A04 Stone Money Rewrite-Dublin517

Money, It’s  a Hit

Money, it is more than just a catchy song title, it’s the lifeblood of a successful economy. While, it is something used everyday, explaining what it is, is actually quite difficult. Why is its existence so perplexing? All money is, is a representation of the ability to pay for goods or services. With that notion taken into account, how could a dirty sheet of green paper come to represent a trust of gold or other wealth? It all falls into the hands of the people who are going to use the currency. Users have to have faith and trust in the economic system in order for it to work. If one takes a look at “Stone Money” written by Milton Friedman, they could see this conjecture put into effect.

Friedman discusses the island of Yap, where the natives have taken up, a strange monetary system. For large purchases, such as a dowry or buying land, they can pay with large stones known as Fei (Friedman). This is not to say that someone is rolling a huge boulder to their neighbors yard when they want to buy their cow; the transaction can happen without even moving the stone. It is basically the same procedure as buying something in store with a credit card. The shopper gets what they want and all they have to do is agree that what was once their money, now belongs to the store. This fundamental theory is used in Yap, “One person gives it to another person. But the stone doesn’t move. It’s just that everybody in the village knows the stone now has a new owner.” (Goldstein). Buying a cute pair of pumps with a visa card, is essentially the same as buying a farm with a large boulder. Neither the islander’s “fei” or the shoe buyer’s money actually gets moved, just a change of title, and they can get what they want. All seems to go well for the islanders, but what about trade? How do they work with entities that use different currency? Within Cora Lee C. Gillilland’s essay “The Stone Money of Yap” she describes one way that the stones were interpreted “‘…the value of a stone measuring three hand spans remained constant, that is a stone that size was worth one pig.’ In the next century this valuation remained the accepted foreign rate.” Even giant stones could be used within international trade.

In 1932-33, between the French Bank and the Federal Reserve Bank of New York (Friedman). France wanted their dollar assets changed to gold, since they were afraid with the failing economic system that the current gold standard would not be honored. To save the trouble of shipping it across the ocean, they settled for simply putting the French gold aside in the same United States Bank (Friedman). This is no different than when one islander still has a rock on their property after making an exchange, and it now belongs to someone else. This idea of non-literal possession, that is seen daily, is so strange because how could something belong to someone just because they say so? The “money” or gold or stones, are not actually in their possession but it is still theirs. The French government felt comfortable knowing the gold was safe, simply because everyone else knew it belonged to France. It is a game of “playing pretend” because nothing is actually happening, the rules are made up as they go. The trick here is the public’s trust in the system. If the foreign “rate of exchange” as Gollilland refers to it, was not respected, or if one Yap islander decided to physically take someone’s stone and claim it as theirs, chaos would ensue. The islanders would then have to fight over the stones instead of the peaceful transition of ownership they had been enjoying.

When Brazil began to become desperate in their economic situation, their government too relied on the faith and good intention of the people. Edmar Bacha, a Brazilian economist, came up with a solution for the inflation crisis in Brazil (Joffe-Walt). It included coming up with a new currency to use in conjunction with the old. Basically, this new currency known as the Unit of Real Value (or URV) was used to tell the people how much something was actually worth. Due to inflation, something as simple as a carton of eggs could see price raises everyday; so much so, that the prices people were paying for them did not even accurately describe their worth. That is where the URV comes in, a store can assign a Unit of Real Value to their goods in an attempt to normalize their prices. The URV was not just used for consumable goods, it was also used for wages and taxes, all monetary functions used the URV. That being said, explaining the function of the URV is easier in terms of purchasable items, discussing taxes and salaries can be hard to imagine. Say a store decides a carton of eggs is worth two URVs, as the value of the Brazilian currency, the cruzeiro, fluctuates the URV will stay at two. When a customer goes to the register to pay for the eggs, there is a sign that will represent the ratio of URVs to cruzeiros for the day. While the eggs will always cost “two URVs” they will actually cost five, ten, twenty, however many cruzeiros, depending on the day. Now the same idea can be used for a paycheck, on payday the check will say 250 URVs just like it does every other Thursday. While, the check says 250 URVs, the bank may only issue 100 cruzeiros simply because that’s how much a URV converts on that day; when maybe two weeks ago the check was worth 75 cruzeiros. The important factor in his solution was trust from the people “But, just as important, you have to stabilize people’s faith in money itself. People have to be tricked into thinking money will hold its value.” (Joffe-Walt). Bacha is counting on the positive response of the Brazilian people for this idea to work.After citizens began to trust the URV and its stability, the government just stopped using cruzeiros, and just like that the inflation crisis was ended.

Teaching the people to believe in the Unit of Real Value, the US Dollar, Fei, or French gold, is a moot point if its value is not respected by the people meant to utilize it.While the concept of money is abstract and difficult to fuller ascertain, the world would not be able to function without it. Like parts to a machine, the economy would fall apart without money and the cooperation from the very people that use it.

Works Cited

Friedman, Milton. The Island of Stone Money (1991): n. pag. Web.

Gillilland, Cora Lee C. THE STONE MONEY OF YAP (1975): n. pag.Smithsonian Library. Web.

Goldstein, Jacob. “The Island Of Stone Money.” NPR. NPR, n.d. Web. 13 Sept. 2016.
Joffe-Walt, Chana. “How Fake Money Saved Brazil.” NPR. NPR, n.d. Web. 13 Sept. 2016.