Evolution of Money

Money, the manifestation that often dictates quality of life, social status, and mental health, is used each day by millions of people around the world. The most typical thought that arises when one mentions money involves using paper bills that have pre-determined values displayed on them to purchase something. However, the abstract concept of money has evolved significantly over time. From bartering physical items with value, to paying with paper currency, to using nonexistent/ “invisible” money that only exists on a computer screen, what is considered as money has never been set in stone.

            In my lifetime, I have witnessed many situations where valuables have been traded between two sides. In 2^nd grade, I traded a classmate one of my pencils for an eraser. In middle school, I saw people trade their PlayStation4 controllers for headphones. Meanwhile, in professional sports, teams trade players and draft picks with each other based off each teams’ individual needs. In all three of those unique examples, the concept of money lied in the idea that each person involved in the barter had a set value for each item up for trade. Each side also had a need for what the other person was offering. This is because paper money was not being used, and simply purchasing the other item for the desired cost, set buy the salesman, was not an option. Although it is arguably the most difficult transfer of “money” to pull off, bartering has been performed for thousands and thousands of years, even going back to times when cavemen would trade tools (stones/rocks, wood, etc.) for food such as rabbits, fish, or nuts (Fulmer, 2011). Money when bartering is not defined by the actual value of the object being traded, but it is instead determined by each sides’ opinions on those object’s values.

            Another concept of money is one exemplified by people on the Island of Yap. In Milton Friedman’s essay, “The Island of Stone Money”, he depicts the life of roughly five thousand people that lived in the most-westerly German colonized island in Micronesia, on the Island of Yap. In the early 1900’s, the inhabitants of Yap traveled upwards of 400 miles in order to obtain massive limestones (ranging from 1 to 12 feet in diameter) with holes in the middle called “fei”. They used rafts to transports their precious stones back to their homeland. This was their form of money, but rather than physically exchanging the large stones, they left the stone wherever it was first placed. For example, if a house owner wanted to purchase a second house from somebody with the large stone, they could leave the stone in their own yard because everyone on the island knew who owned the stone. The stone did not need to be moved, or even seen, to be considered somebody else’s property. This was the case when the largest stone ever discovered was released to the bottom of the ocean after the raft almost sank during an intense storm. But word was spread about the large stone, and for generations that family was rich, even though nobody ever actually saw the stone for themselves. The stones were so valuable because of how rare and difficult they were to acquire. In this situation, the concept of money is interesting because people didn’t even need to see the money to believe it existed. With bartering, both sides see and know exactly what they are getting. However, sometimes the people of Yap had to take each other’s word for the existence of their valuable stones, and the exchange of money was known only by way of word.

            Next, every reader has at least SEEN the modern-day version of money.  They may have different designs on them, but currency around the world can be identified as a paper bill with a numerical value on it. However, the colored, paper version of money is not the most interesting aspect of early twentieth-century economics. As of the year 2020, people can put their money in bank accounts online. Debit cards are available, and they instantly remove money from one’s account with a swipe of the plastic card. But that money does not actually exist in its physical form. It is simply a number on a screen, yet it is socially accepted. In more ways than one, this concept of money is similar to the concept of money on the Island of Yap. Although it is more than a century later, and stones have been replaced by dollars, there are ways to make large purchases without the producer receiving a physical/visible form of payment.

            Arguably the most abstract concept of money is an online currency called Bitcoin. Author Anne Renaut of AFP News wrote an article regarding Bitcoin, defining it as “Internet-era currency”. Individual Bitcoins are created by a randomization of complex code in computer software, and each one has value that fluctuates based off the market for Bitcoin. These coins can be mined by anyone that owns a computer, but unlike physical dollars, Bitcoins are never seen. They also cannot be used to buy anything, as they are not a commodity-based currency. As stated by James Surowiecki at MIT, “With ordinary currencies, there is a limit to how far down the spiral can go, since people still need to eat, pay their bills…But these things aren’t true of Bitcoins: you can get along perfectly well without ever spending them.” Instead, when invested in Bitcoin, one can sell their share when the prices rise. However, to make things clear, Bitcoin is NOT a stock, it is a currency, even though it acts like stocks, which are another example of “invisible money”. I would consider this the most unique concept of money because not only can one not see their money, but it technically does not exist anywhere but in the computer. Hence the nicknames e-money and internet currency.

            In conclusion, through my analyzation of several different types of money throughout the existence of mankind, I have realized that our monetary systems are no different than those from thousands of years ago. At the end of the day, money has always been what people valued it to be. The value of commodities is always based off the demand and scarcity for that particular item. At one point in time, objects were the main form of currency and trade, then it evolved to large stones that were valued because of their rarity and size. But just as people believed in the stones, even though they could not see them, people of today’s generations use credit cards where non-physical money is transferred. And in an even more extreme case, Bitcoin money is a completely invisible currency that relies on technology. People have always believed in money that they could not even see, and paper bills appears to be the least-used form of money when analyzing the past. So, whenever one thinks about the concept of money, a green paper bill should not even cross their mind!

References

Friedman, M. (1991, February). The Island of Stone Money. Retrieved February 2, 2020

Fulmer, R. W. (2011, August 31). The Family Stone: Cavemen, Trade, and Comparative Advantage: Richard W. Fulmer. Retrieved from https://fee.org/articles/the-family-stone-cavemen-trade-and-comparative-advantage/

Renaut, A. (2013, April 13). The bubble bursts on e-currency Bitcoin. Retrieved February 2, 2020, from https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html