The Importance of Faith
in an Economy
P1: The need for money in modern societies is a complicated one. In terms of modern societies there is a clear movement away from ideas like faith and a belief in things that we cannot see or fully understand. However, the opposite is true when dealing with the concept of money which has no real value. The only value assigned to all modern forms of wealth comes from a social construct free from real rarity or the need to mine for precious metals like the past. The intrinsic value of money comes from regulating society, mostly propaganda and social norms giving a value to a certain special green paper which otherwise would mean nothing. For instance the United States was initially on the gold standard making an ounce of gold the same value as $20.67. Soon after it make impractical for every day citizens to carry around gold and bills represented the among in gold a person had. Similar to the yap who could not move their money as well, Kestenbaum explains, “So imagine there’s this great big stone disc sitting in a village. One person gives it to another person. But the stone doesn’t move.” Now the problem was what to do with all the unmovable gold. The United States solution to the problem was depositing this gold in the French Central bank. The French then stole the gold giving more weight to the franc with more gold behind it. This practice however only lowers the value of currency because the population agreed on this standard, so if the knowledge of the mislabeled gold never came out those using the dollar would never know if its drop in value and would continue to value the currency the same way.
P2: The mislabeling of the money did not actually take money away from people but rather changed the agreement on who chose to own it not that different from the indigenous people of Yap who decided in one instance there was a huge Fei at the bottom of the ocean that gave a particularly family wealth while no one actually saw the stone itself. The Yap would probably have a hard time understanding why we value the things we do. The concept of the bill would be particularly difficult to communicate and how they could possibly represent things that were oceans away and not in possible reach of anyone. The Yap would probably not understand why we put our money into banks who without our control could lose all of money easily. Another confusing concept is the idea of inflation because in their currency a limestone boulder will still be a limestone boulder and there is no reason for it to lose value while our own currency may be less or more depending on the health of our economy in comparison to competing currencies. Although it is no fault of the Yap if their that their understanding may not be absolute since its so secretive to everyday people who live in this country as well. The wealth of anything is determined by a few people who work in the central bank of the U.S.
P3: Although federal is in this banks name it is not a federal institution taking no direction from the presidency to be above from the current politics. The way the bank works is that there is a ceremonial meeting every six moths that determines how much money needs to be in circulation. One may ask how is this possible but the solution is simpler than the process. The central bank buys treasury bonds from the banks themselves in billions of dollars and the amount is in circulations through loans. During the recent fiscal cliff of the economy in 2008 however the bank faced another problem, the U.S. dollar was in serious danger of loosing value as a whole and there needed to be way more money in circulation. in order for the bank to put more money in the economy the bank needs to be able to buy something to give money to the institutions in crisis. The solution was to buy private businesses. The ventures started to get so private the central bank even started buying private mortgages. there is now an overwhelmingly large amount of businesses the federal bank owns in order to spare the United States from serious debt.
P4: Central bank issues are not exclusive to the U.S. In Japan the economy was facing major deflation. Although more than just blindly pumping money into an economy a currency still depends mostly on faith and the actions carried out by this bank seemed forced and rushed “if people perceive the B.O.J. as having shifted to a policy of recklessly buying government bonds, focusing narrow-mindedly on achieving 2 percent inflation.”says Mr. Shirakawa. The fate of the Japanese yen is uncertain since cutting down on interest seems like the likely solution but threatens to weaken their currency.
P5: Although central banks seem to have most of the power in how economies flourish tank the more important decision makers comes from the public. This is easily shown is the newest form of currency the bitcoin. The bit coin was a a created form of universal currency that gains value from its rarity which is 21 million. The bit coin is said to be found through mining through computer codes and holds values as it is saved in a virtual wallet. The bitcoin failed to a degree was because the lack of commodity. The bit coin did not have to spent like all other currency since people need to eat and have shelter and because it was not a necessity that this currency was spent so it proceeded to fail.
P6: The most interesting information I have picked up throughout my research is how little real value money has. The only reason money has the power it does on our lives is because of the faith everyone puts in the system.
Friedman, Milton. “The Island of Stone Money.” The Island of Stone Money(1991): 3-7. Web. 23 Jan. 2017.
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. 23 Jan. 2017.
Joffe-Walt, Chana. “How Fake Money Saved Brazil.” NPR. NPR, 4 Oct. 2010. 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.
Renaut, Anne. “The Bubble Bursts on E-currency Bitcoin.” Yahoo! News. Yahoo!, 13 Apr. 2013. Web. 23 Jan. 2017.