What Can We Take Away From Money?

Everything we do is dictated by money. You could argue that it is one of the most influential things in human history. And on the surface, the concept of money is incredibly easy to understand. Money represents a certain value that a population tends to collectively agree on. When a transaction is made, the buyer will give the seller a certain amount of money in exchange for the product or service. This very simple basis of understanding however, is based on the idea that the money is a tangible object that changes hands. In reality, money is very rarely tangible, and this simple basis of understanding that we have of money begins to break down without the physical aspect of money. One of the most common vehicles for transactions today is the credit card, and a transaction that uses a credit card does not exchange physical money at all. Once that transaction is done, the only thing that changes are some numbers in the Bank’s systems that tell’s you how much you owe them. No money is physically moved. If money is this all important idea that controls how we live, how is it that we don’t even bother moving it around whenever its exchanged? Do we not view it as valuable enough to move?

Before trying to answer this, some additional context is needed on the concept of money. Jacob Goldstein and David Kestenbaum in, “The Island of Stone Money” give a unique insight into the Island of Yap, which uses large, wheel-shaped stones, called fei as currency. Despite the unique shape of this currency, the most interesting aspect of it is how it is used in transactions. The individual stones never actually change locations when a transaction occurs. It is just sort of known when ownership of these stones changes. Its not difficult to see the parallels between what happens on Yap and the current state of money in the US. Even a currency in its simplest state such as the fei doesn’t need to be moved for it’s value to be recognized. Perhaps this concept of money not needing to be moved is ingrained with the concept of money itself. If the value is not determined on it actually moving, then what is determining the value of money? The easy answer to this question is what the people agree the value is, but what goes into determining that?

As it turns out, we have less control on determining what the value of money is than we think we do. Or at the very least, we are susceptible to others tricking us into thinking money is worth something. Ira Glass explores this concept in, “The Invention of Money.” In the 1990s, Brazil’s out of control inflation was fixed by a new currency developed by 4 drinking buddies called the UMV. The UMV was not some magical currency that was so incredibly valuable that it was able to fix the inflation. In fact, the UMV was tied to the original Brazilian currency that was causing issues in the first place. What the UMV did was it gave a sense of stability to Brazilians that the previous currency never did. Goods like milk were to always cost a set number of UMVs, no matter how much they were in real. Because this currency was stable, Brazilians began to trust in it, which lowered the inflation. Because the UMV was tied to the unstable real, it never really had value, but because people trusted it, it gained value. What this tells us about money is that we really do decide the value of money. Sure, the people of Brazil were essentially tricked into making the UMV valuable, but this story proves that the people drive the value.

What we have learned to far is that money and its value exists in a non-physical realm. It doesn’t need to move to have value, and its value can be increased by the will of the people. So with both of these things in mind, do the people have the power to decrease the value of money? What if the people decided to all collectively stop paying for something?

Student loans are a huge source of debt in the United States with many Americans upwards of 10s of thousands of dollars. Let’s say that all people in America decided that the value of the money that they are spending on college is not worth paying, and all decide to not pay their loans? Charlie Sorrel entertains this idea in, “What Would Happen if 40 Million Americans Defaulted on Their Student Loans?” 1.2 trillion dollars was owed in student loans as of 2016, and if everyone decided to default on their loans, those 1.2 trillion dollars would simply disappear. Disappear to where? Well the government would most likely have to take most of the loss, but what’s key to focus on here is that this almost incomprehensibly massive number could be ignored and money would still exist and have value. 1.2 trillion dollars has so much value at face value, but that value diminishes if nobody who owes it believes that it has value.

From the Brazil example, we learned that believing in the value of money can increase its example. There may not be a better example of where we see this today than in crypto currencies. Miranda Marquit in, “What You Need to Know About Crypto Pump-And-Dump Scams,” talks about this tactic of getting people increasing the value of money in a more cynical way. The creators of the ‘Squid Game’ token pumped the value of their product, and then stopped other from selling so that they could make a fortune while leaving everyone else in the dust. This is very unfortunate to investors of the coin, but it tells us some things about money as a whole. Nothing about the token was inherently valuable, but because the creators pumped the value of the coin, other believed it was valuable, and decided to buy in. Nothing changed about the coin after the investors make their fortune, but once again, people agreed that the value of the coin had diminished.

So, what can we take away from all this. Yap tells us that money doesn’t need to move (or really even physically exist) for it to have value. Brazil tells us how the value of money is almost completely driven by those you are using money. The theoretical example of a mass student loan defaulting tells us that even the most valuable sums of money can be worthless if it agreed that they are worthless. The crypto scam example tells us how the value of money is extremely fluid. The answer we can arrive at is that money is both extremely valuable and has no value at all. This may seem like a boring and obvious conclusion to land at, but what else are we supposed to make up a non-tangible, all powerful force that dictates the way we live our entire lives?

Refrences

“The Invention of Money.” This American Life, 7 Jan. 2011, https://www.thisamericanlife.org/423/the-invention-of-money.

“What You Need to Know About Crypto Pump-and-Dump Scams.” All About Cookies, 2 June 2023, https://allaboutcookies.org/crypto-pump-and-dump-scams.

“The Island Of Stone Money.” Morning Edition, directed by Jacob Goldstein and David Kestenbaum, NPR, 10 Dec. 2010. NPR, https://www.npr.org/sections/money/2011/02/15/131934618/the-island-of-stone-money.

Sorrel, Charlie. What Would Happen If 40 Million Americans Defaulted on Their Student L, http://www.fastcompany.com/3060400/what-would-happen-if-40-million-americans-defaulted-on-their-student-lo. Accessed 25 Sept. 2023.