Growing up, I always had the thought money was a little piece of green paper that can just be printed up to someone’s need. Being an Economics major, I’ve learned it’s more than just that piece of paper. It holds a value that’s always changing and can be held physically or digitally; a form you will never actually have in your hand. Americans are fascinated by this amount, such as an amount in a bank account or the number of dollars in your wallet. Americans revolve their life around making this number for the purpose of living and buying goods. But what makes a dollar bill equal one dollar? How can Americans not revolve their lives around this value we give a piece of paper? So what really is money?
Is it really that green piece of paper in your pocket, or a large limestone that is outside on the beach? Currency and the value of these certain items all vary based on location and culture. My dollar bill might equal one banana on an island somewhere but may be worthless on another island. After hearing the lecture about Stone Money, I read the article “Island of Stone Money” by Milton Friedman. Friedman writes how the Yaps, a small island in the Pacific Ocean made of five to six thousand people whose wealth is valued by the large limestone rocks they have. This stone currency is know as fei. Although a large limestone would have little to no value to an American, it holds great importance to the Yaps. That limestone is their dollar bill, or even a hundred dollar bill. These stones were quarried and sent to the Yaps from an island about 400 miles away in large boats. One story states that there was once a large storm that sunk a large ship carrying an enormous fei for a wealthy village, which was never seen again. That lost stone was still counted as currency, which can be related to the United States currency; large sums of money in a bank that we never actually see. This money is just something we need to trust our bank has.
“The Invention of Money”, broadcast by Planet Money describes how money can sometimes just disappear and still be used. The thought of money just disappearing and still being used is different and strange. When the market crashed in 2008, millions and trillions of dollars just seemed to vanish, and many people question how this was even possible. The answer to this is that it never existed in the first place. Money is fictional; it is not a solid and can disappear and change value at any time. It is easy to say that I have one thousand dollars today, but tomorrow that could change value to something higher or lower.
We could ask the question of how much money is there in dollars out there, but the question is a lot harder than you’d expect. “The Invention of Money” also says you can count the physical money you have and give that amount, then go into your bank account and give that amount. But the amount in the bank may not even be in there. The bank can loan your money out to someone else, making your money theirs too. So it seems impossible to count everyone’s money without double counting it. With this being said, there cannot be a set number of dollars in the United States economy because it is all passed around from person to person in the form of loans.
A main example of money being fake and basically made up is when the Brazilian people needed to be tricked into believing money had value. In “The Invention of Money”, we learn that people had no hope in the value of currency because of inflation. Brazil printed extreme amounts of money in hope of being able to pay for massive projects, such as building their capital Brasilia. They did not have the money, so the only way to solve the problem was to print more of it. Inflation was raising so rapidly, people had to race to buy things at a lower price. One day, a pair of sunglasses would be valued at 10 dollars. In a month it would be valued 80% higher at 18 dollars. This problem was solved by four young economists who created virtual money for Brazil, giving people the belief money had value again. This fake, virtual money became real when people started to believe in it. It is truly unbelievable that when people started to believe in this new form of currency, the plan began to work.
How can one currency have a set translation to a different form of currency if one number can continuously change? In the article “The Bubble bursts on e-currency bitcoin”, the author Anne Renaut states how Bitcoin is erratically changing and is very volatile. Bitcoin is an online currency that is not physical and is used for online purchases. Bitcoin was made to have no connections to any banks or financial institutions in case of another market collapse. This article shows how much the value of this virtual object can change in the matter of a day, making people very skeptical to invest in this e-currency. It is dazzling how a Bitcoin can even be sound and makes me believe even stronger how money can be fake. A Bitcoin can be found in any computer and is accessed by a process called “mining”. What I do not understand is how a form of currency like this can be valued by someone. How these ones and zeros from computer coding can be used as a type of currency to buy things like I would be able to with that paper in my wallet.
A piece of paper, a large stone, or bits of computer code can all have value to someone, depending on where you are. Americans use paper, Yaps use stone wheels and countries with advanced technology can use Bitcoin. These can all be traded for food or other material, but only when people believe in their value. Currency is an interesting topic, considering everyone, no matter where they live, revolves their lives around that one thing that is said to have value.
Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University, 1991.
“The Invention of Money.” 423: The Invention of Money. This Is American Life, WBEZ. Chicago. 7 Jan 2011.
Renaut, Anne. “The bubble bursts on e-currency Bitcoin.” AFP News. 13 Apr 2013. https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html. Accessed 6 Feb 2018.