Counterintuitive Spring 2023

Paper Promises

Money is an abstract value system used to dictate the lives of the very same people who believe in the system. The idea of money itself is completely meritless, holding no true physical or materialistic value. Money simply “comes from nothing” while the idea of its “supreme value” is ingrained into the minds of all people from around the world.

NPR’s podcast, The American Life, featured an episode presented by the Planet Money team. The episode was divided into two acts. The first segment of the podcast discussed Brazil’s complicated economic history. The once stable belief in Brazilian currency (called the “Brazilian real”) came crumbling down due to new power and poor management. The people of Brazil faced many hardships during (almost five) decades worth of high inflation rates and mismanagement. It was not until the early 1990’s when four brilliant-minded economists tricked the Brazilian people into believing their money had any value. The new and made up currency was called URV. Simply by believing in URV, the people of Brazil began to believe in currency again. Once the belief in currency was reestablished, the economic state of the country began to experience dramatic improvements. The case of Brazil’s own economic struggles discussed by the Planet Money team makes for a perfect argument that money is simply a belief and nothing worth any inherit value.

Milton Friedman, an American economist, wrote about the bizarre and abstract currency of the distant Island of Yap in his essay titled, “The Island of Stone Money”. Unlike Brazil, this civilization used limestone “wheels” as their form of currency. For twenty years (1899-1919), Germany owned the Caroline Islands, which the Island of Yap was part of. It was when Yap was under German control that the world learned of their strange currency. Instead of physically carrying paper or metal and dubbing it currency, the people owned carefully crafted limestone wheels. Their currency was called fei. The rocks ranged in size which also affected their value. The larger a stone was, the more the stone was worth. Ownership of these stones were established through verbal agreements, nothing more. As Friedman retells, there was a family on the island that inherently owned a large sum of fei. Though, a couple of generations before the current family, the notoriously valuable stone was lost at sea due to a bad storm. The current residents of Yap, including the family who “own” the stone, have never actually seen the stone in flesh. By simply trusting the story of the lost stone, the family was still entitled full ownership of the stone- still making them a wealthy family.

As Friedman continued in his essay, the German government asked Yap to comply with new rules and regulations. At first, the people of Yap were reluctant and unwilling to comply with the Germans. All it took for the people of Yap to obey the German orders were for the Germans to paint crosses on their fei and claim it as their own. The Germans did not take their fei or even destroy it, they simply claimed it by panting crosses on them. Painting crosses on valuable fei was equivalent to the economists in Brazil tricking the people of their country.

Now one may ask, what do these two examples have in common? Brazil and Yap have completely different currencies and ways of processing that currency. But both civilizations instill a belief that their currencies holds important value to their systems and ways of living. Both currencies hold no actual value- it is all made up. But why is that people believe in such an abstract and impractical idea? Because, simply, it controls the people believing in that very concept.

In NPR’s podcast, The American Life and Milton Friedman’s essay “The Island of Stone Money”, both parties mention a brief time in American economic history where the United States dollar was equivalent to a fixed amount of gold. For example, one United States dollar was equivalent to a dollar’s worth of gold. This system allowed a higher power to determine how much money the United States could print and make out. This power is handled by the Federal Reserve. In retrospect, the Federal Reserve controls the value of money and the amount of money regulated in the United States.

Now in the twenty first century, the Federal Reserve does not describe United States dollars to being equivalent to a fixed amount of gold. And now we ask, how does the Federal Reserve do it? The Federal Reserve simply creates money out of nothing. There is no gold or nothing that equivalents to a dollar bill. The trick is you. You believe in the worth of a dollar bill. That is what makes the value of a dollar bill a dollar bill.

There are even more complicated systems than the United States dollar, Brazilian real, or the Yap’s fei. A decade after the turn of the century, in 2011 a new currency was established. Bitcoin is a completely formless and virtual currency, highly valuable in today’s market. Jeff Reeves author of the article “Bitcoin has no place in your – or any – portfolio” published with MarketWatch, focuses on this modern currency in his article. Like many other currencies, Bitcoin has no real value. Reeves also mentions that Bitcoin is not for everyone. Bitcoin is very expensive, and an everyday consumer would not be able to “own” this type of currency. Bitcoin was made for the rich- excluding many consumers and people.

Over the course of human history, there has always been some form of currency. Whether that be trade, fei, a Brazilian real, a United States dollar, or even Bitcoin, currency has always played a role in society. With currency came value and with value came power. The power was given to those who controlled the currency or “owned the most” (of a specific currency). The sheer fact that people believed in this system is what makes money so valuable. In truth, we know money has no real value or impact on our physical lives, but we still choose to believe its value and allow for it to control us.

References

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

Friedman, M. (n.d.). Tter?” ” i mean – miltonfriedman.hoover.org. Retrieved September 30, 2021, from https://miltonfriedman.hoover.org/internal/media/dispatcher/215062/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.

Under or Across the Ocean –
Property Ownership and Physical Access

When you think about buying something, there is probably a certain sort of image in your mind. For example, if you imagine buying an ice cream cone, you might imagine handing somebody in an ice cream truck some cash and being handed the frozen dessert in return. But not all exchanges look like this. Beyond the most minor purchases, physical currency is scarcely used in trade today. Hardly anybody takes a briefcase of bills to buy a car, after all. And money isn’t the only thing that isn’t physically exchanged. When somebody buys stocks in a manufacturing company, they don’t expect a sliver of a factory to be sent to their house, but they own a portion of it all the same. These examples demonstrate a rarely thought about but crucial principle to an efficient economy; one can own something without having any physical access to it.

Even governments often have no way of directly accessing resources that are legally their property. See, for example, an interaction between France and the United States in 1933, the Bank of France asked the Federal Reserve (the central bank of the USA) to exchange some of the former’s US dollars for gold. Rather than ship gold across the Atlantic Ocean to France, the Federal Reserve simply marked some bars as belonging to the Bank of France’s account. In the eyes of both parties this simple change of label was, quite literally, as good as gold. And the general public wasn’t any more skeptical of the legitimacy of this exchange. As Milton Friedman writes, newspapers wrote “headlines … about ‘the loss of gold,’” and “markets regarded the U.S. dollar as weaker, the French franc as stronger.” The gold, without moving a mile, had been given from one nation to another an ocean away.

You might think that this separation of ownership and physical access is only possible in a large-scale economy, or one that has a certain level of technological advancement. On its surface, it seems like a reasonable assumption that only under these circumstances would it be expedient to trade for something you can’t see or touch. But the Island of Yap provides an example of why this is an error. The inhabitants of this island used massive stone disks with holes in the middle, called fei, for major purchases. Rather than moving these massive stones whenever they made such a transaction, they would leave it where it was, instead transferring an unwritten title of ownership, so to speak. As Jacob Goldstein explains, “(If I) pay you with this stone … the stone doesn’t have to move … but now everybody knows that’s (your) stone. I don’t own it any more.” An even more counterintuitive example from Yap comes from when one of the stone disks fell into the ocean.  Rather than chalking it up to a loss, the inhabitants of Yap accepted the value of the disk, even on the floor of the sea. Goldstein explains “the people of Yap said … ‘(we) believe … this giant stone on the bottom of the sea … exists. It’s still good money.’” And, if they trust that the giant stone disk is there, why should they not treat it like any other? As long as its ownership can be exchanged for goods and services, it is no different than any other fei. And as Friedman tells us, when the German government, which had conquered the island, wanted to fine the inhabitants, they did not go through the trouble of dragging stones away. They simply painted black crosses on a few valuable fei, to signify that they were property of the German state. And when the paths were repaired as the Germans demanded, the crosses were washed away, and ownership was restored to those the fei belonged to before the fines were imposed.

While ordinary people in our society don’t exchange gold bars or huge stone disks, we have greatly increased the distance between physical access and ownership. Friedman was right to ask “how many of us have literal personal direct assurance of the existence of most of the items we regard as constituting our wealth?” Over the past few centuries, we’ve gone from using golden coins, to paper bills that could be exchanged for gold. Then the government, seeking to make the money supply more readily expandable, terminated our ability to exchange paper money for gold. Then we moved on to checks and plastic cards, automatically transferring money between accounts, simply by changing numbers. Now with technological advances, almost all transactions are simply numbers being changed in a computer. Cryptocurrencies such as Bitcoin exist entirely on digital networks. They are intangible, and yet they have owners, just as much as a dollar bill or an ice cream cone. The example of businesses again makes the distinction between physical control and ownership clear. There isn’t any way a shareholder of a corporation can assert that a portion of it is their own, but legally and financially the claim is unquestioned.

Traditionally, people have built an association, without even giving it much thought, between owning something, and being able to grasp it with their own hands or see it with their own eyes. But ownership is not limited to the property inside one’s wallet or their house. It can be an ocean away, or not even physically real. Property takes many forms, from a stone in the depths of the sea, to gold in another continent, to numbers electronically stored on microchips. John Phillips wrote in 2014 that “Bitcoin saw its highest ever number of transactions in a single day in late November,” and it has only increased in popularity since then. Just as transfers of ownership have been done by painting plusses on disks or changing the labels on gold bars, it will be done through the changing of binary sequences of information, nearly instantaneously. The future is always uncertain, but as technology advances, we have every reason to expect an economy where people can go their whole lives without holding physical money, except, perhaps, in a museum. Indeed, people will have as little need to know where their blockchain savings are, even if they are under or across the ocean.

References

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

Goldstein, J. Glass, I. 2011. The Invention of Money. This American Life. https://www.thisamericanlife.org/423/the-invention-of-money

Phillips, J. Bitcoin: What to Expect in 2015. CNBC. https://www.cnbc.com/2014/12/15/bitcoin-what-to-expect-in-2015.html

Evaluating the differences in currency around the world can help us understand the abstract of what money is at its core. And how we use physical objects with less material significance to gain ones with more value. In This American Life, “The island of Stone Money,” “The bubble bursts on e-currency Bitcoin,” and “The Invention of Money” can help with the understanding that society has to believe in the value of money for there to be a supported currency. 

Across the Pacific ocean, In a german colony on the Island of Yap, provides the most illuminating idea of the concept of money. This Island has a small population of natives with an underdeveloped civilization, according to William Henry Furness III, the author of The Money Mischief. The people had few resources and adapted to the use of stone. Unlike modern societies, the people of Yap used the stone as a form of currency called fei, making the massive thick stone wheels a prominent part of their economy. And because of how inconveniently large it was, fei wasn’t obligated to leave a previous owner’s land if bargained to a new one. It was unquestioned and acknowledged by everyone with a mark of symbolizing the exchange. These same principles apply to one family that has never seen their riches that had fallen to the bottom of the ocean after an accident shipping it across seas. And Furness highlights that “That a few hundred feet of water off shore ought not to affect its marketable value. The purchasing power of that stone remains.” 

And when the German colony tried governing the people of yap, they sought to fix their defective roads: but the people were unreceptive until Milton Friedman the author of “The island of Stone Money” empathizes that “most valuable fei was crossed in black paint to show that the stones were claimed by the government.” These events had encouraged the people to repair any damages to regain their capital. And although the stone isn’t ordinary for the rest of the world, their actions are no different from an economy that uses gold and paper currency. The Bank of France requested the Federal Reserve Bank of New York to convert its dollar assets into gold in fear that the U.S would not stick to the gold price standard. And in doing so, the Bank of France avoided shipping the gold overseas: went to the gold vault labeling and separating what was the property of France. There is no difference in the manifestation of money between the French and the people of Yap. The value they hold on stones and metal from the ground has equal value to their society. As long as there is a system and a community to support the construct of currency, there will be a valuable currency. 

WBEZ Chicago host a public radio show This American Life, during the talk show they stated that “You don’t have to touch money. You don’t have to see it. It’s just information.” And this one quote resonates a lot with The Lie That Saved Brazil. In 1950, the president wanted to build a massive and expensive city in the middle of the jungle, which they could not afford. As a result of this, the government created money. Forty years later in 1990, Brazil was in economic mayhem, inflammation was as high as 80% per month. Businesses would raise prices by the day but, four economists had a viable solution as stated by Chana Joffe-Walt in the radio show “You have to stop the printing presses, stop creating money so quickly. But you also have to stabilize people faith in money.” The entire idea was to trick people into thinking that the money they had was valuable supported by an artificial currency. The virtual currency URV didn’t necessarily exist and converted into the cruzeiros currency. Although inflammation was still going up people based their capital off of URV. Eventually, the inflammation went down and URV became the new currency completely replacing cruzeiros. So what happened in Brazil? In the simplest way to put Joffe-Walt said that “Everyone in Brazil, collectively, as a country, tricked themselves into believing that this fake currency was real.” Believing that the money they transitioned into was sustainable, made it more real than ever. 

This belief in value in money is also seen in one of the world’s top virtual currencies. Bitcoin is popular for its high trading value and a cryptocurrency that skips over finical institutions or central banks. Anne Renaut the author of “The bubble bursts on e-currency Bitcoin” affirms that “Bitcoin is made of strings of dazzlingly complex code created by raw computing power… that can in theory be carried out by anyone with a computer.” It’s another example of how money is a creation and is supported by a belief. Although the creation is quite complex, in its simplest form the idea of manifestation of money. Almost like the people of Brazil, anyone can use their real currency to buy virtual currency for trade or gain capital.

Interestingly, money is just a creation. And in “The Invention of Money” underlines this concept as stated by Ira Glass “when we went off the gold standard, somebody had to decide how much money there would be” and somebody did just that. The Federal Reserve is responsible for the creation of money and deciding how to run the economy. In 2008 the United States underwent a finical crisis and the solution was to put more money into the economy. Where does this money come from exactly? Its created out of thin air. Few clicks with a mouse and change of some numbers, and the economy can easily gain trillions of dollars. 

What do all these events tell us about money? A few days ago I would’ve said money isn’t real, money is nothing. But that isn’t true at all. Money is more than real and it’s also just created. But for money to magically come from thin air, it has to have a support system and a society that believes in the value of trading. Then anything can be a currency, like how the people of yap traded stone, the french traded gold, or the virtual trade of codes. With trust, there is currency. 

References 

Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University , 1991.

Joffe-Walt, Chana . “How Fake Money Saved Brazil.” NPR.org. 4 Oct. 2010. 30 Jan. 2015. http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake-money-saved-brazil/ 

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.

Money is Fiction

Money is a fantasy that people believe in. Money is an abstract concept that is created out of nothing. Money does not work unless people believe that it works. If people did not believe that money itself holds value, the entire idea of money would fall apart. The fictional quality of money is woven into every system of money in the world.

In NPR’s podcast This American Life, asks the question, “What is money?” They continue the podcast to discuss a story about how Brazil was struggling with inflation rates and how the country employed four economists to help with Brazil’s suffering economy. The economists invented a type of virtual currency called URV’s. Brazilians were taught that the value of URV in cruzeiros, the local currency. The value of cruzeiros fluctuated daily while the URV stayed the same price. The URV’s helped people trust in their money again. Instead of being scared that their money would lose its value and fearing inflation rates, people could have security and stability with their currency. The ability to instill a strong trust in the worth of the money changed the entire country. Brazil was able to use this new currency now and Brazil had a grip on the inflations rates in the country thanks to the instillment of the URV.

When the NPR podcast was discussing how online banking worked it completely changed my perception of using money online. There is no one physically handing over money to one another online. The only exchange of money is by numbers either going up or down. The bank does not send physical pieces of money over to the company that you are paying online. The only proof of a transaction is the number in the companies’ account increasing from your payment. This was a completely mind-blowing idea to me. I never thought about the process of the electronic transfer of money. Even when someone gets paid, they most likely do not receive a large sum of currency. Instead, when a person is paid, they may only observe the number in their bank account increase. The concept of money being sent over the internet only works if people believe in the fantasy of the money increasing or decreasing. All this information has made me rethink what I thought I knew about money.

In Friedman’s essay, he discusses a tribe of a few thousand people who live on the Island of Yap and use a unique system of money. The concept of money that they use is based around large, thick stone wheels that they call fei. The natives of this island carve the stones from limestone found on an island 400 miles away and bring the stones back to Yap on canoes. When the people of Yap bring the stones back, the stone does not move from place to place depending on its ownership. A person can have ownership over a stone without the stone moving from its place. Friedman writes in his paper that “After concluding a bargain which involves the price of a fei too large to be conveniently moved, its new owner is quite content to accept the bare acknowledgment of ownership and without so much as a mark to indicate the exchange, the coin remains undisturbed on the former owner’s premises.” This is an idea that is completely foreign to us. We are used to currency constantly changing hands and moving around to the location of the owner depending on who owns it. The mere concept of giant rocks being used as money and people having ownership over those rocks is an idea that seems entirely like something that is made up and would be written as a story in a children’s book.

Friedman also writes in his essay that the Germans came to this island and claimed ownership over the stones by marking them with a black cross. The Germans used this technique as motivation to force the people of Yap to repair their roads. This technique worked effectively, and the natives of the Island of Yap immediately fixed their roads to satisfy the Germans. Once the roads were repaired the Germans came back and wiped the paint off the rocks to give the people of Yap the ownership of their rocks back. I thought the practice of the people obeying the Germans just because of paint on rocks was absurd. Friedman goes on to say in his paper that a similar situation happened in the United States in 1932 with the gold in our Federal Reserve Bank. The Bank of France wanted to cash out the money they owned in gold in the Federal Reserve. Rather than inconveniently shipping it across the ocean, the bank just placed the gold in a separate place inside the Federal Reserve. This created a dramatic result in the United States with people having the assumption now that the U.S. dollar was worth less than the French currency. These two stories are very similar by showing how money is a theory. The value of each of these currencies was only changed by their physical stance, which in turn made people believe that they had changed in value. The illusion of money is active and drives both of these stories.

A form of currency today that has a lot of popularity behind it is Bitcoin. The article from the Market Watch describes bitcoin as a digital currency that is full of uncertainty and insecurity. Bitcoin does not have any tangible value behind it. Bitcoin is only worth how much someone wants to pay for it. The trust in Bitcoin as a valuable form of currency only works if people believe in the fantasy that it is. The worth of Bitcoin would completely disappear if people did not want to own Bitcoin and if it was shown as a dishonest source. If someone did not believe in the fantasy of money, money would have no value. This shows that money is an abstract idea that is highly reliant on the widespread acceptance of its worth. Money is the fiction that we all chose to believe in every day.

References

Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University, 1991.

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

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

A World of Pure Imagination

One may think the economic world consists of a complex system of inner workings that function in a precise way. That is exactly how humans of the modern world have assumed it to be for the entirety of their existence. However, the reality is that those finely greased wheels we believe to be running our society are not so complex…or even accurate for that matter. Money isn’t something that is flowing in and out of banks and circulating across the planet. It’s only present in our minds and the money system is an imaginary network set up to allow humans to barter on a large scale. Essentially, money only exists as long as we believe in it-similar to bigfoot or the loch ness monster.

Examining some past examples of the financial world may make this idea easier to comprehend. As explained in the NPR podcast This American Life in the episode “The Invention of Money”, the ancient South Pacific civilization of Yap utilized its own version of currency in the form of massive coin-shaped stone sculptures-a seemingly counterintuitive form of money which actually worked beautifully for the people of Yap. The ownership of this currency was simply a mental acknowledgment of possession. Everyone respected this rule and the economy of Yap ran this way for years. This system may seem absurd, however, the current economy of the world does not differ much from that system. Consider this: the Yap islanders based their wealth on stones, which were physical in some respect, however, their value was entirely based on mentality. Citizens of the world use coins and bills as a representation of money, however, the value of those items is only a universally understood amount. Similarly, every time we make a transaction online, those numbers are not doing anything-they just symbolize cash. Now, what is increasingly interesting about this system is that as easily as the Yap islanders could own the stones, they could lose the stones. This is explained in the article “The Island of Stone Money” by Milton Friedman. When Germany acquired the island, officials painted crosses on the stones to represent the money being taken away. These crosses were taken incredibly seriously, proving how the Yap’s form of money was entirely mental-those crosses didn’t actually change anything, but the islanders believed that their wealth had altered. This is no different from similar occurrences in the United States in 1923-1933. As described in the same article by Friedman, the French bank asked the US to convert any French dollar assets in the Federal Reserve Bank of New York to gold. In response to this, “officials of the Federal Reserve Bank went to their gold vault, put in separate drawers the correct amount of gold ingots, and put a label or mark on those drawers indicating that they were the property of the French—for all it matters they could have done so by marking them ‘with a cross in black paint’ just as the Germans did to the stones.” These labels on the drawers did not affect the US gold supply, however, the US became extremely worried because they took this as seriously as if the gold had been snatched away by a Frenchman. As long as everyone agreed that someone else owned the money, no trade-off had to be made. This kind of thinking makes our economic system seem ridiculous, and honestly, it is.

To understand how this mentality begins, it is useful to examine Brazil’s economic history. As outlined in the podcast “The Invention of Money”, the value of cruzeiros-the Brazilian currency-was constantly declining, causing inflation to rise. This was until the URV, or Unit of Real Value was introduced. Cruzeiros were converted to URVs and no matter how the cruzeiro value changed, the URV value stayed the same. Inflation decreased. The economy was saved because people conceptualized money differently. Eventually, the currency adapted to the real and the economy has thrived ever since. The fluidity of this form of money is frightening but also intriguing-Brazil proves that an entire country can be pulled out of decline because of a mental switch-a new way of thinking. That says quite a bit about the intensity in which currency is valued. People value this form of currency so much that they fully convince themselves that it solves all of their money problems, when in reality it just exists as an imaginary bandaid on the gaping wound of the Brazilian economy.

Just as mind-boggling as the URV, recent development in the economic world comes in the form of Bitcoin-a form of e-money created from a string of code stored in an e-wallet. In the yahoo!news article “The bubble bursts on e-currency Bitcoin” Anne Renaut states, “Bitcoin users can only cash out their money if other people want to buy their Bitcoins.” People use bitcoin to make money, but there is no concrete proof of any wealth being accumulated. Everything gained from Bitcoin is represented through virtual currency; numbers on a screen. It is as if humans convince themselves that an inanimate object is alive. Bitcoin is one of the first examples of how physical objects like bills and coins are becoming a thing of the past. No longer do people need to hold a tangible object to believe they have money, they only need to see the dollar sign next to some numbers on their device and they will automatically find value in it.

The items in which humans find value to be held are frankly preposterous. Whether it is a giant stone wheel, a labeled drawer, a slip of paper, a metal disc, or a glowing digital number, humans have at some point found worth in it. These items are only representations of wealth, yet they are valued so intensely that there is no telling what the future of currency holds. With this newfound understanding of money, there exists a simultaneous sense of comfort and fear knowing that money does not exist and our minds control the ever-changing aspects of the economic world. 

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.

An Unexpected Manipulator

The pure idea of money is an interesting concept. Have you ever stopped to think about how we have agreed as a nation on what money is? As a society, we have been manipulated by people before who created this system of “money.” All money is, is a number in your bank account, a piece of paper, even a stone. Most people now have grown up with an idea of money put into their head already, without putting a second thought to it. It’s just always been like this. As a nation and worldwide, we have been manipulated into believing that the money system we have now is dependable and completely ethical.

Milton Friedman converses about the abstract paths taken for claiming money in his essay, “The Island of Stone Money.” The Island of Yap, part of the Caroline Islands in Micronesia, used an unfamiliar currency called fei. This currency consisted of large stones, created from limestone and shaped on another island, that just sat around the island. The strangest thing about this currency is that if during a bargain the fei needed is too large to move, the new owner is content with leaving it where it is. The other people on the island now know that that particular stone is that person’s after the deal. In William Henry Furness III book called “The Island of Stone Money,” it is mentioned how there was a family on the Island of Yap that there was “a family whose wealth was unquestioned,—acknowledged by every one—and yet no one, not even the family itself, had ever laid eye or hand on this wealth.” This dives further into the theory of being manipulated by money. This family has never seen their wealth, as it is on the bottom of the ocean miles away from them, yet every single person agrees that it exists and counts as money for them. The islanders’ just accept that this family has so much money, and therefore respect, but how are they so sure about it? I doubt any of them have decided to go scuba diving to find this so-called stone at the bottom of the ocean. 

The Island of Yap was controlled by Germany from 1899 to 1919, a government that decided to tell the many districts of the Caroline Islands to repair their paths and highways due to them being in bad condition. These districts felt as though they were fine for natives, as they could walk barefoot and be completely fine. The government decided to fine the disobedient districts by sending someone to put a black cross onto some of the more valuable fei, claiming them as government property. This caused these districts to immediately start working on fixing the roads and voila. The government got rid of the black crosses and the districts regained their wealth back. This caused the people to become less wealthy and it shows how much the simple act of putting a black cross onto a stone, which “worked like a charm” according to  Furness III, affected these citizens. How did the government just automatically gain this wealth by writing on the stones without really taking anything? Similar events have taken place within the Federal Reserve Bank, something we know a little more about than the Island of Yap. In 1932-33, the U.S. was thought to be untrustworthy by the Bank of France in terms of sticking to having an ounce of gold be $20.67. They decided to ask the Federal Reserve to convert dollar assets that were in the U.S. into gold. Instead of going through the trouble tf sending gold across the ocean, they just put gold into a drawer labeled “Bank of France.” It became a big headline in financial papers, which said that there was a “loss of gold” and a “threat to the American financial system,” and the U.S. gold reserves were down, while French were up. Friedman says, “The so-called ‘drain’ of gold by France from the United States was one of the factors that ultimately led to the banking panic of 1933,” indicating that this was a big deal in America. There is a clear connection between these two scenarios; nothing was moved or taken, but labeled differently, creating a massive uproar involving finances. The gold was sitting in the Federal Reserve Bank labeled as France’s, showing just how much we can be manipulated by money.

While listening to NPR’s podcast This American Life, 423: The Invention of Stone Money, I was intrigued by how these 4 men were called on to fix inflation in Brazil and they came up with URVs. In the podcast, Edmar Basha says, “We called the unit of real value, URV. Yeah, it was a virtue that didn’t exist in fact,” telling us upfront that this didn’t exist before these 4 men. People started to get paid in URVs and the central bank would update every night how many cruzeiros 1 URV would be, as people were still allowed to use their original currency. One day 1 URV could be 7 cruzeiros, and the next 12 cruzeiros. The people in Brazil adapted to this way of currency as if it was nothing, and when one store sold milk for 1 URV, other stores started to follow suit. When a place is struggling like Brazil and people turn to help them, they seem to not care that this currency is made up. They might not even know that it is. They were able to get inflation down by a huge margin, and no one even stopped to think about where this money was even coming from. 

These past examples prove that people are blind to the fact that they don’t have to hold something in their hand for them to know that it has worth and value to them. Ann Renaut talks about how Bitcoin has come to people’s liking, and is accepted as a major form of digital currency in our day and age. Renaut says that “Bitcoins are stored on a user’s hard drive in a virtual wallet, and can be sent directly to another person, bypassing banks and remaining largely anonymous,” leaving some worried about how much anonymity there actually is. Many people blindly trusted bitcoin to become something worthwhile when they paid just a few dollars for only 1. There is a possibility for 1 Bitcoin to be worth hundreds of dollars now, letting people gain millions of dollars in Bitcoin. But where is this money? In a way we’ve been manipulated to believe that Bitcoin is important to have and that it could become worth more than you originally paid for it. What if one day Bitcoin is completely wiped and your money is just gone?

Money is valuable to many people, and it is a source many depend on too. Starting many centuries ago, money was created as a way to obtain power and a way to balance out bargains. Money has manipulated us. We have become too dependent on something that seems to have been created out of thin air. You can never truly know if the virtual currency you have is worth what you think, and it could change value tomorrow or in a month or year. Physical money is being used less and less, but how was the value of a $20 decided or the value of a $50 decided? It’s just a piece of paper. Just the click of a button, and you can spend money to your heart’s desire.

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.

Needs a Title

What is money? Money can be described as anything we want it to be. If I went to the store today with only a piece of paper and a rubber band, picked out three different items, took them to the cashier, gave them my piece of paper and rubber band, and they accepted, it would be money. This obscure combination of items would still be considered currency because it was accepted by the cashier. In Robert C Kelly’s article titled What is Money he states, “Money is created by a kind of a perpetual interaction between real, tangible things, our desire for them, and our abstract faith in what has value.” To expand upon this, our idea of money is whatever we give value. The notes we use every day to pay for our gas, our meals, and everything else we think of truly have no meaning. When we take away the value imprinted on the linen, what are they good for? We can use them to squish a spider that made its way into our kitchen or maybe to clean up some crumbs on the table that may have attracted the spider in the first place, but other than that what do they do? Lives, families, marriages, and other relationships can be easily ruined by seemingly worthless dollar bills, but how did we get here? 

Deep in the Pacific Ocean on the island of Yap, money takes a different form. Milton Friedman originally wrote about this economist’s paradise in his text, The Island of Stone Money, stating that many centuries ago, the people of Yap adopted currency they made out of stone. This currency was used as we use ours today, to buy materials, food, services, and other various goods, but the way it was used differs greatly. In our society we see materials such as gold, silver, or diamonds to be valuable. We view them in a way, as currency. There are no such materials on this island, but explorers from the island stumbled upon large limestone deposits one day. These were carved and the discs were brought back on boats to their homes on the island of Yap. Similar to the way this story goes in America, the people decided that they all needed to purchase things and there needed to be a way to do this. In an NPR broadcast reflecting on Friedman’s descriptions of this currency we learn that rather than trading services, cattle, or other materials maybe of similar value, they agreed they would use the aforementioned discs. This money was not used in the way we might think, however. These large blocks of stone weighed an incredible amount and could not be carried the way we might carry a pocketful of quarters. These discs were only traded in desperate times and for important reasons. For example, if you were a farmer and had recently gone through a drought. Your crops are yielding little to nothing and your family is not only going hungry, but also becoming poorer and poorer as the days go by. If you had a large piece of this concrete currency, you could trade it to get yourself in a better position. These were incredibly valuable and rare and were only to be used when it was absolutely necessary. It’s easy to hear this story and wonder what the significance of a big rock could be, there had to have been rocks found in every corner of this island, but the same can be said about our paper notes. When you take away the idea that each bill can buy you a meal at a nice restaurant or your favorite band’s newest record, they serve no other purpose which can also be said about these discs. 

With all of this in mind, we can propose the question, why do we continue to use money? The answer to this can be found in Hong Kong’s cashless society. In this country there are no paper bills to be found. No loose change in the drawer or finding an abandoned five-dollar bill on the sidewalk. In America we slowly made our way from physical cash, to checks, to direct deposit in terms of being paid by an employer, but in Hong Kong it goes a step further. They have taken the idea of these bills being assigned certain values and changed the game completely, but at what cost? It may be convenient and get rid of the existential question of why are we controlled by pieces of paper that weigh as much as a single staple, but it provokes a new question to be answered; why are we now being controlled by imaginary money? Completely virtual money is even more meaningless than our regular notes with various denominations stamped on the front. Sure, this money can be used to pay for things with the swipe of a card of the press of a button, but with nothing physical to see, hold, or use, we fall further and further from working towards something with true value. It reminds me of a points system at a department store. You spend a certain amount of money at Macy’s over the course of six months and you get in return one hundred points on your account which will then get you ten dollars off of your next purchase. You work for thirty-six hours a week and check your bank account and a few numbers change. When those numbers change again you can buy yourself a new pair of shoes. There’s no recognition for hard work or easily seen negative consequences for overspending because if you don’t give someone physical cash how can you even say you spent money? 

Money has no value in the end. We use our bills to trade with others and hope that the next person finds as much value in it as we do. The ideas of bartering and trading different goods and services seems much more desirable than trading numbers on a screen.

References 

Kelly, Robert C. “What is Money?” Investopedia, 2021, https://www.investopedia.com/insights/what-is-money/. Accessed 29 September 2021.

Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University , 1991.

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

Needs a Title

Bartering was originally replaced because of the coincidence of wants, which is when two people have goods but one party does not need or want the other’s. Because of this problem, money was made to be a medium that both parties would have a desire for. In recent times, money has evolved into numbers in a database. Much like the Yap Islanders, we own currencies that are often not physically accounted for, in their case it was stones; in ours it’s credit for online transactions.

As humans are unable to see directly in the past, mankind can only guess how bartering and transactions occurred in early recorded times. most believe that money isn’t intrinsic and that it was created to buy goods with inherent value, but I beg to differ. The Yale– New Haven Hospital conducted an experiment with capuchin monkeys where are they gave the monkeys Silver discs and traded them back for food. Most of the monkeys caught on to this concept pretty quickly, but in one instance a researcher observed a specimen confronting a female and I attempting to trade with her. But this monkey wasn’t interested in food, he offered a disk to the female for sexual favors, the female complied, and then she traded the disk back to the researchers for a grape. A similar situation was observed by scientists at the Max Planck Institute for evolutionary anthropology where they observe males with more food tended to have far more sexual partners then their counter parts with less food. This leads me to believe that the inherent value of money is purely social, until it is traded for a service or good with sustenance. Even today our world is some what similar, the more money someone has the less they have to worry about how theyre feeding their family or paying their bills; moneys inherent value today is mainly for sustainability. for instance you cant buy or build a house without money thus you cant support a family or yourself unless you have a job or own a business.

As faith in the Brazilian crosaro plumitted the need for an economic savior was high. For decades different leaders tried multiple tactics to fix brizils financial problems. First leaders tried freezing prices so there could be a set price for good, but retailers hid, stockpiled, and didn’t sell merchandise because they thought that the value of the goods would skyrocket.Next they tried to confiscating the civilians money and redistributing it but the plan was flawed from the beginning because no one wanted to trust the government with their money. Finally the president of brazil reached out to a university teacher for help with the economic crisis. The teacher, along with some old grad school buddies, proposed a plan to help the Brazilian people. The started by saying that the government needs to stop printing money and that the peoples faith in the currency needed to be sustainable. These four men founded a virtual currency called the unit of rio value or URV, then they started documenting wages, taxes, and the store prices in URV. Each week a conversion rate diagram was made and distributed to help locals understand and trust the currency more. When buying goods from the store URV prices always stayed the same bought the cruzeiros reais conversions changed. So as more people started thinking of prices in URV the more faith was put into a currency that didn’t change. As their plan unfolded and as people slowly came to trust URV’s inflation rates started to go down, eventually dropping close to 40% inflation. After they phased out cruzeiros with URV, a new currency called Rio (the real) or BRL was made and equated to one US dollar, then they equated one URV to one BRL. Soon they released BRL to the populace with high hopes and then instructed the government to balance its budget and to stop printing money at a rapid pace.

References

NPR broadcast: the lie that saved brazil; https://www.thisamericanlife.org/423/the-invention-of-money

Sex for meat – how chimps seduce their mates https://www.independent.co.uk/news/science/sex-for-meat-ndash-how-chimps-seduce-their-mates-1665356.html

The Cambridge student online: Dosser sexologiques special: prosotution in animals

https://web.archive.org/web/20110907215023/http://www.tcs.cam.ac.uk/the_bridge/science/dossiers-sexologiques-special-prostitution-in-animals/

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.