The Illusion of Value: From Stone Money to Digital Currencies
The concept of money and its value have evolved throughout history, from tangible items like stones on the island of Yap to today’s digital currencies like Bitcoin. This reflective analysis explores the abstract nature of money and challenges the idea of its intrinsic value in a modern, digital age. By examining historical examples and modern financial systems, we will question whether money truly has value or if it is merely a construct based on societal agreement.
Understanding the Value of Money
Children’s perception of money provides an interesting starting point. On Halloween, they willingly exchange a Kit-Kat for a box of Nerds but refuse a dollar bill for the same box. This anecdote highlights the abstract nature of money’s value, as children value tangible goods over currency. It prompts us to question whether money holds intrinsic value or if its worth is determined by the trust and agreement of a society.
P1. The Yap Stone Money: An Unconventional Currency
Author Friedman in the article said, The Yap islanders in the western Pacific Ocean use massive limestone discs as their currency. These stones, some as large as twelve feet in diameter, hardly change hands physically due to their impracticality. Instead, ownership is agreed upon, and transactions occur through communal consensus. This system may seem primitive but bears a striking resemblance to modern economic systems, where trust and agreement determine the value of money (Friedman, 1991).
The Yap stone money, known as “rai,” is a fascinating example of how a society can assign value to something that lacks inherent utility. These stones, quarried hundreds of miles away on a different island, serve as a unique form of currency. Their value is not derived from their physical properties, as they are too cumbersome to be practically moved, but from the community’s recognition of ownership.
The larger the stone, the more value it holds, and transactions involving rai are conducted verbally, with the community acknowledging the transfer of ownership. This system, based on trust and communal agreement, may seem impractical to outsiders, but it raises profound questions about the nature of money itself.
P2. The Federal Reserve’s Gold Reserve and the Banking Crisis of 1933
In 1933, France demanded gold from the United States to secure its fiscal security. The Federal Reserve, instead of physically sending gold, set aside gold reserves for France, essentially confirming its ownership without the gold changing location which has clearly been mentioned by Calmes. This decision played a role in triggering the Banking Crisis of 1933, demonstrating the fragile nature of currency value. The question about the stability of modern currencies are raised, as one decision can have a significant impact on an entire economy.
In the beginning of the early 20th century, the gold standard was a prevailing system that tied the value of currencies to a specific quantity of gold. Nations held gold reserves to back their paper money, ensuring its convertibility into a fixed amount of gold upon request. This system was intended to provide stability to currencies and prevent excessive inflation.
In 1933, as France demanded its gold holdings from the United States, the Federal Reserve took a controversial step. Instead of physically transporting the gold across the Atlantic, they set aside gold reserves earmarked for France, effectively acknowledging its ownership. Although the gold remained in U.S. vaults, the action demonstrated the power of trust and acknowledgment in determining the value of assets.
This decision alone had significant consequences in contributing to the Banking Crisis of 1933, which was a pivotal moment in U.S. financial history. It highlighted the intricate relationship between trust, perceived value, and the stability of an economic system.
P3. The Tenuous Nature of Currency: Brazil’s Experience
Brazil’s history with inflation and economic instability can be seen as a case study in the fragility of currency value. In the 1990s, hyperinflation led to economic turmoil. However, the introduction of the Unit of Real Value (URV), a currency with no physical backing, stabilized prices and wages, highlighting the power of public faith in currency. This episode from the author Joffe-walt, underscores the sway that public belief has over an economy’s stability.
Brazil’s experience in the 1990s provides a good illustration of the tenuous nature of currency value. During this period, hyperinflation ran rampant, with prices increasing at an alarming rate, sometimes by as much as 80% each month. The economy was in decline, and no amount of federal intervention seemed to remedy the situation.
However, in 1992, four economists introduced a novel concept: the Unit of Real Value (URV). Essentially, the URV was a form of currency with no physical backing. Instead, it existed as a unit of account, a reference point for pricing and wages. Prices were denominated in URVs, and wages were based on URVs, providing a stable framework in a time of extreme volatility (Glass et al., 2011).
The most intriguing aspect of the URV experiment was that it worked not because of the intrinsic value of the currency itself, but because people believed in it. It represented a shift from a tangible backing like gold to a purely conceptual and agreed-upon value. This transformation showcased the immense influence of public faith in shaping the stability of an economy.
P4. Bitcoin and the Digital Age of Currency
The evolution of Bitcoin, best written by Reeves, Jeff, is a completely digital, de-fi and decentralized currency, challenges traditional aspects of value. Bitcoin’s value is very speculative, and its creators openly acknowledge its absolute lack of intrinsic worth. This raises questions about the legitimacy of digital currencies and the perceived value of traditional currencies in an age of digital transactions (Reeves, 2015).
The emergence of the digital era has ushered in novel forms of currency, with Bitcoin standing out as a prominent example. Bitcoin, classified as a cryptocurrency, represents a digital manifestation of currency functioning within a decentralized system known as the blockchain. In stark contrast to conventional currencies, Bitcoin lacks a physical form and remains divorced from governmental endorsements or tangible assets.
What sets Bitcoin apart is the explicit admission by its creators that it possesses no inherent value. Its value remains profoundly speculative and characterized by significant volatility, as its exchange rates against traditional currencies exhibit drastic fluctuations. Instead of deriving its value from tangible assets or a central authority, Bitcoin’s worth hinges entirely on the intricate interplay of supply and demand dynamics.
While detractors emphasize Bitcoin’s propensity for volatility and its speculative nature, leading to concerns regarding its suitability as a store of value and investment, proponents argue fervently for its transformative potential within financial systems. They highlight the underlying blockchain technology as a harbinger of transparency and security. Bitcoin’s presence in the financial landscape actively challenges preconceived notions of what constitutes value in the digital age.
P5. The Ambiguity of Modern Money
Modern economies increasingly rely on digital money, with physical currency representing only numbers on a screen. The value of money varies depending on what it can purchase, with individuals and society collectively agreeing on its worth. This ambiguity highlights the malleable nature of money and its detachment from intrinsic value.
In contemporary society, physical currency has become less common, with digital transactions dominating economic activities. Money is often represented as numbers on computer screens, debit cards, and mobile payment apps. While these digital representations facilitate convenience, they also underscore the abstract nature of modern money.
The value of money in the digital age is defined by the goods and services it can acquire. In essence, money’s worth is subjective and depends on the collective agreement of individuals within a society.
Reference
1) Friedman, Milton. “The Island of Stone Money.”
2) Calmes, Jackie. “Demystifying the Fiscal Impasse That Is Vexing Washington.” The New York Times. (Publication Date, 15 Nov. 2012).
3) “423: The Invention of Money.” This American Life. (Broadcast Date, e.g., 7 Jan. 2011).
4) Joffe-Walt, Chana. “How Fake Money Saved Brazil.” NPR. (Publication, 4 Oct. 2010).
5) Reeves, Jeff. “Bitcoin Has No Place in Your – or Any – Portfolio.” MarketWatch. (Publication Date, 31 Jan. 2015).
Counterintuitive Fall 2024 
Thank you for requesting feedback, MaxxPayne. While revisions are not required for Stone Money, it is welcome and encouraged, and substantial revision can result in grade improvement.
Two observations before we get to your Argument.
1. You’re over the word limit by about 25%. This will give you a good opportunity to practice Omitting Needless Words.
2. You’ve numbered your sections. If you did that because you saw numbers in a classmate’s paper, you were misled. Those were MY NUMBERS. I sometimes number paragraphs myself to make tracking feedback easier for the student, but I don’t recommend it for authors. On the other hand, if you wanted to number your own work as an authorial choice, I’m fine with that, too.
Now, let’s examine your argument. I’ll make notes AS I READ your paper for the first time so you can track how an engaged reader reacts at every moment.
INTRODUCTION:
—You promise to “challenge the idea of [money’s] intrinsic value” and “question whether money truly has value or if it is merely a construct based on societal agreement,” which are not identical promises. Money can “truly have value” without having “intrinsic value.” In fact, your entire premise appears to be that it HAS VALUE without having INTRINSIC VALUE. Be careful how you phrase that essential difference.
SECOND INTRODUCTION:
—I find it disturbing that you appear to be summarizing the work of a classmate from an earlier semester as your example. I learned from your Purposeful Summaries that you consider this a good strategy, but I’d encourage you to find a better way to generate your own content.
—I disagree that children clearly value commodities over cash. In your example, they may prefer the convenience of the “candy in hand” over “candy they could buy in the future.” That doesn’t mean they’ve refused a dollar.
—I don’t think the example prompts us to question what you say it does, but even if it did, you’ve already repeated yourself almost verbatim in successive paragraphs:
——”we will question whether money truly has value or if it is merely a construct based on societal agreement.”
——”It prompts us to question whether money holds intrinsic value or if its worth is determined by the trust and agreement of a society.”
P1. The Yap Stone Money: An Unconventional Currency
—We don’t use parenthetical tags for our citations, Maxx. You’ve identified the author as Friedman (you should use his first AND last name the first time you reference him), so the tag is redundant. Either way, we DON’T USE THEM in this class.
—I agree that the “valuable stones” system resembles “modern economic systems” but not in the way you claim. Maybe the similarity is that our society uses trust and agreement to determine who has money and how much rather than how “the value of money” is determined.
—Your summary of the use of “rai” is nicely written and altogether useful, but since we’ve already heard most of the story in an earlier paragraph, readers will wonder why they’re hearing echoes.
P2. The Federal Reserve’s Gold Reserve and the Banking Crisis of 1933
—You make some lovely and cogent observations about France’s gold, but you mention Calmes as if your readers are familiar with the source, which WE ARE NOT. In fact, you cannot assume we know ANYTHING about your subject matter. It’s YOUR job to provide the background. You might need to quote Calmes (or closely paraphrase the article) if you want to use the source.
—You don’t even HINT how the transfer of gold triggered a loss of confidence in the US economy. (There’s a nice parallel in the Friedman paper: when the Germans painted fei with black crosses, the Yap felt impoverished.)
—Explaining that “losing gold” felt like “losing credibility” will ease the transition from the France story to the “gold standard” paragraph.
—Now I see you had something similar in mind, but you’ve tossed the elements into a blender. Weird. You sort of tell the same story twice (AGAIN) as you did above with the “fei that don’t move” anecdote. The elements for your Section 2 are all in the essay, but the sequence of the narrative are out of logical order.
P3. The Tenuous Nature of Currency: Brazil’s Experience
—Given the experiences I’ve had with your narrative flow, I’m going to read the entire Section 3 before I leave any comments.
—Again I have had the experience of hearing echoes. It’s not quite true, but to readers it SOUNDS AS IF you tell the same story every time in four successive paragraphs.
—I will say without hesitation that the writing is superior, Maxx. Your sentences are dense and rich with content and beautifully phrased. The terms you deploy are also perfectly apt. I hope that means you’re a remarkably skillful writer and NOT that you’ve been swiping phrases and details from your sources without attributing them to their authors. Your citation technique supports the second interpretation. I can’t tell, for example, whether the language of “four economists introduced a novel concept: the Unit of Real Value (URV)” and “the URV . . . existed as a unit of account, a reference point for pricing and wages” and “prices were denominated in URVs” and “a stable framework in a time of extreme volatility” is YOUR beautiful phrasing or Glass’s.
—The name Glass does not appear in your References. Is it Ira Glass, the NPR reporter? A blind reference like yours hear makes your citation suspicious, the last thing you want a reference to do.
—One more thing: was the cruzeiro a “gold standard” currency? If not, then the transition to the URV did NOT represent a transition FROM GOLD.
P4. Bitcoin and the Digital Age of Currency
—I know the pattern now. Your first paragraph under P4 will be a INTRODUCTION to the following paragraphs. We’ll hear the story again at least once.
—That happened.
—Again, the language use is very professional and impressive. However, I wonder if, since most contemporary currencies abandoned the gold standard a century ago, the actual innovation of Bitcoin is NOT its “inherent valuelessness” but its disattachment from any national government. Dollars have no intrinsic value either, but they’re backed by the US. Bitcoin is backed by . . . ?
P5. The Ambiguity of Modern Money
—I see no ambiguity in your first paragraph. There’s insubstantiality, but not ambiguity.
—Your second paragraph is a virtual paraphrase of your own first paragraph.
—Your final paragraph is fine, BUT simply repeats what you’ve told us repeatedly. Is there anything new to add? I have one idea.
—You might make the bold claim that money has ALWAYS been a collective agreement. BARTER is a pure commodity-to-commodity transaction (Kit-Kats for Nerds, no money needed), but as soon as coins were minted of gold, society had to COLLECTIVELY AGREE that the shiny yellow metal was valuable, a tangible store of value. Why? It might be useful to a chalice-maker, but to anyone else it’s still just a medium of exchange.
—In case I’ve camouflaged my admiration, let me repeat I’m very impressed overall with the quality of your work, Maxx. It’s a remarkably strong first draft. (Still shreddable, but even the confetti would be impressive.)
Graded. Revisions not required but encouraged. Regrades are available.
RESPONSES to feedback STRENUOUSLY encouraged.