Determining the Value of Money
P1. In every society, material needs to have value in order to trade for more possessions. After all, we don’t carry our possessions with us at all times. This is why money was created by the inhabitants of the island of Yap—so that they could trade items without having to give away items that were used in their day-to-day life. Jacob Goldstein and David Kestenbaum, in “The Island of Stone Money,” describe the appearance of the Yap currency as large, heavy stones with holes in the middle. Their worth was based solely on their appearance. They were made from limestone deposits on islands hundreds of miles away, and were transported back across the ocean in tiny bamboo boats. The creation of this system was the beginning of many societies relying heavily on the concept of giving objects value.
P2. The idea of stone money is interesting because the stones did not actually have to be in the possession of someone for that person to own them. Milton Friedman explains in “The Island of Stone Money,” that when an exchange was made, the stones usually remained at the previous owner’s property. They did this because sometimes stones were even heavier than cars, making it nearly impossible to move them. Sometimes, the stones were not in the hands of anybody at all. Even stones that had sunk to the bottom of the ocean floor, never again to be seen, could contribute to an individual’s wealth. According to Goldstein and Kestenbaum in “The Island of Stone Money,” stones that had been lost on the trip back home to Yap could still be accepted by the trusting Yap culture without being physically verifiable.
P3. The stone system used on the island of Yap can be compared to the modern currency systems in many countries, including the U.S. Alex Blumberg and David Kestenbaum explain in “Weekend at Bernanke’s” that America’s dollar bills used to be backed up by actual gold in the Federal Reserve. Dollar bills had value because we knew they were backed up by gold. After America went off the gold standard, it started producing more dollar bills backed by nothing but the credit of the United States government. Americans now find it sufficient to possess valueless things, while the Yap thought it unnecessary to “possess” their things of value.
P4. Even though there are similarities in the Yap currency and modern currency systems, the inhabitants of Yap could find the concept of modern currency bizarre. To them, stones had actual value since they were massive and shiny in appearance. They would find it strange to know that we put value in a small piece of paper, and that we can print out more whenever we feel like it. They would find it shocking that our currency system is mostly based on numbers on screen, and that a system like Bitcoin exists. Bitcoin is a complete online currency system not run by any government. Anne Renaut in “The Bubble Bursts on e-currency Bitcoin,” describes that Bitcoin is an online money system where users have a “virtual wallet” with all of their online money in it. Once users have Bitcoins in their virtual wallet, they can send their Bitcoins directly to other users, bypassing banks and remaining anonymous. Creators believe that as time goes on, Bitcoin will become more stable and that e-currency will be the future for the U.S. currency. With more online systems, higher amounts of money don’t seem as big as they used to seem. No amount of money seems impossible to reach when we deal with our money solely through numbers on a computer screen. According to Linton Weeks in “The Trouble with Trillions,” America’s national debt is over fourteen trillion dollars. Just decades ago, the thought of having national debt in trillions seemed unimaginable. Now, nobody seems bothered by talking about trillions in general. Without anything to back up dollar bills, people have to put their full trust in a single entity and in America’s case, it’s the Federal Reserve. It Brazil, however, they had nothing to put their trust in for a long time.
P5. Brazilians had been living with high inflation for many decades, but the government created a fake system that tricked its citizens into believing their money was worth something. In “The Lie That Saved Brazil,” Chana Joffe-Walt explains Brazil’s money situation. Brazil’s problem started in 1950, when its government wanted to create a new city. They did not have the money to do it, so they just printed out the money which, of course, led to inflation. She stated that in 1990, Brazil had an inflation rate of 80% per month. Prices were drastically going up every day, so something had to be done to stop it. The first plan implemented was to confiscate everyone’s money, which did not work out too well. Again, the only way to have a functioning currency system is to gain the people’s trust in something. Economists in Brazil came up with a fake system that created a new currency, URVs, that were stable. People were paid in URVs and items at stores were labeled as URVs, so that prices would not have to be changed every day. The Brazilian government would put a conversion chart in the newspaper each day that converted URVs to cruzeiros. Even though URVs were completely imaginary, the system began to work. People changed their mindset to think in URVs, which were stable. They trusted in this system and believed that their currency was stable again. When people have faith in using money, it has value. In order to gain value, there needs to be some level of trust between citizens and their government to solidify that money has worth.
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.
Goldstein, Jacob, David Kestenbaum. “The Island of Stone Money.” NPR. NPR, 10 Dec. 2010. Web. 23 Jan. 2017.
Joffe-Walt, Chana. “How Fake Money Saved Brazil.” NPR. NPR, 4 Oct. 2010. Web. 13 Sept. 2016.
Renaut, Anne. “The Bubble Bursts on e-currency Bitcoin.” Yahoo! News. 13 April 2013. Web. 23 Jan. 2017.
Weeks, Linton. “The Trouble with Trillions.” NPR. NPR, 22 August 2011. Web. 23 Jan. 2017.