Counterintuitive Spring 2023

Trust Money

It seems absurd that we can trade thin green paper or a number on a screen for goods or services. However, as long as people continue to believe in the value of money, it will continue to represent a device of trade. Even when questioned on its abstract nature, money will hold true to its value and desire. Money, with nothing behind it, is truly represented by trust. When making a transaction with money, both parties must trust each other and the rest of society that the money involved will be valuable as it circulates through a marketplace, otherwise your trading paper for goods. 

Before the 1930s, every dollar’s worth was represented by gold in a bank somewhere, called the gold standard. It was easy to understand how money worked as well as a concrete answer to what it was worth. Since the end of the gold standard, each dollar now corresponds to nothing. During an NPR Broadcast called The Invention of Money, the reporters ask the question, “how much money is out there, in dollars”. This question cannot be answered due to the fact that if you put money in the bank they will loan it out to someone else who will then spend what is technically your money, which then ends up in someone else’s hand. Meaning the same dollar will go through this path of usage and ownership while still holding its value on a digital platform as well as in cash. If the same dollar can be used simultaneously by different people it cannot possibly have a true value. The value is created by the people of a society. 

In The Island of Stone Money, Milton Friedman uses an excerpt written by William Henry Furness III to talk about the unusual use of stone asm money on the Island of Yan in Europe during 1899 through 1919. Friedman eventually concludes that paper money used today is almost the exact same thing. Once a transaction of stone money, called ‘fei’, was completed there was no need for the owner to physically take possession. Everyone on the island trusted those who owned the fei and its true value. Furness III explains, “there was a village near-by a family whose wealth was unquestioned”. The island had acknowledged this wealth without ever seeing the actual fei. This was interesting because everyone seemed to understand how the system was abstract and that if they did not trust or be trustworthy the stone money economy would fall apart. Once people quit believing in the value of the stones, bargains will become impossible and trades would likely be unfair.

The Federal Reserve, “can create money out of thin air, whenever it decides to do so.” explains David Kestenbaum and Chana Joffe-Walt, who wrote How to Spend $1.25 Trillion, an article on how the US Federal Reserve added money to the economy. There was a meeting of officials gathered into a room to discuss a number they were going to inject into the economy. You can’t help but think that the number of $1.25 trillion dollars is totally b.s. Well it is, there is no way the economist could figure out a true number to improve the economy because money has no value. If it did it they wouldn’t be able to inject this money in the first place. 

Money only has value because we give it value. We can use it to buy goods that may have worth to an individual with money, while the seller decides that x amount of money has the same value as the good that has been sold because he knows that other people will give the money the exact same value, otherwise money would not exist

References

Kestenbaum, D., & Joffe-Walt, C. (2010, August 26). How to spend $1.25 trillion. WBUR. Retrieved September 30, 2021, from https://www.wbur.org/npr/129451895/how-to-spend-1-25-trillion.

The invention of money. This American Life. (2018, February 19). Retrieved September 30, 2021, from https://www.thisamericanlife.org/423/the-invention-of-money.

Friedman, M. (n.d.). 1991 island stone money – hoover institution. Retrieved September 30, 2021, from https://miltonfriedman.hoover.org/internal/media/dispatcher/215061/full.

We Never Grew Up

It is hard to think that all the money you own in your bank accounts and all the physical paper bills and metal disks we pass around, do not exist. We have created a physical object just to make people feel better about how we exchange real objects for something that was made up. This is the only way that currency can keep on existing, if people begin to lose faith it will lose its value. Similar to the idea of Santa, as long as you continue to believe in him all the things in his name will have value to you, the cookies will remain a plate of cookies with a purpose. The popular Christmas figure Santa Claus has been passed down through the ages and is a common lesson for the youth. Although it is not used to trick children, they fully believe that a jolly plumb man will come to their house and give them a present once a year for being good. Parents use Santa as a way to get the children to behave, by having them believe in something that is not real.

On the island of Yap in the Federal States of Micronesian, the people have a similar belief in their own currency. In an essay written by Milton Friedman called The Island of Stone Money, where he talks about the unique monetary system the people have. Large circular limestone rocks “ranging in diameter from a foot to twelve feet, having in the centre a hole varying in size with the diameter of the stone,” are known as Fei. Unlike the common paper money we see today, the islanders’ use these giant stones to pay for something big like a dowry or to retrieve a warrior’s body from another village. The stones, although they had been given to another person were not moved, the knowledge that it was now someone else’s was all that was needed for proof of purchase. As long as everyone knew the worth and owner of the stone, it was never questioned. There was an instance where the wealthiest family on the island had lost a stone at sea, and yet it was still acknowledged as theirs. A storm had caused the crew to cut loose the stone, they made it back unharmed and told everyone what had happened, the village had agreed that it was no fault of the owners and recognized it as Fei. The stone laid “a few hundred feet of water off shore [which would not affect] its marketable value, since it was all chipped out in proper form.” A stone that is at the bottom of the ocean is just as valuable as a stone sitting against a house. Even when something cannot be seen or held, it is still believed to be legitimate regardless.

Around the nineties, Brazil finally had enough with their ruined economy and recruited four economists to solve the inflation problem. In NPR’s podcast This American Life, produced by Planet Money, they talk about the steps they took in order to trick “150,000,000 people into believing their money had value again.” On March 27th, 1993 the finance minister called Edmar Bacha to ask if he would meet to discuss what they could do to combat the inflation. The four economists refused at first, yet the Brazilian government was persistent enough to invite Basha to meet the president, and when asked for an autograph for his children the President wrote, “Please tell your father to work fast for the benefit of the country.” Once the four were on board, their plan to create an entirely new virtual currency that was more “stable, dependable [and] trustworthy,” was set in motion. URV, known as Unit of Real Value was created not to replace cruzeiros, the currency at the time. Not only did they make a new currency, they had the government slow down on money printing and helped balance their budget. Once the URV was released to the public they did not force the people to use it, it happened naturally, once one store started using it, everyone followed suit. As a community they were able to make certain prices for goods and services fixed throughout the country. It was easier thanks to the help of a conversion table created to ease the people into using the imaginary currency. “Every night the central bank would put out a memo with the official conversion rate. And a table would get printed in the newspaper… Monday, one URV is equal to seven cruzeiros. Tuesday, 12 cruzeiros. Wednesday, 14.” On July 1, 1994 “the central bank deployed truckloads” of bills to the banks in the cities and provinces, waiting for the final green light from the economists. Everyone became happy, they believed that this was the way to fix inflation and as a country they achieved it by creating something that was completely made up. Brazilians a yeast ago had believed that their currency had any value, it would never improve to believing that its value could never change again.

Most people will spend their entire lives not questioning where money comes from or how it came about. They will just go on with lives focused on the here and now, but for those you are curious enough they will go down a very strange rabbit hole. Despite knowing where the money you earn throughout your life comes from is a good thing to understand, in order to know how certain economies work. It can be a very confusing discovery, not only because you learn that money only works if the people believe in it, but it is a made up thing entirely. Just like binary it is just a bunch of numbers that we as a community gave meaning and value. It is as outlandish as Shirley Jackson’s short story The Lottery, where a village has remained in the dark ages, keeping a tradition in which once a year a person is stoned to death. They no longer have a reason to continue this tradition, yet they still believe as a community that they must do this horrific act every year. This kind blind belief is what keeps these imaginary objects or unexplainable traditions alive in our world today.

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 

Jackson, S. (1948, June 18). The Lottery. The New Yorker. https://www.newyorker.com/magazine/1948/06/26/the-lottery

The Continued Dependence on Currency

One of the most important aspects to our society continuing is the existence of money as a concept. Wherever a structured intelligent society exists money will follow because it has to. Constantly quantifying goods and services based on the inherent value of some other good is a nearly impossible task to keep up for an extended period of time in society. Eventually needs extend past that of immediate inherent value and evolve, which is the point in society that money finds its place. Something within society with a non-inherent value seems almost necessary to run correctly, as The Island of Stone Money shows off.

As seen with the island of Yap, the need for an item for the exchange of goods that is inherently valuable existed when the islanders found a need for it. In their case, fei, which “consists of large, solid, thick, stone wheels, ranging in diameter from a foot to twelve feet,” Is often used in the exchange of larger goods. While the Islanders on Yap did not have access to any sort of metal or other material that seemingly would be effective in the use as currency, the solution of transportable large stone tablets shows the constant and necessary need of money for a productive society to prosper. 

When a human society first begins to develop, one of the immediate creations is that of trading and bartering, the exchange of goods for goods or services. These goods will often begin as things like crops or services known only by a select few, giving those an inherent worth that is sought for by others with their own to give. The society that creates this establishes the worth of things by comparing them to other things, and while this works at a  simplistic level, as development occurs in this society, the exchange rate becomes less binary. Further development breeds change, and this change comes in the form of non inherent value, which changes exchange for the complicated but feeds and supports the exchange process by allowing trade to become more freeform.

As our current society has developed and changed, a form of currency became more and more of a necessity to exist as now more jobs exist on a large enough axis of differences that there is no feasible way to give people their worth as workers in anything besides a nearly universal currency, especially with how consumer driven our society has become. Even without looking at consumerism, exchange without inherent value exists as a necessary and prevalent part of intelligent society. One of the most important parts to our society continuing to work is this currency to continue to work. We are far enough in our line of development that the dependence on money has become nearly one of the top priorities of our government and the world as a whole. Our currency has integrated itself into nearly every faucet of life and into nearly every part of the world. We have used our stable currency as a continuous way to take other struggling countries in the face of financial collapse and bring them more into the world economy. 

The use and the importance of money became exponentially greater with the increase of colonization. As seen with the island of Yap, one of the things the Germans who purchased the island did was to bring them into a more civilized way of society with their own currency. They saw the fei as an archaic way of exchange, even those on Yap were perfectly contemptuous with it and fei was what helped their society develop further. The way that currency works in terms of the development and progress of societies has changed over time with the increase of the globalization of the economy. Sprouting from the need to exchange goods and services without that of equivalent goods and services was the need for everyone to accept and use this currency with a value that is not inherent but has stood the test of economic development.

We currently have the need and the desire to get the global economy to function together as smoothly and efficiently as possible, so the need and dependence for money grows, as does the need for it to continue to be worth what we say it is worth. There is an inherent stability that comes from a simpler society where the function of a currency is to fill in the gaps that trade and bartering can’t achieve, but as we have progressed far past that point, the importance now is keeping the complicated stability that we currently have. Often when it comes to global trade, currency is almost like a buffer zone that exists between the trade of countries, as somehow countries owe each other exorbitant amounts, yet things continue to function. As our society continues to evolve, the money we have and use evolves with it, but the need we have for it to continue to function persists. Our dependence on this system we have working is at an all time high, and we need the worth of our currency to continue to stay stable as the world develops around it.

References:

“The Invention of Stone Money.” 423: The Invention of Stone Money. This Is American Life, WBEZ. Chicago . 7 Jan. 2011.

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

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

It’s Real, As Long as We Believe

If I pose the question, “What is money?”, what comes to mind? Normally, you would state what has been dictated as the obvious, such as dollar bills or coins. Growing up we were trained to believe in the notion of money and its importance, including myself. The importance of a monetary system in our society is not being questioned, however, consider for a moment, how much of that money have you seen. While virtually the entire population believes in the value of paper money, the vast majority of that money does not actually exist. Money is an abstract concept that is created out of nothing and if there is no belief, the entire notion of money would crumble. The concept of money only has tangible value if people believe it is real.

In NPR’s podcast This American Life, Chana Joffe-Walt explained how four men “deceived” the people of Brazil into using a new currency and its positive results of decreasing inflation. Brazil had been struggling with high inflation rates and the unstable nature of the Brazilian economy left its citizens with little trust in their money. The plan involved the creation of a virtual currency which was known as URVs and the value of a URV varied on a daily basis. Yet the Brazilian citizens were only aware of how they could spend each URV with a conversion table. For example, the price of milk would stay the same, but the only aspect that would change would be the amount of cruzeiros you handed to the clerk. This sense of monetary reliability, which was nonexistent in the past, restored the citizens’ trust and belief in their economy. This led to the creation of the Brazilian real by the government, which was easily accepted by the citizens. This plan successfully lowered the inflation rates and helped stabilize the Brazilian economy. The fact that the people of Brazil believed that this fake currency was real, is what made it real. This situation is summarized by Jacob Goldstein stating “You don’t have to touch money. You don’t have to see it. It’s just information.”

In his essay, “The Island of Stone Money,” Milton Friedman explains how the German colony on the Island of Yap utilized a unique method of currency that was essentially based on belief and trust. In the early twentieth century, Germany claimed this underdeveloped civilization containing a small population. They noticed the islanders’ unique form of currency, known as fei, which entailed the exchanging of incredibly large stone wheels. The intriguing nature of this system was that physical possession of the stones was not necessary for indicating ownership. Instead, ownership was recognized through trade and verbal transactions. Due to the inconveniently large size of the stones, fei wasn’t obligated to leave a previous owner’s land if a bargain was made with another islander. The transaction was unquestioned and acknowledged by everyone with only a mark symbolizing the exchange. When Germany wished to impose fines on the inhabitants of Yap, they had to make use of the stones by painting crosses on the stone wheels to identify that they had taken ownership. When the German government’s wishes were abided by, the transaction of returning the fines was done by removing the paint from the stones. The value of these large stone wheels is essentially created through the islanders’ belief. One story that was told by Friedman was explaining the legend of a family on the island who had inherited a vast amount of wealth from their ancestors. Their ancestor had lost their large fortune of fei at the bottom of the sea in a storm, and it was never seen by a single person on the island. Despite this event, the wealth of the family was unaffected, and their immeasurable fortune was recognized by everyone without question. That fact that this form of money was still considered to have value on the ocean floor, even though it has never been seen is a testament to how belief in a concept can give it value and worth. If people believe it to have value, then it inherently does.

Although using stone as currency isn’t common for the rest of the world, the actions of the people of Yap are not so different from an economy that uses gold and paper currency. Ira Glass explains how when the United States abandoned the gold standard, there was no physical accountability backing all the money printed. Before, each paper dollar that was in circulation was represented by one dollar worth of gold stored at the Federal Reserve. Then, the United States Federal Reserve had realized the unimportance of the physical gold representation corresponding to the money in the economy. Money was being created essentially out of thin air by the Federal Reserve, as they felt it was necessary for the economy. The people of the United States have belief in this system of currency, which allows this unbacked printed money to have value in our day-to-day transactions.

These previous examples all display the fact that money and its worth is not determined by its physical object. This belief in the value of money is also seen in one of the world’s biggest virtual currencies, Bitcoin. Bitcoin is popular for its high trading value, and it is a cryptocurrency that skips over financial institutions. Anne Renaut describes how Bitcoin is a completely virtual form of currency and how no one ever sees it. It can be described as strings of code that were created by computers, and it functions similar to how stocks do. As Renaut stated, “…Bitcoin users can only cash out their money if other people want to buy their Bitcoins.” This proves proof that the sustainability and value of Bitcoin is only valid as long as others have belief in this form of currency.

After researching this topic, I have gained a whole new perspective on money and its value. For the entirety of my life, I have seen my parents paying for groceries or paying the bills monthly. There is always a demand for money and the aspiration to accumulate large sums of it, however we have never been taught the real reason as to why the concept of money has value. It is not due to any physical or materialistic worth, but it is because of people’s belief in that concept that supports it.

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.

Fugazi, The True  Measure of Currency

The idea of money is much more abstract than we make it out to be.  The very key to  what motivates all of us to get out of bed in the morning lacks tangibility tremendously.  Our present day monetary system was born out of convenience and fluidity in a free market economy.  However, this leaves us wondering what the value of this convenience is.  Although money is  the  key to our financial freedom, in an instant it has the power to bring it to a complete standstill if its value is stripped.  

A fascinating point of view on the thought provoking concept of money was written about in the essay “The Island of Stone Money,” by Milton Friedman.  We immediately flashback to a more simple, concrete currency where Friedman explains “fei”, which is a means of currency using stone wheels on the Caroline Islands where Friedman was studying.  These stones were useful for transportation and ranged in size which is a great example of an  early form of denomination in currency.  A peculiar detail about this trading of stone was that the stone did not actually have to be in your possession to own it.  This was due to the extreme difficulty of transporting these large discs.  As ridiculous as this sounds, NPR’s Planet Money team brings up an interesting point that other than the actual objects being used for payment, this is very similar to what we do now.  They go on to say that at one point we used gold and other precious metals to buy different items from others.  However, this was still very heavy and troublesome to carry around everywhere with you.  As a solution, we came up with paper money which held its value by representing the amount of gold someone had.  There is nothing that different about a civilization using limestone wheels to trade and pay for items of value.  The team then went into their current lives and the transfer of money.  They come to realize that the physical transfer of money is very obsolete.  The bank doesn’t physically deliver physical money to the places to which your bills are due.  This is the same case for your employer paying you. It is simply numbers being added or subtracted from your account.  The team says that the only value these numbers actually have is based on the bank’s acknowledgement of it and everyone else’s agreement that this is what we use to purchase goods and services in our society. This leads into their next point about the problems related to the economic  issue in Brazil.

The team says that the currency’s value was unpredictable and grossly inflated for decades without repair.  Supermarket prices would change dramatically every day, forcing consumers to pay fluctuating rates, where the  money in their pocket yesterday was marginally better than the continuously rising and helter-skelter behaviour of the money value itself.  This roller coaster of empty value started when Brazil’s government wanted to complete a project of which they did not have adequate funds for.  This resulted in them essentially printing the money which immediately caused inflation within the economy.  They were then faced with the daunting task of somehow slowing down this inflation.   The podcast tunes in to an interview with Maria Leopoldina Biarenbeck, as she is a first hand account of living through these hard times.   Biarenbeck broke down each president’s plan to somehow rectify this extreme problem.  The first plan was to prohibit vendors from raising prices.  However, this  only made products unavailable, as merchants were hiding their products in hopes that there would eventually be an increase  in the future.    They soon realized that there was no way of completely reversing the damaging effects of the inflation.  This  is where they decided to restore the faith of the people rather than continuously trying to right their wrongs.  They came up with the plan to put up a facade of “new stable currency ” that would be easily accessible within the economy.  The public was hesitant at first, not having any clue what this new currency was, but the plan worked and people became confident in this made up way  of paying  for goods.   They then showed a comparison of old to new currency which they made to look as much more valuable.  This gradually lowered inflation as more and more had faith in this “URV” currency.  The public was delighted to see that everyday goods were staying at the same price consistently for the first time in years.  

From this we can see similarities to our current way of transferring money.  It is not so much the actual value of money, but the collective belief by everyone to solidify a standard of value.

It is miraculous to see that the same economy with the same money, fixed itself merely based on belief in the value of it.  It is amazing, but almost a bit anxiety ridden because it puts the value of money in a much more vulnerable position.  If something were to occur where the value of money plummeted and the value was miniscule it would send our economy into chaos.  When broken down in this way, we are left teetering on the edge of complete confidence in a currency and a colossal devaluing over a short period of time.

This was eye opening as I have been consumed by this process of transferring money in the U.S.  I receive direct deposit, pay for monthly subscriptions and any other expenses used via debit/credit card or mobile pay.  All of these are added or subtracted from my account and there is no paper money being transferred.  Right now the small wealth that I have is only a number that I have contact with all day every day.  This puts a standard of money right at your fingertips which can make the money almost feel as if it doesn’t exist other than when looking at it through your phone.  Our monetary system is becoming a game of basic math rather than an exchange of goods and services for physical payment.  While this is extremely helpful and convenient, it solidifies how dependent we are on this value that we assign to our money even at the electronic level.

We are left with the thought that we could possibly be chasing wealth by building up a somewhat imaginary number in order to be comfortable and be able to afford certain things in our lives.  This is a great convenience to have, but we also see its fragility.  After going behind the scenes of problems in economies throughout the world, we realize just how important it is to keep this standard of value and that if we did not uphold this we could be in complete disarray on the streets trying to receive goods for paper and electronic digits that simply mean absolutely nothing.

References

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.

Is Money Real or Just A Fictional Scam?

Money is fiction, or as some people would call it “Fugazi.” It is a trick. Millions of people before us and even now have been tricked into believing that money is a real thing. Simply it is just a number in out bank accounts that we are dependent on to get through life and do the things we like and want to do. A scary concept that can happen with money is that it can just vanish and no one would know what happened to it or where it went. Money is just a manipulative scam.

In the NPR’s podcast, This American Life, Jacob was telling a story that he had had a conversation with his aunt. He asked her about where all the money went when the stock market crashed. Her answer highlighted a key point. She simply said that money is fiction. Jacob preceded to talk about the money and said that it never even existed in the first place. This happens to be the case in other places as well. In “The Island of Stone Money,” Milton Friedman visits an island in Micronesia in 1991. He states “As their island yields no metal, they have had recourse to stone; stone non which labor in fetching and fashioning has been expanded, is as truly a representation of labor as mined and minted coins of civilization. On the island of Yap that stone is equivalent to money. This exchange was called Fei, it consists of large, solid, thick stone wheels ranging in diameter. The stone like our money is also fiction. “It is a bargain, it involves the price of Fei too large to be conveniently moved, its new owner is quite content to accept the bare acknowledgement of ownership and without such mark to indicate exchange, the coin remains undisrupted on the former owner’s premises.” There was a village not far from the island where a family’s wealth was unquestioned and the family themselves have never laid eyes on or a hand on this wealth because an ancestor lost this big piece of Fei at the bottom of the ocean. The verbal agreement that took place was a big reason that the family able to stay wealthy. Milton said that “they all testified that Fei was of magnificent proportions and of extraordinary quality, and that it was lost through no fault of the owner.”

We live in a society where money is earned and we work for our money. NPR’s podcast The American Life talks about how they get paid from their employer and it goes into their checking account. They don’t give them a bunch of 100 dollar bills every week. That money is used to pay bills online and that currency is old fashioned. You don’t have to touch money or see it, it’s just information. This is just another key point and raises that question is money real and is it really even “ours”. Kestenbaum tells a story in the NPR’s Podcast The American Life highlights an example of that question. This example was money is deposited into the bank, it can be loaned out to some guy who wants to open a shoe shining business down the street. That is apparently “your” cash he is holding.

Money is what people believe it to be. At one point Brazil was at a real struggle with inflation rates and hired four economists to help out with the suffering economy. They ended up tricking tons of people in Brazil to get on board with a new virtual currency called URV’s. They used this new currency to get Brazilians to start to have belief in their money again. They did not want them to fear inflation again and make them feel secured with URV’s. Brazilians belief in this new digital currency changed the country in a positive way going forward. The “belief” that the digital currency would work and it did for them. The United States is also in a position where they are trying to get digital currency to work. Bitcoin is a new form of digital currency that has been big in the news. There is not to much belief in it right now as there are a lot of uncertainties with the new currency. In the article Bitcoin has no place in your or any portfolio by Jeff Reeves he explains that there is no true value. He calls it the “greater fool” theory. ” A Bitcoin, is simply worth whatever a random person is willing pay.” There is no real gain from it. More people will end up losing money investing in it than they will make. In addition, another article The bubble bursts on e-currency Bitcoin by Anne Renaut states “Bitcoin users can only cash out their money of other people want to buy their Bitcoin.” People want to use Bitcoin to make money one day but the issue is there is no evidence of wealth being made. Just like on the island of Yap, that family had wealth with no real proof.

In conclusion, money really is fiction. All the evidence from the podcasts and articles show that more people than we think make money out to be what they want it to be. It is a scary thing to wonder that the money in our bank accounts could quite possibly not be real at all and it is just information. It is just something we all chose to believe in everyday like people believe in religion.

References

1991 Island STONE Money – Hoover Institution. https://miltonfriedman.hoover.org/internal/media/dispatcher/215061/full.

Reeves, J. (2015, January 31). Opinion: Bitcoin has no place in your – or any – portfolio. MarketWatch. Retrieved September 30, 2021, from https://www.marketwatch.com/story/bitcoin-has-no-place-in-any-portfolio-2015-01-28.

Yahoo! (n.d.). The bubble bursts on e-currency bitcoin. Yahoo! News. Retrieved September 30, 2021, from https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html.

The invention of money. This American Life. (2018, February 19). Retrieved September 30, 2021, from https://www.thisamericanlife.org/423/the-invention-of-money.

Rich In Imagination

    Money makes the world go ‘round. For centuries, human beings have used some form of currency to barter or trade for goods and services. Capitalist American society was built upon this concept. Good men have fought and died over planet-wide capital disputes, dating back as long as civilization has existed. But what is money? Is it a piece of paper? A golden coin? A bit of digital information, powered with the energy of a supercomputer? To the natives of a small Pacific island called Yap, it was not a single one of these things. For the islanders, to be rich meant to have a carved deposit of limestone they called “fei” in their possession. 

On NPR’s podcast “The American Life”, there was a discussion hosted by the Planet Money podcasters. They talked about the complex history behind the fluctuating Brazilian economy. After a new rise in power, Brazil’s desired currency (referred to as the “Brazilian real”) came to a halting crash, setting into motion almost fifty years of high inflation and destitution. When the 90s came around, a group of four economists were able to create a new form of money (referred to as URV) and reset the Brazilian currency. Slowly but surely, the economy began to advance and the hardship came to an end. These economists saw a country facing poverty and simply created a new and highly valued currency to restart their monetary system. This shows that money only holds value when people believe in it. A system of currency only works if we allow it to, and we get to decide what that means.

Not unlike the Brazilians, the Pacific islanders that resided on Yap also had a uniquely functioning economic system. They did not use dollars or coins but derived currency from limestone deposits discovered on an island hundreds of miles away. In his 1991 essay on the subject, titled “The Island of Stone Money”, Milton Friedman discussed the strange monetary habits of the islanders and how easily it could be bent and adjusted to another more powerful country’s will. He described the money as such, “Their medium of exchange they call fei, and it consists of large, solid, thick, stone wheels, ranging in diameter from a foot to twelve feet, having in the centre a hole varying in size with the diameter of the stone, wherein a pole may be inserted sufficiently large and strong to bear the weight and facilitate transportation.” Even stranger, Friedman begins to describe the ways in which they would use these massive stone coins did not require the owner to have them in their possession. In order to not have to move the heavy limestone every time someone made a purchase, it was eventually decided that all one had to do was claim or be given ownership of the “fei”, in the name of convenience. Friedman continues with a story about a family on a nearby island with undisputed wealth. Their “fei” was very large and in beautiful condition – or so they claim. You see, no one had ever actually seen their “fei”, not even anyone living in the family itself. Many years before, one of their ancestors supposedly found the marvelous piece of stone and sought to bring it back home to his island. Unfortunately, while making his return on a sailboat, this person had to cut free the stone in order to survive a nasty storm. The “fei” sank to the bottom of the ocean. However, when the man returned and told of just how valuable the stone had been, it was universally accepted that the family’s wealth was not discounted just for the fact that their money sat some 100 miles away, deep underwater. Friedman wrote, “The purchasing power of that stone remains, therefore, as valid as if it were leaning visibly against the side of the owner’s house.”

In 1898, after purchasing the Caroline Islands (of which Yap belonged) from Spain, Germany assumed ownership of the island of Yap. Because the island strayed away from more modern practices, the roads of the island were unpaved. For the islanders, it was unnecessary to have paved roads because the island terrain was easy on their bare feet. German officials demanded that these roads be put in “good shape”, but seeing as the roads were no bother to the citizens, they ignored this and carried on. At first, it was decided that those who defied would be charged a fine. This was a difficult thing to accomplish because the Yap currency was so vastly different from their own. But, before long, the Germans came up with a plan. Someone was sent to the houses with considerable amounts of “fei” to paint black crosses on them. Surprisingly, this worked. Thinking of themselves as destitute, the islanders paved the roads as they had been asked to. After the fact, the Germans removed the black crosses and the citizens believed they were wealthy again. Friedman, finding this a bit ridiculous, wrote, “Unless you are very unusual, your immediate reaction, like my own, will be: “How silly. How can people be so illogical?” He then went on to defend the people of Yap, citing instances in which similar things have happened in civilizations considered far more developed than that tiny Pacific island.

While it would be easy to hear a story like this and laugh, but it begs an important question. Does money only have the value we assign it? And if that is true, does it really have any value at all? Like many of the institutions created and worshipped by man, currency exists simply to give us some kind of purpose. We cheer for men that hold 90% of the nation’s wealth while many of us must suffer in hunger and poverty, and give such power to these people because they hold capital that has been proven to be easily swayed to a bigger power’s will. I hope that one day humanity may find a better way to trade and barter, but until then, we will let our greatest creation control us. 

SOURCES

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

Friedman, M. 1991. The Island of Stone Money. Working Papers in Economics

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