere to the standard price of $20.67 an ounce, and the value would go down. As a result, they had all of their cash converted to gold, and asked them to store the gold in their bank account and mark all of their gold as theirs. As a result, the French made a ton of money and the U.S lost a ton of money. The point is that in both scenarios, the stone money and the French conversion, their money was only as good as people told them it was. “Our own money, the money we
have grown up with, the system under which it is controlled, these appear “real” and “rational” to
us. The money of other countries often seems to us like paper or worthless metal, even when the
purchasing power of individual units is high.” This illustrates just how much personal thought and opinion goes into what makes currency valuable.
Finally, the last article that I read was “the bubble bursts on e-currency bitcoin” by Anne Renaut. The article begins by discussing the supposed crashing of Bitcoin. They talk about how it rose to an astronomical amount and then crashed into nothing. In hindsight, this is pretty hilarious because we now know that Bitcoin would have an even astronomically more enormous surge than the one talked about in this article, and as a result, an even bigger crash (For reference, the article was written in 2013). “The price of the virtual “geek” currency had soared through the stratosphere in recent weeks, trading for a high of $266 on Wednesday”. Bitcoin reached an all-time high of $67,566 in 2021, and as it is now in 2023, is worth $21,810. As a result, the article serves as a time capsule representative of the fact that it does not matter who thinks what is worth what. It doesn’t matter what analyst thinks will be the next big thing, or the next big flop. The market simply does not care. We can tie this into the two previous sources because they all share a common theme. The theme being that the value of money can change at the drop of a hat, and no value is guaranteed. Certain investors of bitcoin spent pocket change, and as a result, became millionaires. You think they would have been regarded as financial geniuses when they invested? No, the same way somebody who invests in an unheard of crypto today would be looked at as a fool. The truth is, its easy to look back and say that those people were geniuses, but they could have easily just as well looked as stupid as the people investing in failed crypto today.
To conclude, the three stories all tell a very similar story. The value of money is never guaranteed. Perhaps calling the concept of stone money barbaric is calling the kettle black, because the system of digital currency that is very prevalent today is quite similar to the way that those stone wheels were used as currency. To sum it up, money is only ever worth what the people decide it is worth.
“The Invention of Stone Money.” 423: The Invention of Stone Money. This Is American Life, WBEZ. Chicago . 7 Jan. 2011. The Invention of Money – This American Life
Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University , 1991. 1991 Island Stone Money (hoover.org)
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/