Kit-Kats for Nerds

Children do not understand the value of money. On Halloween, they’ll trade a Kit-Kat for a box of Nerds, but they won’t take a dollar for that same box. Humans, on our most basic level, value trade of goods and services for something comparable in return. This system of trade has become bastardized, however, from exchange of goods to exchange of gold, to paper, and so on, until we don’t even know if what we’re exchanging even exists. For the most part, it doesn’t. It is simply numbers on a screen that tell us that we have the power to buy something that we need. People agree that something is worth a dollar, so it is, but that value can change at any time, leading me to believe that money has no intrinsic value whatsoever.

In his essay “The Island of Stone Money,” Milton Friedman describes an island in the Western Pacific Ocean, as a piece of the Caroline Islands, called Yap. Its inhabitants are fairly unremarkable, save for how they do business. Their particular form of currency consists of sometimes giant limestone discs gathered from over two hundred miles away. The stones hardly ever actually change hands, as carrying them would result in breaking said hands. So instead, everyone just agrees that a stone has a certain owner. Something large is purchased, and everyone is notified that the stone’s owner has changed. One family is incredibly rich, but has never seen its riches, as they rest at the bottom of the ocean. However, everyone knows that it is theirs, so it is.

Friedman also mentions a similar situation between the United States and France. Concerned about the value of the dollars they held, France wanted something more tangible in their possession to assure them of their fiscal security. However, instead of physically sending gold to the French, the Federal Reserve set aside gold for France. Gold was put in a drawer, labeled “France’s Gold” and everyone went about their business. The actual gold did not travel anywhere, but everyone now knew that it was France’s gold. This is no different from the family whose wealth lies at the bottom of the ocean. It is as if the child on Halloween has set aside a Kit-Kat for their friend, but the friend never eats it, and the child starves without their Kit-Kat to eat, as the setting aside of gold essentially ruined the US economy.

The fiscal cliff is a relatively modern term, but can be applied in the situation of 1933, when the US economy came tumbling down because of gold in a drawer. Calmes states in “Demystifying the Fiscal Impasse That Is Vexing Washington” that in recent history, the fiscal cliff refers to the possible rise in taxes and cuts in spending that would take effect in 2013 due to a federal deficit reduction plan. This would essentially destroy the economy just because someone made the decision to, meaning that any specific set of circumstances could send an economy into chaos at any time.  If any set of circumstances could manipulate the value of a form of currency and its spending power, then it must not have that much power to begin with. As previously stated, the dollar is worth whatever people agree it can buy, but at this point, that could change at any moment.

In an NPR broadcast entitled “How Fake Money Saved Brazil,” Joffe states that in Brazil, they don’t have dollars. But that doesn’t mean that their currency is not easily manipulated and their economy not fragile. In 1990, inflation was so horrifically high that prices were increasing by 80% each month, with no federal government able to successfully intervene. That is, however, until 1992 when four economists put the Unit of Real Value into play, which was essentially currency with nothing to back it up. Prices stayed stable at a certain amount of URVs, wages were always in the same amount of URVs, everything was in URVs and inflation practically disappeared. Glass expands on this in “423: The Invention of Money.” by saying that people had not had faith in their previous currency, but they certainly had faith in URVs, and that is what fixed the Brazilian economy.

This goes to show how much sway public faith in currency has on the economy. Even if fake money is being used, people will see stable prices and believe in a stable economy. But who is to say what is fake and what is not? The legitimacy of money lies in what valuable commodity it represents. In the United States, that used to be gold, but in recent years the federal government has denied that gold has any bearing on the modern dollar. So the dollar is worth whatever it can buy. In one store, this may be a pack of gum. In another, it may be a child’s toy. People simply agree that something is worth one dollar, and everyone seems to accept it. But in modern times, physical money doesn’t even have to change hands in order for payment to be made.

We live in a digital age, and that ushers in digital money. In “Bitcoin Has No Place in Your – or Any – Portfolio,” Reeves describes one very prominent form of digital money, Bitcoin. This is a completely digital “mine-able” currency that some businesses accept as payment. From the beginning, its creators have admitted to its lack of true worth, as it is not backed up by anything physical, but customers still spend dollars on bitcoins. The linen and ink of a dollar is gone from their hands, and in return a number on a screen increases. Instead of trading a Kit-Kat for Nerds, they have traded it for an imaginary friend. A child believes wholeheartedly in the existence of their imaginary friend, and that makes it a part of their reality. The imaginary friend can provide entertainment and companionship, just as the Bitcoin can provide goods and services from certain businesses. But neither the child nor the Bitcoin customer have anything physical, and their fantasy only exists because they believe it does.

If anyone can make currency out of nothing, such is the case in Brazil and with Bitcoin, then what value does traditional currency have? That is, if currency is even used, and it is not just numbers on a computer screen that tell a person that they have currency. People are told to work for this number, people die because they don’t have this number, people base their entire lives around numbers on a screen, simply because everyone agrees that that number is the be-all-end-all of economics.

In the end, the United States is not that different from the island of Yap, of 1990’s Brazil, or any economy that uses money with “no value.” Items have value, such as the Kit-Kat that is traded on Halloween, or the food exchanged for labor in the dawn of economics. Money used to be backed by valuable metals, but that is no longer the case. Virtual money is coming into power and even physical currency has no concrete backing. The only logical conclusion is that money as we know it today has no intrinsic value. We have all been tricked into believing in the URV, we all have giant stones that we agree someone owns. The economy that fuels millions of lives could disappear tomorrow and no one would have any less. In fact, a lack of a modern economy, at this point, sounds like a better idea. The world may be better off going back to trading corn for labor. At least I can eat corn. How am I going to make dinner out of Bitcoins?

 

 

Works Cited

Calmes, Jackie. “Demystifying the Fiscal Impasse That Is Vexing Washington.” The New York Times. The New York Times, 15 Nov. 2012. Web. 10 Sept. 2016.

Friedman, Milton. “The Island of Stone Money.” The Island of Stone Money(1991): 3-7. Web. 10 Sept. 2016.

Glass, Ira, Chana Joffe-Walt, Alex Blumberg, and Dave Kestenbaum. “423: The Invention of Money.” This American Life. Prod. Planet Money. 7 Jan. 2011. This American Life. Web. 11 Sept. 2016.

Joffe-Walt, Chana. “How Fake Money Saved Brazil.” NPR. NPR, 4 Oct. 2010. Web. 13 Sept. 2016.

Reeves, Jeff. “Bitcoin Has No Place in Your – or Any – Portfolio.” MarketWatch. MarketWatch, 31 Jan. 2015. Web. 10 Sept. 2016.