The Value of Money
It is human nature to make things easier for ourselves. We are different from every other animal in that we do not only make things easier for ourselves, but more sophisticated as well. We began as hunter gatherers and eventually graduated to the concept of money, trading goods for something that everyone has agreed is valuable. On the surface, the value of money is its ability to buy goods and services, but it is also valuable in that it provides structure and stability to human life.
Some of the earliest people to realize this value were the people of Yap. The Yap developed a system of giant stone money. Large wheels of limestone imported from other islands were used as currency. The Yap knew that as progress was made and the population grew, there would need to be a system put in place to regulate transactions, to create order. The fact that it was giant limestone they used meant nothing, they could have used anything that they could agree on. To the Yap, the value of the structure that the stone money allowed them to have was just as great as the physical limestone itself. The system of money works the best when everyone has bought into it. If half of a population use consensual monetary transactions while the other half of the population simply pillages whatever they want like pirates, the system is ineffective. We see the value of faith in currency when observing the financial crisis of Brazil, when their currency experienced an 80% inflation rate per month. In an instant someones hard earned money that had been saved up for years was worthless. One of the worst parts of the fledgling currency were the price fluctuations. The Brazilian people eventually lost all faith in the cruziero. They were unwilling to spend fearing further fluctuation in price. This was until URV’s were introduced into the Brazilian economy. This fake currency stabilized prices. While the value of one URV to one Cruziero changed, items in the grocery store in URV’s would not change. This allowed the people to spend again. But more importantly, they had once again bought into the system.
In some cases money does not even have to be in your physical possession for you to have faith in it. On Yap, the owner of the stone that was underwater did not have to have it in his possession to be the owner, it was just made known that the stone belonged to him. A similar situation occurred when the United States set aside a portion of gold that belonged to France. The French didn’t need this money in France, it was just made know that that gold was France’s. Why was this okay? Why were people on Yap, and a nation okay with not being able to see their money? Its because the physical representation of money is not nearly as important as the system, and without their faith in the system, Yap would have been even more primitive, and the French economy could have been in trouble.
A modern 21st century example of faith in currency is the cryptocurrency money movement. This is digital money with absolutely no physical representation. The most notable crypotcurrency is called bitcoin. On March 17th, 2010, BitcoinMarket.com was the first bitcoin trading website to begin operation. On May 22nd, 2010, Laszlo Hanyecz made the first real world transaction by buying two pizzas in Jacksonville, Florida for 10,000 BTC. In five days, the price grew 1000%, rising from $0.008 to $0.08 for 1 bitcoin. Today, one bitcoin in the U.S costs over $9,000. Why is this fake currency worth anything? Because we said so. Somehow people agreed that this was something of value. Now, crypto one of the fastest growing markets in the world. That is the beauty of faith in a monetary system. We created several millionaires and billionaires off of cryptocurrency just because we agreed this is something of value.
Humans are too advanced to not have these abstract concepts like money. It is in our nature to be more complex and sophisticated than anything else. We need these systems, especially faith in these systems to support ourselves and our economy’s. People like to say, ” Money is just a construct”. Exactly. It is a necessary construct that we have been dependent on for hundreds of years. Without it we would return to chaos and anarchy. The value of money is not only in the things it lets us buy, it is the stability it provides us. It is part of the foundation and structure of our society, and that alone, is priceless.
Joffe-Walt, Chana. “How Fake Money Saved Brazil.” NPR. NPR, 4 Oct. 2010.
Friedman, Milton. “The Island of Stone Money.” The Island of Stone Money(1991): 3-7. Web. 10 Sept. 2016.
Joffe-Walt, Chana. (2011, January 7). The Invention of Money [Audio podcast]. Retrieved from: https://www.thisamericanlife.org/423/the-invention-of-money
Cryptocurrency. (2020, January 27). Retrieved from https://en.wikipedia.org/wiki/Cryptocurrency