The Value of Money
P1. Nowadays people spend money like it’s their job. Today, we are able to spend money through various ways. With cash, cards, and checks, we almost always have a way to easily access money. If we were to ask people from different cultures and time periods, we would get multiple different answers to the question, “What is money?” Money has not always been just a small piece of paper, and from listening to the podcasts and reading Milton Friedman’s article, “The Island of Stone Money,” it has become clear to me how much the value of money has changed over time.
P2. In the middle of the Pacific Ocean there is a tiny island called, Yap. In the first podcast and Milton Friedman’s article entitled, “The Island of Stone Money,” we learn what money was and how it was spent. Years and years ago, coins were made of limestone and were somehow brought back on boats. These stone discs were not something the people used for everyday purchases, they would use them in dire needs or important situations. Considering that the stones were the size of some small cars, they were not able to be moved frequently. So these coins would have an owner, and everyone on the island would agree to knowing who that owner was. If the owner used it to pay someone else for example, everyone would then know that the money was now the next persons. In the first podcast, a story is told where workers were bringing a stone to Yap on a boat, however they ran into a storm and the stone fell off into the bottom of the ocean. Everyone in Yap was informed on what happened, and accepted the fact that even though no one has seen this piece of stone, it still has an owner. Knowing what money is like now and thinking back, shows me how much more it was valued back then, especially from hearing that story in the podcast.
P3. In 1933, France feared that the United States would not stick to the gold standard so they did not want it shipped over (Island of Stone Money). Because of this, the Federal Reserve kept the gold in their custody, labeling it as France’s belongings. Because of France’s beliefs of the United States actually putting labels on the gold caused the U.S. dollar to become weaker, leading to the Banking Crisis. This to me was very similar to the story about the stone money in the bottom of the ocean still being someone’s property. In both situations, the money is not seen by either of the owners, but are still trusting that it is theirs.
P4. Years later, Brazil was suffering from extremely high inflation. Prices of things were becoming more expensive everyday due to the fact that it was at eighty percent a month. Brazil’s problem with inflation began in the 1950’s, when their president at the time decided that he wanted to build a new capital called Brasilia, in the middle of the jungle. The government did not have the money, however, they printed it anyway so that they were able to make this idea into a reality. Brazil experienced inflation for decades and in 1990 inflation was at eighty percent a month. In the podcast, “The Lie That Saved Brazil,” they described to us that a pair of sunglasses was originally ten dollars, six months later they were 340 dollars, and at the end of the year they were over ten thousand dollars! Inflation eventually became the number one political issue, and a stop needed to be put to it. So, the finance minister at the time contacted four economists who had been studying Brazil’s inflation for years to help end it once and for all. These four men had the idea that the country must stop hitting the underlying causes of inflation and creating money so quickly. Instead they said people’s faith in money must be stabilized. Their plan was to have a new currency, one that was not real and would never be printed. So basically people would still have cruzeros but when they got paid it would be in URV’s. Brazil went from a catastrophe to the eight largest economy in the world. The stop of inflation was all thanks to these four economists who were able to trick everyone in Brazil into thinking that this fake currency was real.
P5. As long as people believe in the ways that money is used, all differences can be made. Similar to Brazil’s inflation crisis, Japan has been trying to end twenty years of deflation. The article entitled, “Japan Tries to Ease Fears That Its Policies Will Lead to Currency Wars,” explains to us that they want to put a stop to their political issues. This topic however, is raising fright in other countries of a currency war evolving from other central banks using similar strategies. It is proven though that if you make people believe in your strategies that almost anything can be achieved.
P6. Also like Brazil’s URV’s, another currency called Bitcoin has been made. Bitcoins are a form of e-money and is kept on a person’s hard drive. It can be sent as a virtual wallet anonymously which is raising different speculations. Already, cyber-attacks are being made by hackers, wiping accounts of completely nothing. The Bitcoin system is complicated, but the issues with it seem to becoming less and less, allowing people to rely on something that isn’t even real money.
P7. In the third podcast, “Weekend at Bernanke’s,” the biggest economy in the world is discussed which is of course us, the United States. Our central bank is the Federal Reserve which is an independent institution and not actually part of the federal government. They are able to generate money whenever they want simply by buying bonds issued by the government. With the bonds, the banks are then able to lend out money which is how it is entered into the economy. Then, in 2007 the financial crisis began. The federal reserve had to lend out over one trillion dollars to all of the big companies on Wall Street. Later in 2008, the federal reserve would buy more home mortgages hoping to eject a lot of the new money into the economy. At the end of the podcast it is stated that, “From 1993 to 2008, the fed had created 800 billion dollars. In the months after the financial crisis that number nearly tripled to almost 2.4 trillion.”
P8. Today in the United States, our ways of spending money may seem extremely different than those of different cultures and decades. However, if we think hard enough all of these ways of spending are actually similar in a way. Whether it is the stones from Yap, URV’s, Bitcoins, or credit cards all of these sources of money actually have no value. In all of these situations we were able to trick ourselves into believing that these currencies have real value.
Friedman, Milton. “The Island of Stone Money.” The Island of Stone Money(1991): 3-7. Web. 23 Jan. 2017.
“The Island Of Stone Money.” NPR. NPR, n.d. Web. 23 Jan. 2017.
“Japan Tries to Ease Fears That Its Policies Will Lead to Currency Wars.” The New York Times. The New York Times, 25 Jan. 2013. Web. 23 Jan. 2017.
“The Lie That Saved Brazil.” This American Life. N.p., n.d. Web. 23 Jan. 2017.
Renaut, Anne. “The Bubble Bursts on E-currency Bitcoin.” Yahoo! News. Yahoo!, 13 Apr. 2013. Web. 23 Jan. 2017.
“Weekend At Bernanke’s.” This American Life. N.p., n.d. Web. 23 Jan. 2017.