Money is a vital factor in our society today. It buys houses, pays bills, and even can build cities. Money is also used in everyday business, being exchanged for products or services. Money may be vital to society, but is it vital for humans to live? Money physically cannot feed a family, it cannot clothe people, cannot be put together to build a house, so what is money all about? If I walked on the street and asked different people what money was, I would probably get different responses from each person. However, each response would be along the lines of “money is used to buy stuff.” Others may have to take time to think of their response. The official definition of money is a current medium of exchange between coins and bank notes. This is a definition defining money as a physical item, even before this assignment I too thought of money as a physical item. However, after thinking about it, I assure you that it is far from it.
When I head over to a gas station or convenience store, and use the ATM, you receive a slip of paper confirming your transaction, it gives you the balance of your account. If the balance of the account is for example $5,000 dollars, then that $5 grand isn’t right there in your hands on the slip of paper, and there is not a little compartment in the ATM that holds your 5 grand. The banks physically do not hold all of your money in a little room, your money is circulated all over the world. Here is a physical example to help you understand, say I get paid a 100 dollar bill. Holding this germ covered, green piece of paper with 100 written all over it, you see Ben Franklin looking at you with pride. Say I take this green piece of paper, draw a red X on it and deposit it in the bank, a week later I go and withdraw 100 dollars. Will I get my red X 100 dollar bill back, no I will not. When I deposited that 100 dollars the only thing that changed was a number on a computer system. That number can be viewed by the bank, by an ATM machine, and by me on a banking app. Our red X 100 dollar bill has now been taken into the banks safe where it is put into circulation. What does this mean, this means that if another person comes by to withdraw 100 dollars they may wind up getting my red X bill. Then they deposit it, and the cycle continues. If you think about it, money is just an abstract concept. A long time ago in the early stages gold was the only currency of our country. To buy food, or water you would actually have to hand the clerk a piece of metal. Then the abstract concept of paper money was born. Due to the unfavorable test of lugging gold around, you could go to the bank and exchange cash for gold. You could get 1 dollars worth, or 1000 dollars worth, just as long as you had the cash. The money was just an abstract concept because it represented the gold sitting in the bank. If all the gold suddenly disappeared one day, then all the cash would be worthless. For example if I went to the bank and exchanged a little bit of gold for cash, but suddenly the gold disappeared, my cash wouldn’t be worth anything, the cash was just a convenience. It was almost like a title on a car, you can give another man the title, and yes he may own it, however if there is no car then he is just holding a piece of paper with a name of a car.
In the late 1800s and early 1900s there was an island near Germany called Yap. The people of Yap used fei as their currency. However, fei is very special because it is a large wheel like stone. The fei is made from limestone which can only be reached on another island. Milton Friedman talks about how these people on the island of Yap, use fei as their currency. “Their medium of exchange they call fei, and it consists of a large, solid, thick, stone wheels, ranging from a foot to twelve feet,” says Friedman. The people on Yap’s currency is enormous, it cannot fit in any wallet I own. The people on Yap had to go to another island which was 400 miles away, and had to carve the fei from limestone. Limestone was not found on Yap. The people used canoes and rafts to make the treacherous journey. With extremely heavy stones and flimsy canoes and rafts, something is eventually going to happen. When talking about the people of Yap and their currency the NPR broadcast states that,”You don’t actually have to have the stone to own the stone. The stone is sitting on a path or something, and everybody knows that I own it.” You physically do not have it, but in everyone’s mind you do. One day while sailing back to Yap, the canoes sank, sending all the fei to the bottom of the ocean. “They came back and told the people of Yap what happened, the people of Yap said that’s fine, thats no problem,” “the stones at the bottom of the ocean are still owned.(said in NPR broadcast)” So the people of Yap physically did not have the fei in their possession. They just had the possession of the idea of the fei. For example, say I’m on Yap and have 3 fei, ones in the ocean, ones on a path somewhere, and one is in front of my house. A random stranger from the US comes by and sees my house he would assume I have 1 fei, but my neighbors on Yap would know I have 3 fei.
While searching around about fake, abstract money I noticed an interesting article titled, “How Fake Money saved Brazil.” In the article, Channa Joffe-Walt talks about “how an economist and his buddies tricked the people of Brazil into saving the country from rampant inflation.” Joffe-Walt talks about the crippling inflation that had hit Brazil.” In Brazil, inflation was killing the economy. Milk, and eggs would be priced at a dollar one day, the two dollars the very next day. People would have to run faster than the clerk who would mark up the prices to get the lower prices from the previous day. With many factors like inflation, who knows what can happen? The stock market crash, and the housing market crash are all reminders how are economy can be crippled just like that.
What is money? This question has been asked forever, and is still being though about today. My definition is that money is fake, it is an illusion of our society today, it is a status symbol, a tool, and sometimes a savior. It does not accomplish anything physically, just metaphorically. You cannot build a house out of money, but you can pay for one. There may be physical items paper money, gold, coins, and fei, however money is just fake.
Work CitedFriedman, 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.
Joffe-Walt, Chana . “How Fake Money Saved Brazil.” NPR.org. 4 Oct. 2010. 9 Sept. 2017. <http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake-money-saved-brazil>;.