Stone Money Draft – Tenere84

Money: Humanity’s Greatest Collaborative Illusion

While civilization has grown and become more advanced over the years, many thinkers have begun to question the reality of everyday concepts we hold dear to us such as beauty, morality, truth, etc. What if one were to suggest, however, that even money isn’t real? On the surface it sounds ridiculous; there are billions and billions of concrete bills and shiny objects that people trade with each other for an abundance of things. It’s practically the backbone of every stable civilization, manifest in what’s called the “economy.” However, evidence from ancient civilizations to the Brazilian economy suggests that money has become little more than an abstract concept, dependent almost entirely on the faith of the people in its worth.

From 1899 to 1919, there was a group of islands called the Caroline Islands, owned by a German colony. The westernmost of these islands was called the Island of Yap, with a population ranging from five to six thousand. The people of Yap, like most civilizations, had their own currency. The commodity they used to represent their currency, however, were much different from the standard American dollar: giant limestone disks. The rarity and beauty of such limestone disks was the reason they chose them to be their standard of trade; workers from the island traveled over 400 miles to an island chock-full of limestone. When they mined the limestone and shaped them into disks, they gleamed with a bright creamy-white color. Since their limestone disks were so huge and came in scarce amounts, one was worth as much as a house. So, completely different from American currency, right? Not exactly.

One day, Yap workers mined and shaped a beautiful, ginormous limestone disk and attempted to sail it back to their home island. That attempt was thwarted by a terrible sea storm, which gave the workers no choice but to rid themselves of the giant disk so as to lighten the load. When they got home, the workers told the people of Yap of the unfortunate event that resulted in the loss of such a valuable commodity. However, the people were okay with this and believed the workers’ story. They decided that, though it was at the bottom of the sea hundreds of miles away, the limestone disk retained its hefty value and was still owned by a Yap islander. This set a new precedent: money was no longer strictly represented by concrete objects, but rather the idea of money. The value of money was to be dependent on what everyone agreed and would gradually become more abstract.

When the German government assumed ownership of the Caroline Islands, they noticed its coral roads and highways were in bad condition. They threatened to enforce a hefty fine on the islanders unless they fixed the roads. The islanders didn’t budge. Representatives of the German government arrived to enforce the fine by painting black crosses onto the people’s stone disks to show that they had been claimed by the German government. This frightened the islanders immensely; they believed that this mere act of painting the stone disks meant that they no longer owned them. As a result, they relented and fixed the highways. Their efforts were met with relief when the Germans came back to remove the marks.

A similar event happened when the United States changed their currency from gold to the American dollar. The French government was worried that the United States would not stick to their original cost of gold in dollars, so it asked the Federal Reserve Bank of New York to convert the dollar assets it owned into gold. To avoid the complications and inconveniences of shipping its gold, the French government asked the bank to keep its gold and label it as belonging to the French. And, suddenly, a public freakout occurred in the US. Americans were worried that this simple act of storing the French’s gold and labeling it dramatically lowered the value of American currency.

What does the interaction between the Yap and the German government and that between the French and the United States indicate about the value of money? The Yap agreed that the value and ownership of their currency would never depend on the physical location of their respective commodities. The French held the same viewpoint and thus trusted that, though it was stored in America, their money would still belong to them and retain its original value. We have gradually changed our views of money from a golden rock that depends on physical ownership to an idea of money that depends on intellectual ownership. If that wasn’t enough of a testament to the power of the faith of the people, one may find the results of lacking such faith even more interesting.

Back in the 1950s, the Brazilian government decided to build a new capital in Brasilia. But it lacked the money to do so. They came up with the idea to print loads of more money to cover the cost. This “brilliant” idea backfired as inflation rates skyrocketed, resulting in decades of economical collapse. Presidents came and went with promises to fix the economy that never came to fruition. By the nineties, the inflation rate was 80% a month, and people had lost nearly all faith in the value of their currency. That was until everyday economist Edmar Bacha and his drinking buddies were asked to fix Brazil’s problems. They came up with a wild solution: create fake money.

That fake money was called the URV, a new “virtual” currency that became the new standard by which Brazilians would make exchanges. The only difference was that, while the inflation rate of the standard cruzeiro would still be running frantic, the value of the URV would remain the same. This gave the people of Brazil the illusion that the prices of their goods and the value of their money would not change, despite the inflation of the cruzeiro. As a result, people slowly regained their faith in the value of their money and inflation rates dropped. When it was seen that inflation was no longer a major problem, the Brazilian government got rid of the cruzeiro and replaced the URV with the real, a more concrete currency. The fact that a government was able to trick over 150 million people into believing they had real money is incredible, but it was the people’s faith in the value of their money that truly saved Brazil’s economy.

The URV was not the only completely virtual currency. In 2009, the Bitcoin, a completely fake currency, was invented by a student. It’s obtained, or “mined,” by spending hours performing calculations on a computer. The resulting Bitcoin is then transferred to the user’s hard drive and, though it’s nothing more than an unofficial virtual currency, could be spent at various places. Bitcoin, another form of currency backed solely by numbers and the idea of money, singlehandedly changed the world’s economy. It was a new and uncertain but used widely because of its excellent ability to provide reliability and trust; it did not fluctuate depending on the political and economic influences of other countries.

The value of money has become inherent more so in the idea of money and the faith of the people than the rarity or beauty of some golden or limestone commodity. The people of Yap did not care about physical ownership when it came to the value of money; all that mattered was that they agreed that they owned the money. The faith of Brazil in the value of their money proved to be a powerful influence and turned the Brazilian economy completely around. Currency may change and come in more new forms in the future, but one thing is for sure: when it comes to money, faith is everything.

References:

“The Invention of Money.” This American Life, 19 Feb. 2018, http://www.thisamericanlife.org/423/the-invention-of-money#play.

Friedman, Milton. “The Island of Stone Money.” The Island of Stone Money(1991): 3-7. Web. 25

Joffe-Walt, Chana. “How Fake Money Saved Brazil.” NPR, NPR, 4 Oct. 2010, http://www.npr.org/sections/money/2010/10/04/130329523/how-fake-money-saved-brazil.

Renaut, Anne. “The Bubble Bursts on e-Currency Bitcoin.” Yahoo! News, Yahoo!, 13 Apr. 2013, sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html.

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2 Responses to Stone Money Draft – Tenere84

  1. tenere84 says:

    Sorry that it’s really late. I did not want to sacrifice quality for punctuality, though (unless that’s misguided?). Hope I conveyed my main argument well, at least!

  2. davidbdale says:

    Actually, you’ve done a beautiful job of conveying the main argument, and among the best explanations I’ve seen yet of the narrative of the Brazilian real. I’ll leave this in Feedback Please until I have more time to spend on a thorough analysis, but for now, let me express my admiration.

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