Money is a funny subject. The concept of money is even funnier. When I say funny I mean that there are a lot of questions dealing with the monetary system we use as Americans today. Most of us have bank accounts that we can just see a number on an account statement on our phone, computer, or a physical piece of paper and know we have that much money. The question concerning money is, Where is that money that the bank says we have? We can use it at our own will and we know its there, but we can’t actually see the currency in front of us. Before reading and listening about Stone Money, the Brazilian real, and the other articles about other currency I understood how banks worked but never really took my time to try to figure out why we use the system we use today.

To understand the monetary system in use today we have to look at the history of money. The first upbringing of a monetary system dated back all the way to the start of civilization and it was the bartering system. Whether people traded food for clothes or cattle for water, people used items as currency and everyone knew for example how many chickens you need for a cow. NOVA, the most watched science television program in America, published a timeline of money. On their timeline the first monetary system that resembled our current one has been dated all the way back to 1200 BC. The Ancient Chinese used cowrie shells as currency. Cowrie shells is the oldest currency in human history. The Planet Money Team for NPR did a report on the islanders of Yap, a Caroline Island in Micronesia. The report talks about the people of the island Yap and their currency known as “fei”. Their currency was made out of huge limestones, nicked named Stone Money, and brought from islands hundreds of miles away. These pieces were so big that once they were brought back to the island it was put in the middle of the village or on a path and left there. On Yap the islanders did not have to physically posses the fei for it to be theirs. It was common to have engraving on said stone to show who owned it at this time. There is even a legend regarding the largest fei sculpted. Friedman explains this legend in her essay, “The Island of Stone Money”. It is believed that a boat load of islanders set sale to an island some humdred miles away. Once at this island they sculpted the fei and loaded it on a raft and headed back to Yap. On their return they ran into a bad storm and had to let the fei go and it sank to the bottom of the sea. When the sculptors returned to Yap they recalled their experiences and the islanders were okay with the fei being at the bottom of the sea because they knew its worth and everyone knew who it belonged to. So that means generations after the sculpting of the original fei people have never seen it but at the same time know that the family is the wealthiest family of Yap.

In 2016 technology changes every day. One can buy something on Tuesday and by Friday there is a better model that is faster or has more storage than the previous, Technology is growing at a exponential rate. There is now an app called Venmo that is very popular in the college atmosphere. This app is a social network where people can pay and request money to and from their friends. Venmo was created through PayPal, Inc. and now has well over one million downloads. A lot of college students use Venmo to split bills with friends and roommates. You do not have to put a single penny into the app but you can receive any amount of money from friends. From their you have a balance in which you can pay bills or send others money. You never have to physically posses the money but you know its there and you can use it however you see fit. This is exactly how the Islanders of Yap used their fei and it is very interesting how things can be the same after a hundred years.

After it is all said and done my opinion on money has broadened. It didn’t change because I knew how electronic money works along with banks, and I also had a brief knowledge of the history of money beforehand. I say broadened because after reading about the fei and the island of Yap I started to think more and more about the monetary system we use today. As Ira Glass explains in her broadcast you can put money in a bank, that money then gets loaned out to a person starting a business. So now, this person has your money but you can still buy things with it. Even after this person purchases something with your money, your money did not go anywhere. I never stepped back and looked at this scenario like that before and reading about money and the issues money caused in different countries, such as France, Brazil and Germany, allowed my opinion to broaden and learn how to accept how “funny” the concept of money really is.

 

 

Works Cited

http://www.pbs.org/wgbh/nova/ancient/history-money.html

http://www.thisamericanlife.org/radio-archives/episode/423/the-invention-of-money

https://counterintuitive2015.files.wordpress.com/2015/01/stonemoneyessay.pdf

https://play.google.com/store/apps/details?id=com.venmo&hl=en

 

 

For as long as I can remember, I have always viewed money as a physical item whose digital presence only existed for as much money as there really was in the physical world. However, NPR’s broadcast on money made me realize that money is not truly physical, but more so an idea that expresses wealth. Through further research on the topic, I learned not only that money as an idea has been seen throughout history, but how it works and even helps.

Initially, I was introduced to the concept through the aforementioned NPR broadcast. The hosts of the broadcast discussed how all money cannot be truly accounted for. If someone makes a deposit of cash to a bank, then it is possible for that same cash to be loaned to a startup business. The money that the original man deposited is still his, but its physical form is no longer in his possession. (NPR) Despite not having physical money, an individual’s wealth is undisputed through digital numbers. A significant amount of purchases, withdrawals, deposits, etc. occur by simply transferring these numbers. It was bizarre to even consider at first, but I quickly realized that money is more imaginary than it is real.

Alongside the broadcast’s discussion of money as an idea, one of the hosts brings up a story that is elaborated in Milton Friedman’s The Island of Stone Money. In this essay, Friedman talks about the Island of Yap and how its residents would use giant stones to make major trades. These stones stayed in one spot even if it was traded. Natives of the island simply took a mental note of who the new owner was. (Friedman) While it may come off as a foreign concept, the idea of stone money being traded in a mental, almost imaginary space is no different from the way modern day countries have their “money” as numbers stored in a digital space.

This concept reminded me of discussions I would have with my father. He had been experimenting with bitcoin mining, and as such would frequently talk about it. However, I never could grasp the concept of people digitally mining money that had real world value until now. Bitcoin miners have machines that compute complex code in order to generate bitcoins into a virtual wallet. These bitcoins can then be used as currency while remaining anonymous. (Renaut) What had always perplexed me was how these bitcoins, which didn’t exist in the real world, could have value to them. Through my recent research, I realize that people hold value in bitcoins, because they trust it. The people of Yap learned to trust the stones. The people of America have learned to trust the number shown in their bank account page. It may seem overly simple, but it really is just that. If something can be vouched for, then people will trust it. The wealthiest family of Yap did not even have a stone on the island. People simply vouched for their ancestors that their stone was not only the grandest of all, but it had fallen into the ocean.

The idea of money not existing in a physical sense had even saved the nation of Brazil. During the 1950s, Brazil printed so much paper money that over the years they faced a massive problem of inflation. In 1992, four men countered this by coming up with the Unit of Real Value or URV. URVs was a virtual value of everything from prices to wages. The URV of any given thing never changed, but the amount of cruzeiros, Brazil’s currency, that a URV was worth did change. (Joffe-Walt) While this concept of imaginary money is a little different from the ones previously discussed, it still relies on people’s faith in a non-physical form of currency. While people are going out using cruzeiros as a means to purchase items, their paper money is only worth as much as its value in URVs. Citizens of Brazil have to put their faith in a constantly changing URV similarly to how the people of Yap put their faith in the value of stones.

After all of that extensive research, it is still a little hard to swallow that money has to be trusted and is not something that can be known for sure. What if banks mess with an account’s numbers? What if the wealthiest family on Yap lied about their giant stone at the bottom of the ocean? Despite the abundance of questions I may have, I did get an understanding of how it works and in the case of Brazil, how it can even help.

Works Cited

“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.

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&gt;.

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&gt;.

P1. Up until this point in my life, I saw money just as everyone else in the world. Money is what makes the world go round. This idea was never challenged until reading  the various articles pertaining to this subject. I knew at one point gold was considered a precious gold that backed money. It’s value was created by humans in our minds, but the money still represented it. Now that it has been brought to my attention money is not backed by gold, my whole view has changed. Our money is not significantly different than the Yaps, Bitcoin, or Brazil’s made up currency.

P2. The gargantuan limestone boulders used as money in Yap sounded completely ludicrous to me. Money in my mind should always be able to be carried with you. The fact that there are gigantic pieces of money in their society baffled me, but once compared to our money in the U.S., my mindset began to skew from left to right. Our money can be represented through paper checks, plastic cards, and a special material we call bills. None of these are backed by gold. To make a comparison, Limestone is to Yaps as gold is to Americans. With this being the case, their idea of money is not too different from ours. They leave large pieces of limestone at different locations and use them as a bartering tool just as we use paper, plastic, and bills.

P3. America took the idea to make currency backed on nothing from Brazil. The way used to correct the inflation issue was in fact genius. Using the legitimacy of the country to back the currency was clever, because the government did not need to worry about finding gold or limestone, but rather just focus on amount of money being exchanged. This showed me that money can be backed by anything as long as that anything had value. A country is a great example such a thing of great value.

P4. Bitcoins still to this day do not make sense to me. It’s a made up currency not connected to any government or backed by gold. It is literally just a form of currency people agreed upon to barter created by an individual. For Places like Brazil or America to back their currency by their country made enough sense to not question it too much, but the thought that a legitimate form of currency could come from nothing with but an idea is insane. This simple fact helped me better understand that money does not have value due to the amount of it in the world, but rather what we believe it as.

P5. Money is for lack of a better phrase, a figment of our imaginations. It only has value because everyone wants it. If no one wanted money, everyone would barter using another item or items. Due to this fact, the concept of currency having value only because people want it, is very unsettling. Any boat that can be tipped that easily is not a good one and should be replaced.

Works Cited

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.

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&gt;.

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&gt;.

P1. Money originated from a string of shared beliefs in Yap, a small group of islands in the Pacific Ocean.  A large, cylinder-like stone, referred to as a rai stone, was used as a source of currency to pay for trade amongst the Yap Islanders.  In his article, “The Megalithic Money of Yap”, Stella Novus said, “the rai stones were special, reserved for things like a bride’s dowry or exchanged when one tribe came to the aid of another in time of war and hardship”.  Although the massive stones rarely moved, the system assumed ownership regarding a trade based on these large stones.  In this respect, America’s banking system collapsed based on of the Yap ideas of ownership.  As French gold reserves grew, the United States gold reserves plummeted, thus causing the downfall of the U.S. Economy.  Ownership of the gold allowed France to feel a sense of dominance over the United States even though their gold was based in the United States.  This idea of ownership based on a mark or label really baffles me. I have difficulty understanding the ability to own something that may not be in your physical presence.  I feel an overwhelming sense of distance from the things that I “own” such as my car or television.  Having thought in depth about the concept of money, my perspective on currency and the things that I supposedly “own” has drastically changed.

P2. Furthermore, the 21^st century is very complex when it comes to cash management and movement. Technology has taken ‘money’ by storm in terms of physical storage and distribution.  Online banking started in New York in 1981 with the help of large banks such as Citibank. New York set a platform for the online banking system, which may have been strange for the Yap Islanders. However, a connection could be made in terms of ownership between the Yap Islands and people of the 21^st century as the Yap Islanders may have not seen their stone they were trading for, but they knew someone on the island must own it. Similar to earlier banking, people may not see their cash and earnings, but they know that it is safe in a bank based on a computer record and added government regulation. After hearing about these concepts my mind is filled with questions and ideas about the intrinsic value of money. The Yap Islanders based all of their trades on something that was not in their possession. I gained a great deal of knowledge from the birth of money and how the banking system was created. Although the concept of money is tough to wrap my head around, the Yap Islanders gave me a whole new perspective on the innate value of money.

P3. The public’s faith in the value of currency allows an economy to maintain stability. Once the public establishes a little bit of faith, the value of currency develops. In 1994, during the presidency of Itamar Franco, Edmar Bacha used a “Unit of Real Value” to gain the public’s trust. In the article, “Brazil-The Real Plan”, Country Studies said, “The Unit of Real Value did not depend on general price and wage freeze to stop inflation”. Bacha used this false idea of money to make it appear that Brazilian’s were not facing a constant rise in inflation. However, the Unit of Real Value differed in cruzeiros, which meant the Brazilians were still paying different amounts depending on the day. Once Brazilian’s bought into the URVs, people never bothered to question the price in cruzeiros — the economy turned around based on blind faith in something fictitious.  In relation to the Yap Islands, I find it extraordinary that money can be presented in various different ways representing different values nearly at the same time. I strongly believe that money is fictitious. Bacha was able to gain the Brazilians’ trust even though his idea of money was not real.  Brazil’s belief in a Unit of Real Value gave their banking system stability and helped them to avoid major debt, unlike Japan.  Japan’s plan to rebuild their economy has many advantages such as fixing inflation, developing new technologies, supporting finance firms overseas, etc., but their major problem lies with Europe.  If other countries adapt similar strategies, Japan could be in for a currency war across Europe.  Therefore, I believe that it is important for Japan to really sell its financial ideas to the people in order to be successful.  As Edmar Bacha believed, the people are the foundation for an effective economy.

Works Cited

Country Studies. “Brazil- The Real Plan.” Brazil- The Real Plan. U.S. Library of Congress,            2012. Web. 13 Sept. 2016.

Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford                         University,     Feb. 1991. Web. 13 Sept. 2016.

Novus, Stella. “The Megalithic Money of Yap.” Ancient Origins. Ancient Origins, 04 Jan.                   2013. Web. 12 Sept. 2016.

“The Invention of Money.” 423: The Invention of Stone Money. This Is American Life,                     WBEZ. Chicago. 7 Jan. 2011. Web. 13 Sept. 2016.

 

Kit-Kats for Nerds

P1. 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. So, is there really any value for children, or anyone, to understand? Does money have value anymore?

P2. In the western Pacific Ocean, as a piece of the Caroline Islands, lies the island of Yap. Its inhabitants are fairly unremarkable, save for how they do business. Their particularly scintillating form of currency consists of sometimes giant limestone discs that litter the island. Their diameter can measure a foot or twelve feet, each with varying sizes of holes in the middle. The larger the stone, the more value it holds. If it seems utterly impractical, that is because it is. The stones hardly ever actually change hands, as carrying them would result in braking 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 their riches, as they rest at the bottom of the ocean. This may seem primitive, but in reality it is not too different from the American economy. (Friedman)

P3. In 1933, France demanded gold of the United States. Concerned about the value of the dollars they held, they 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. The actual gold did not travel anywhere, but everyone now knew that it was France’s gold. Sound familiar? (Friedman)

P4. This action of setting aside gold sent the country tumbling off of its fiscal cliff and into the Banking Crisis of 1933. (Friedman) The fiscal cliff is a relatively modern term, but can be applied in the situation of 1933. In recent history, the fiscal cliff referrs to the possible rise in taxes and cuts in spending that would take effect in 2013 due to a federal deficit reduction plan. (Calmes) If this one decision can send the economy into such chaos, then it must not be very stable. Any set of circumstances could manipulate the value of the dollar and its spending power, which begs the question, is the dollar really a stable form of currency? Is anything?

P5. 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. (Joffe) Prices were changing constantly, and no federal intervention was able to fix the problem. That is, however, until 1992. That year, 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. Fake money solved real financial issues. But it wasn’t the money, it was the peoples’ faith in it. People saw that inflation had ceased and believed that the economy was fixed, and it was. (Glass)

P6. 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.

P7. We live in a digital age, and that ushers in digital money. One very prominent form of digital money is Bitcoin, a completely digital “mine-able” currency that some businesses accept as payment. (Reeves) From the beginning, its creators have admitted to its lack of true worth, but customers mine away, spending dollars on bitcoins. At any given time, a bitcoin is worth a certain number of dollars, which is worth… what? At this point, in this age of the bastardization of payment, dollars may have much less value than we have been lead to believe.

P8. 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.

P9. 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 you 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.