Money Is A Social Construct But Many of Us Don’t See It

As a society, money is used everyday for survival or even for pleasure. It has become a very familiar practice to us, but in reality, currency is a very abstract concept. Money is merely something we put value into, so money can essentially be anything that holds value to us. To a child, a piece of candy holds the same value as a piece of jewelry to an adult. 

In the beginning of time, people traded goods to get what they needed, but there was even value placed on trading. A modern day example would be that someone wouldn’t trade a smartphone for a pizza because the smartphone is obviously worth way more than a pizza pie. This system is a common practice in the money we know today, but it has also existed in other forms of valuable exchange. 

In the late 19th century, the Island of Yap, located in the Pacific Ocean, created a unique way of currency. The idea was that men would sail hundreds of miles to shape limestone into large discs. Some discs were so large that they were bigger than a man. A hole was made in the center to place a rod in to move them because of the inconvenience to move them by hand. The larger stones were naturally seen as more valuable. Men had to sail a raft to a far distance for the stone, so labor and rarity placed value on the stones. The people of Yap would pay for houses and other goods using this currency. One interesting point is that the money did not necessarily have to be in someone’s possession to be theirs. For example, if Person A had a 12 foot stone and wanted to pay Person B for a house, Person A could keep the stone on their newly owned property, but the stone now belongs to Person B. Most of the Western World would see this stone money idea to be absolutely ridiculous. How could someone have money, if they don’t personally have the money? Well, whether we realize it or not, our modern money system has evolved into a similar one to the people of Yap. 

Paper money and coins exist in most places in the world as a form of currency, but with modern technology, many people don’t have to carry physical money anymore. A plastic card can represent the money saved in a bank account or an app on our phones can show the amount of money we own. When we pay for something using these modern methods, it simply just deducts a number on our screen and transfers it to someone else’s. So does the money actually exist or is it just numbers on a screen representing an amount? The answer is yes and no. Money exists, but if we added all of the money owned by individuals in America, that amount of paper money probably does not exist physically. All of this American currency is modified by the Federal Reserve (The Fed). The Fed controls American currency and can decide the value in which loans can be valued at. When the market crashed in 2008, people had a very hard time obtaining the money they needed to buy a home or invest in other goods. The Fed decided that one way to battle this problem was to allow cheaper collateral for a higher loan amount than what it would be originally worth under normal circumstances. This was just one situation in which money and value fluctuate depending on the economic climate. 

Evidence of the economic climate dramatically changing can be witnessed from the 1980’s Brazil crisis. The crisis truly began in the ‘50’s when the government printed new money to build a new capital in Brasilia. The President failed when trying to execute this by freezing prices and bank accounts. Eventually inflation hit 80% per month which rapidly increased the prices of goods. It got so extreme that someone working in a grocery store would walk around and continuously change the prices. The problem was getting worse and no one had a solution until four college friends in Rio discussed how they would possibly fix the inflation crisis. They came up with an idea to create a new currency that people could depend on to be stable. The only catch: This currency would not be real.  No coins, no bills. It was fake. The new currency was named, Unit of Real Value (URV’s). The Brazilian people would still use the cruzeiro, but the prices would be listed in URV’s. The main goal was to change the mindset of expecting prices to continuously increase. As the URV continued to be the stable trademark of the country, the economy turned around and Brazil became a major exporter. This experience raises interest about the psychological side of money. When there was a crisis, people would rush out to get the use of their cruzeiro before the value decreased. With a stable currency, the price never changed even though the cruzeiro still lost value for a little while longer and people became confident in the currency. Ultimately this shows how money is a social construct. How we interact with it as a people causes either stability or mayhem. 

Again with the modern age, it brings the opportunity for more digital mediums of money. Cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions. The most well-known cryptocurrency is called Bitcoin. It was started in 2009 as a new representation of currency, but the concept of Bitcoin can get very complex. People put money into Bitcoin to invest in it like a stock. The value of one single Bitcoin fluctuates constantly. In 2017 it was about $17,000, but currently it has dropped to about $9,000. Most people do not use Bitcoin to purchase items, however, many stores accept it as a form of payment. People mostly buy it as an investment and hope the value goes up so that they can eventually sell it for true currency. The Bitcoin situation has gotten so extreme that people will try to illegally mine for it to make it look like they have Bitcoin in their possession when they truly do not. At that point, they can sell their fake Bitcoin for the real Bitcoin value and con people. This goes back to the previous discussion of money not existing in the first place. If people can mine out fake Bitcoin, how can we trust in a currency that can be proven alterable? 

We really can’t put too much trust into currency of any kind. Though Bitcoin is being altered illegally in some cases, the value goes up and down just as the American dollar’s value goes up and down, even if the value is a small percentage each year. A good comparison of this  if an item in 1913 was bought for $1 in America, that same item in 2019 would cost $25.82. Inflation is constantly happening, but it is all relative to what we honestly see as valuable in a given point and time.

References 

Cryptocurrency. (2020, January 27). Retrieved from https://en.wikipedia.org/wiki/Cryptocurrency

(2017, December 19). Retrieved February 3, 2020, from https://www.youtube.com/watch?v=2X9eJF1nLiY

Joffe-Walt, C. (2010, October 4). How Fake Money Saved Brazil. Retrieved from https://www.npr.org/sections/money/2010/10/04/130329523/how-fake-money-saved-brazil

Social constructionism. (2020, January 24). Retrieved from https://en.wikipedia.org/wiki/Social_constructionism

Staff, U. S. I. C. (2020, January 14). US Inflation Calculator. Retrieved from https://www.usinflationcalculator.com/