Counterintuitive Fall 2024

Unearthing the Enigma of Stone Money

Imagine a form of currency so colossal that it defies conventional wisdom, and to make it even more intriguing, it resides beneath the ocean’s surface! The Yapese people of Yap Island, which is tucked away in the vast Pacific Ocean, specifically use this type of money. It may seem confusing at first, but as we go more into the realm of finance, we start to question the way we think about money, wealth, and the complex trust we have in it. In just two days, our comprehension of these fundamental concepts can undergo a tectonic shift, thanks to the captivating narratives presented by NPR’s Planet Money team and an enlightening article penned by the venerable Milton Friedman. The Yapese employ colossal limestone disks known as Rai stones as their mode of currency. Some of these stones are so massive that moving them becomes an endeavor of epic proportions. Yet, their immobility doesn’t diminish their value; instead, it enhances their mystique and serves as an intriguing microcosm within the world of finance.

In our initial foray into Yap’s stone money, the first NPR podcast segment unravels the secrets concealed within these colossal disks. Remarkably, these stones remain undisturbed, resting at the ocean’s depths, shattering our conventional notion of currency, which we usually envision as a readily transferable medium. Instead of physically relocating these stones, the Yapese rely upon a shared belief system within their community to determine ownership and evaluate their worth. This unconventional approach compels us to reevaluate the very essence of currency itself. As one Yapese local aptly puts it in the NPR podcast, “It’s not about moving stones. It’s about who owns them. We all know who owns which stone, and that’s what matters.” In the second podcast, our journey transports us to Brazil, where the Brazilian real embarked on a tumultuous odyssey. Hyperinflation wreaked havoc on paper currency, causing its value to plummet rapidly and breeding widespread distrust. This narrative underscores the paramount importance of trust in safeguarding a currency’s stability. The Yapese’s stone money narrative illustrates that trust need not be vested solely in a centralized system; it can manifest through collective consciousness within the community. As reflected in the words of a Brazilian economist interviewed in the podcast, “When people lose faith in money, the whole system falls apart.”

Milton Friedman, a luminary economist, provides a scholarly perspective on Yap’s stone money in his article, “The Island of Stone Money.” He underscores that the value of these stones isn’t rooted in their physical attributes but rather in the communal trust and consensus shared among the Yapese. It’s as though the Yapese are participating in an elaborate game of make-believe, in which everyone universally acknowledges the value of these immobile, submerged treasures. Friedman himself encapsulates this notion eloquently in his article, stating, “These stones became money because people decided to use them as money. Their peculiar history made them easy to accept in that role.”

In a mere two days, our understanding of money, wealth, and the faith we invest in unseen assets has undergone a profound transformation. Money, at its core, emerges as an abstract concept. Stone money imparts the revelation that it need not assume tangible form or occupy physical space; it thrives upon a shared belief system. Traditionally, wealth enjoys an association with the amassment of tangible assets. Yet, Yap’s stone money challenges this notion. The Yapese accumulate wealth in the form of immovable, submerged stones, inviting us to contemplate whether wealth transcends mere material possessions. The Yapese invest their trust in the existence and ownership of stone money, despite the concealment of these colossal treasures beneath the ocean’s surface. This concept readily extends to modern fiat currencies, in which our faith in governments and institutions sustains their value, despite the elusive nature of the physical assets backing them.

Some examples that can help further the understanding of stone money are these books and articles. The article “The Nature of Money” by Geoffrey Ingham”. Ingham’s treatise delves into the abstract nature of money and its formation within societal structures. This source corroborates our understanding that money is fundamentally a social construct. The next article “Fiat Money in the 21st Century” by Benn Steil”. Steil’s book furnishes insights into the history and significance of fiat money in the contemporary world. It amplifies our appreciation for the pivotal role of trust and belief in the seamless operation of our financial systems. And last of all the article “Money: A Cultural History” by Robert J. Shiller”. Shiller’s work delves into the cultural facets of money and its evolution through history. It further enriches our exploration by shedding light on the societal dimensions of currency, deepening our understanding of the profound role money plays in shaping cultures.

In conclusion, Yap’s Stone Money, brought to life through NPR’s storytelling and examined by the renowned economist Milton Friedman, offers us a fresh perspective on money and wealth. It challenges our traditional views and prompts us to reconsider the essence of these fundamental concepts. It’s as if we’ve taken a journey into a different dimension of finance where money isn’t just paper or metal coins but massive rocks resting beneath the ocean’s surface. This remarkable expedition, further enriched by insights from supplementary sources, underscores that Yap’s stone money is far from being a mere relic of the past. Instead, it acts as an intriguing prism that allows us to examine the intricate dynamics of our global economy. Yap’s stone money challenges the idea that money must be something you can hold in your hand, use, or store in a bank. It demonstrates that money may also be an abstract idea or a shared conviction that unites a community. It resembles a secret language that only Yap natives can decipher.

In conclusion, This odd form of money makes us reevaluate the notions of worth and riches that we previously held. Imagine the discussions that take place in Yap when someone wants to use their stone currency to purchase a large item. They just inform everyone in the neighborhood that ownership has changed without moving the rocks. It’s similar to telling all your buddies by text message that you’ve paid for something. This emphasizes how crucial trust is to making money work, as well as the strength of shared values.

In conclusion, Therefore, let’s not write off Yap’s stone currency as an odd historical artifact. It serves as a living example of the notion that money is more than simply a material thing; it is a sign of community strength, shared ideals, and trust. Yap’s stone money serves as a reminder to have an open mind as we traverse the constantly evolving financial landscape and take into account many viewpoints on wealth and the function of trust in our economic systems. We understand and use money in very different ways than the Yapese do, and that’s what makes the financial world so endlessly intriguing.

Needs References

From Stones to Dollars

In a world where transactions govern our daily lives, money stands as a cornerstone upon which our modern economies are built. From barter systems to the financial instruments of the 21st century, the evolution of money has mirrored the development of human civilization. Money’s influence on human behavior, decision-making, and the distribution of power can’t be overstated. Money has evolved over centuries, transforming from a simple medium of exchange to complex digital forms of currency like ‘cryptocurrency’. Money has become one of the most important things in today’s society. People are willing to commit sacrifices, and spend most of their time to make ‘money’. When I was younger, my father would work the whole day, just to earn a living for us. But don’t you ever just stop and ponder how this whole economy started in the first place? Do you ever just wonder how the concept of money came up? How it gained it’s value? And how it’s made? 

It all started one hundred years ago on the island of Yap, located in the western Pacific Ocean. There was no such thing as gold and silver, but large coins made of stones, as big as cars. These were large circular limestone discs with diameters ranging from a few centimeters to several meters. These discs, known as “rai stones” are not physically moved during transactions because of their size. You would use it for something big, stone money they might trade. Instead, ownership is transferred through an agreement, with the recognition that there is a change in ownership of the “rai stone”. One significant difference between the Yapese concept of money and our own is the absence of physical possession or transportation of the currency. They said in the podcast that while delivering the limestones across the ocean, there was an instance where it dropped. But even though it dropped down to the ocean floor, the ownership is still acknowledged and the value is still there. That made me realize that money is simply just printed paper that we value so much. That money simply never existed, and how it’s just fiction. The Yapese people realized that they could use these stones as a monetary system and create their own medium of exchange. Instead of relying on barter, where goods are directly exchanged, the “rai stones” provide a common unit of value that is widely accepted. Even in today’s society, we still use this concept with our dollars. While the Yapese concept of money may appear different from our own, both systems serve as mediums of exchange, stores of value, and units of account within their respective contexts. 

In the 1950s, Brazil faced a severe economic crisis because of hyperinflation. What happened was the president wanted to build a massive city in the middle of the jungle which would cost a lot of money. The government didn’t have the funds to support this project, therefore they did what any other government would do in this situation. Print more money. This then led to hyperinflation for the next five decades. According to Chana Joffe-Walt, “Brazilian money was worth less and less. Say you get a one thousand dollar bonus from work. You put that money in a drawer. A year later it’s worth a fraction of what it was” (Walt, 2011). That is crazy to believe. The country experienced skyrocketing prices, economic instability, and a loss of confidence in the national currency. In the face of this crisis, a couple of presidents tried but failed. The first president tried a price freeze, but that failed because no one would sell anything. There was no use to sell anything because there was no profit. The second president tried confiscating money, but that didn’t go well. It was so bad that it led to multiple cases of suicide across Brazil.

When you mess with people’s money, you lose their trust. Which can eventually lead to riots, etc. The economy and the country were at a low. That’s when four heroes were hired by the new Brazilian president to solve the whole hyperinflation problem for good. They came up with this brilliant idea of a ‘virtual economy’. These four heroes didn’t want to change the underlying causes of inflation. They wanted to change the people themselves. According to Chana Joffe-Walt, “People had to be tricked into thinking money had value, when all signs told them that was not absolutely true” (Walt, 2011). They made a virtual currency, one that was stable, dependent, and trustworthy for the people. In this economy, prices wouldn’t change at all, what would change is the currency over time. They used URVs (unit of real value). This is when four men tricked a whole country into using a fake virtual currency that doesn’t exist. It was called ‘Real Plan’. This changed the economy in Brazil forever and made Brazil one of the most successful economies (8th in the world). 

The Federal Reserve System, commonly referred to as the Fed, plays a crucial role in the U.S. economy. While some aspects of the Fed’s actions and policies can be seen as complex or daunting, it is important to note that its primary mandate is to promote economic stability and financial well-being. The Fed has the power and responsibility to print money out of nothing whenever it wants. This is why it is dangerous being the chairman as you have to balance making money. If you print too much, you might get more businesses to start up and have more opportunities. But at the same time, look what happened to Brazil with hyperinflation. According to Alex Blumberg, “remember the mortgaged back security program? One and a quarter trillion dollars. That number was essentially pulled out of thin air. And yet, once the Fed officials in charge of purchasing those securities were given the number–” (Blumberg, 2011). Whether you liked it or not, that was the system. Empower a secret society of PhD with the ability to create trillions of dollars out of nothing and hope we can trust them to get it right and stay as boring and human as possible. 

In conclusion, the currency has evolved throughout the years and had the most interesting changes. From limestones to virtual currency, etc. But the concept of money will never change. It will always be accepted as the medium of exchange to facilitate transactions, store value in goods, and serve as a unit of account in an economy. Money can also take various forms including physical and digital forms like banknotes, electronic transfers, and cryptocurrencies. Money doesn’t actually exist, it could be a piece of paper or digits in someone bank account. Like currently people are buying NFTs of pictures and selling virtual item skins. If you were to tell someone 50 years ago, that a Sniper from Counter-Strike is worth 10,000 $ they would say you are full of shit. I am both scared and excited about what the future has in store when it comes to the evolution of the economy. 

References

423: The invention of money. This American Life. (2017, December 14). https://www.thisamericanlife.org/423/transcript

Bowen, T. (2020, October 1). 10 video game currencies and their real world values. Game Rant. https://gamerant.com/video-game-currency-real-world-value/#zeni-monster-hunter—1-105

Goldstein, J. (2014, February 28). The invention of “The economy.” NPR. https://www.npr.org/sections/money/2014/02/28/283477546/the-invention-of-the-economy

Goldstein, J., & Kestenbaum, D. (2010, December 10). The island of Stone Money. NPR. https://www.npr.org/sections/money/2011/02/15/131934618/the-island-of-stone-money

WordPress.com. (n.d.). https://counterintuitive2015.files.wordpress.com/2015/01/stonemoneyessay.pdf 

The Value of Money:
Applicable in Purpose or Unequivocally Meaningless?

When I think of money, many things come to mind. Money is life sustaining. Money also provides a fortress for the inner workings of economies and is often, if not always the cause of economic growth and collapse. But how strong is the fortress that is money? How real is the money that goes in and out of our bank accounts today? From Yap using coins as large as cars called stone money, to the Brazilian Real that sought to stabilize Brazil’s economy, to the use, abuse, and conspiracies that spiral around the ever changing United States economy, I will be delving into the concept that is the legitimacy of money and the subjectiveness around what allows money to possess any type of intrinsic value.      

Beginning by discussing Yap and their stone money, I had many questions at first, such as, what is it that made these limestone carved discs so valuable? According to The Island of Stone Money podcast, Yap did not have any gold or silver so in a way there was nothing “backing” these stone discs giving them any type of “real” value. However, what gives something value is typically always subjective. If the whole island of Yap believed that these stone discs possessed the utmost value, what is there to argue that they do not? Now, given the fact that these discs didn’t move around much because of their massive size and their ownership was just transferred using an oral ledger, many people brought up in modern day America or any other modern Capitalistic country may argue the legitimacy of this system. Why? Because an oral ledger is not trustworthy. Maybe for a small island where everyone knows everyone, but for densely populated places, orally transferred fiscal systems can lead to many problems very fast. According to The Tale of Stone Money (And How It Resembles Bitcoin) article, “Assets with a higher stock-to-flow ratio are gold and Bitcoin because you can’t just produce more gold or Bitcoin (or Rai stones). They are limited, difficult to produce, or mine, and as a result, they retain value in the long-term.” Because in Yapese society, the Rai stones were not easy to come by; this is what gave them intrinsic value. Like I said previously, there may not have been any type of valuable organic materials/resources such as gold, silver, or precious stones to give these stones any “backup” but the rarity of the material itself set them apart from any other tangible asset of the land to be considered money. The same principle can be applied to bitcoin as well. 

Another interesting factor of the Rai stones is how when the German government painted black crosses on them, the island of Yap went into an almost crisis-like state and the Rai lost almost all of its value. If I were to draw a black “X” on a one hundred dollar bill, the chances are I can still take that bill to the store and use it. So why is it that the Rai lost so much value when the Germans defaced them with paint? I personally believe that this is because the Rai itself was the raw material that held value. American currency today is made out of paper, a natural resource that we have ample supply of. As we know, the United States no longer backs its currency with gold so does our dollar mean anything at all? From what I’ve gathered through my research, the answer is a mix of yes and no. Since 1971, the United States currency has been backed by the faith and credit of the American government. Not any type of tangible material whatsoever. When looking at the issue through this lens, of course logistically speaking the United States dollar means nothing. However, for the sake of upholding the economy and not plummeting the country into absolute chaos, Americans have come to adapt to the ideology of their money being only a number on a screen, or a piece of paper with no valuable tangible assets backing it up.

Another form of currency that is similar to this is the Brazilian Real. The podcast How Fake Money Saved Brazil by Planet Money states that “You have to slow down the creation of money, they explained. But, just as important, you have to stabilize people’s faith in money itself.  People have to be tricked into thinking money will hold its value.” I believe that this is the case for many governments, to trick their people into believing that their whole entire financial system is “real” when in reality, it has always been a ruse. The Real specifically was a virtual currency, in a way that is worse than just paper bills or coins made from worthless metals. A thought I had was, say there was no electricity or data or anything that makes the Real appear to be legit. Would everyone lose their money and plummet the economy into a financial disaster? That speculation in itself would be enough for me to say that the Real genuinely means nothing.

The Friedman essay spoke of how when the United States “gave” France gold, it was a threat to the financial stability of the United States economy, and essentially this was a catalyst that launched the United States into the Great Depression. I had many thoughts about this and how it doesn’t seem logical at all. Technically, the gold was in the possession of the United States, so how can it be that just because it is now deemed France’s gold (even though it resides in the United States), it catapulted the United States into one of the most catastrophic financial lows in history. Upon having some reflective thoughts about this topic, I extrapolated that the act of “giving” France gold was all in the name of diplomacy between the French and American governments. Much like the oral transferal of Rai stones, this so-called “transferal” of gold from the United States to France, is the same. 

Overall I would say that the value of money is lost in today’s economies around the world. As we as a society delve deeper into a more digital world every single day, we lose touch of what it means to have tangible assets and of things that will always hold value. Logistically, digital currency is, like I said previously, numbers on a screen. Sure it holds the power to make you one of the richest people in the world but I genuinely don’t think there is enough stability in any type of currency not backed by valuable assets like gold or silver. Therefore, the money we possess today, as oxymoronic as it may sound, can be looked at as unequivocally meaningless.

References

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

Valentin Komarovskiy, MBA. “Could the Dollar Be Backed by Gold Today?” LinkedIn.

Media, Adam. “The Tale of Stone Money (and How It Resembles Bitcoin).” Medium, The Capital Platform, 30 Apr. 2021, https://medium.com/the-capital/the-tale-of-stone-money-and-how-it-resembles-bitcoin-66526f37e97 

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

Friedman, Milton. (1991). “The Island of Stone Money” (WordPress.com)

A better citation to Friedman’s dissertation material would include a practical link:
https://archive.org/details/IslandOfStoneMoney

Also, I hid the exceedingly long url for Komarovskiy’s article by linking it to the site. Want to learn how to do that?

Needs a Title

PeterGriffin, this post was hard to find because you left it out of the Stone Money category. You did TAG it, but we don’t use tags, so it didn’t show up in searches. I didn’t want to grade you 00/100, but it was a narrow escape. You’re in the Stone Money category now.

What is money to you? How is money important in your life, and in a society? Money is defined as “assets, property, and resources owned by someone or something; exchanging commonwealth”. Money is very important to anybody throughout the world because money is what determines your social status in life. With having more money you can live comfortably in a society compared to somebody that may have a lot less amount of money that you have. 

There is a tiny island in the middle of the Pacific Ocean that people love to study. This island is called Yap. Yap is owned by Micronesia and the island of Yap is broken up into four separate parts of the island. Hundred of years ago, the island of Yap is still famous because of how the people that lived on this island exchanged currency. The people of this island exchanged currency through stone. In the history of money this was the first “currency” to be recorded for people to exchange wealth. 

Hundred of years ago when European explorers arrived on the island of Yap, they noticed large stones all over the island. These stones were in weird places like in front of peoples homes, and or just randomly placed around the island. These stones were used as “money” for the island’s natives. The stones were as large as cars and they looked like discs. Since the stones were so large in size people didn’t exchange these stones by hand; however, they exchanged these stones by word of mouth. For instance, a owner of a stone would pass ownership to somebody else by just basically saying it is now the new persons to own. The stones were made out of limestone. 

The people of Yap would transfer these large stones across the ocean into the waters of their island by their bamboo boats. I believe that this is pretty amazing on how they were able to transfer these large pieces of stones on not so sturdy bamboo boats. Just to think that they were going against mother nature because of the waves along the coast of their island, with large weight on their bamboo boats is pretty astonishing. Just one wave could have made the boat turn wrongly and the weight of the stone could have sunk the boat. Stone money wasn’t used for everyday purchases. Purchases that the stone was made for were for crops, and places to live (shelter). In today’s world on the island of Yap, the villagers that live on this island consider these stones to still be important due to having history behind them but they don’t use these giant pieces of stones as currency anymore, they use actual paper currency like we do here in the United States. 

Brazil went through an issue with their economy not so long ago. Here in the United States we are used to the paying methods of “building up your credit” which means using credit cards. Credit cards are basically plastic cards that you purchase materials with, and pay back the bank that you borrowed money from to make that purchase. Credit cards are “fictional money”. The use of credit cards in Brazil is a new system that their economy is getting used to. Brazil back in the year of 1990, the country was facing 80 % inflation a month. Brazil started having an issue with their economy back in the 1950’s when they wanted to build a city in the middle of the jungle but didn’t have enough funds to support building the city. Because the government didn’t have enough funds to be able to afford this project, Brazil started to print money which leads to higher inflation rates which is terrible for housing markets, and credit cards. Four people saved Brazilians economy by realizing that the government needs to stop printing so much money so money that people have holds its value. 

In the past couple of days learning about different countries and or territories currency has opened my mind about money. I believe that it was very interesting to learn about the “fai” which is what the natives of the island of Yap considered to be their currency. I thought it was very interesting to learn that not only was their currency not actual paper money but it was pieces from the earth that those people could not even exchange by hand but rather by a word of mouth on who owns that “currency”. Learning about the problems that Brazil went through as a nation opened my eyes to what we are going through in America today. Inflation in America is at a very high rate which is frightening because I don’t want our economy to go through something similar to what Brazil’s economy has gone through. I believe that many people think it’s okay for governments to just be able to print money and nothing troubling can take place from it, but unfortunately that isn’t true.

When governments print money inflation rises which then decreases the value of what your money “holds”. America is going through inflation today which makes our money less fluid then what it used to be because of how much money our government has printed due to the Covid 19 pandemic and because we are funding Ukraine tons of money. I believe that money is very important in order for a society to be able to run correctly. Over the years currency has changed in history. Our money is different from the Yaps because we use actual paper currency that has different values depending on which bill your trading someone for. We also can exchange our currency “money” by hand which the Yaps could not do due to their currency being heavy rocks. This unit has taught me alot more on how to be smarter with my money and the history behind money from different parts around the world. 

References 

Friedman, Milton. (1991). “The Island of Stone Money” (WordPress.com)

Planet Money. (2011, Jan 11). 423: The Invention of Money. This American Life. The Invention of Money – This American Life. Accessed 11 Se. 2023.

Joffe-Walt, Chana. “How Fake Money Saved Brazil.” NPR. NPR, 4 Oct. 2010. 

Money is something majority think about on a day to day basis, but is money truly the route to happiness? Many people work hard and base all their goals to lead to one thing, being rich and having money of course. All your stress and hard work to make money to buy the things you want and need is how most people live their lives. Some say money can buy you happiness and give you the life you always wished for, but does it really lead to happiness. People put all their focus on money and this leads them to be stressed and depressed and just overall tired as at the end of they day they may not be a so called millionaire. IS it really worth chasing this goal to be wealthy in return for happiness and relief and does it really have any value at all? People can be broke and have no money at all but be much more happy than the millionaire who has multiple cars and homes. A good family and a group of friends can possibly be all you need for some fun and joy in your life, even a pet can bring you more joy than a new BMW you just purchased the other week. Sure your happy at first when you buy that car but eventually you get bored and move on with things, no longer getting that same excitement from it. I have slowly began realizing that money no longer has the same value to me as it used to and maybe taking that job that you like more but doesn’t pay as well is the correct choice for me as I believe money is valued differently by everyone around the world. Id much rather chose doing something I enjoy and being around people I love than earning more money but constantly dreading going to work each day. Many people value many things just like how we used to value money differently then we do now.

Money is viewed differently by many, for example back then the Yap used limestone as a form of currency and would trade it for different items or services between each other. In Milton Friedman’s article “Island of Stone Money” he explains that although they didn’t have many metals, instead they had beautiful limestones in which they called “fei”. Friedman says that “Their medium of exchange they call fei, and it consists of large, solid, thick, stone wheels, ranging in diameter from a foot to twelve feet, having in the centre a hole varying in size with the diameter of the stone, wherein a pole may be inserted sufficiently large and strong to bear the weight and facility transportation”. The interesting part about using these huge stones as a currency is the fact that when the stones were too big to transport, they would instead just bare the acknowledgement of who the new owner is and the stone would remain at the former owners premises. This seems so crazy to me as if someone tried that in todays society people would think they are crazy. It’s like trying to go to a store and purchase an item and when the cashier asks for the money you say you have it but it’s at your home.

In todays society we use paper bills, checks, coins, and banks to exchange money and value. As the world slowly moves on it seems that we are also starting to change our ways of currency too as crypto or cryptocurrency is starting to be a new way of paying instead of cash and coins. We use cards and other contactless ways of paying now more than ever and with money not having to be physically in hand its even used to buy things in video games to help level up a player. Older video games made you have to earn your money in game by completing missions or side quests to buy gear and other items to help you out. Now video games instead offer a so called shortcut by allowing you spend your hard earned cash to buy in game currency. Josh Coulson speaks about this in game currency in his article about Smash Bros. Ultimate and how your already paying sixty dollars for the game and now these coin bundles that you can purchase with real money for a bit of a head start if your too lazy to earn the coins yourself in game. Although adults would say this is stupid and question why anyone would purchase these in game coins with real money don’t realize many of the kids playing the game get roped into buying the coins to purchase a cool skin or item in the game that you can’t usually obtain.

Money is looked at and valued differently but it always has the same purpose and plays a huge part in our world today. The Yap and their stones is no different then Americans and their dollars both can get you what you want and need. Money may change its shape and size but its worth and value in todays society will ever change whether your paying with coins or with crypto it still has a value to people and power to buy what you want with the right amount.

References:

Friedman, Milton. (1991). “The Island of Stone Money” (WordPress.com)

Coulson, Josh. (2019). “Smash Bros. Ultimate Lets you Spend Money on in game Currency” https://www.thegamer.com/super-smash-bros-ultimate-money-ingame-currency/

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.

I find it crazy how our views about money change throughout our lives. When we were five, we thought that one dollar was enough to get us everything we have ever wanted. When we were fifteen, we thought we were rich if we had one hundred dollars. And don’t get me started on our birthdays or other holidays, we felt like we won the lottery. This however, is only a matter of perspective. When we were younger, we didn’t understand the monetary system. We didn’t understand how one dollar could turn into fifty cents after purchasing a piece of candy. We didn’t understand why we had to give other people our money in order to obtain the things we wanted. Once we were older, we learned how there are different currencies throughout the world. We learned that a peso and a dollar are different amounts and so on. I know that my financial exchange views have drastically changed since learning about the island of Yap.

In The Island of Stone Money by Milton Friendman, we learned that the “fei” is what the people of Yap used as currency. This is a stone made out of limestone that can range from one to twelve feet. The larger the stone was, the more valuable it was. The difference between this and our money today, is that when exchanging the fei from person to person, no physical exchange was made. Instead, you would verbally tell someone that the fei was now theirs. They were too large and heavy to actually move from place to place. Milton also wrote how there was a fei under the sea, but that never made it less valuable. I think this is so much different from us Americans, because we might not always trust other people, or the bank, and so on. Just verbally saying “here this money is now yours” is not enough for us. We need to see it with our own eyes to believe it. We might be viewed as crazy by the people of Yap. They would wonder how we have so much money that we don’t even see. Think about it. How does the United States of America have so much online money? This makes you think about how government officials know how much money the whole country has. They don’t. There’s no way that they do and this is because the online banking system passes money from person to person without that physical feature to it. I could have thirty thousand in my savings account but it wouldn’t be usable, therefore that money would go to someone else for loans, etc, until i took it out. It doesn’t make sense. 

Let’s look at cryptocurrency as an example. Cryptocurrency are virtual coins exchanged from person to person ONLINE through a virtual wallet. Transactions with cryptocurrency are recorded publicially on what they call a blockchain. This stops the money from being duplicated or stolen, etc. Bitcoin is a very well known example of crypto. But my question stays the same. How do we know how much money the world has? Bitcoin started becoming something people invest on and just like the fei from the island of Yap, the older it is and the more amount you have, makes it more valuable. Bitcoin on the other hand, has been used to invest. You could have purchased 5,050 bitcoins in 2009 for only five dollars and two cents. Each singular bitcoin being 0.0009 cents. Today, one singular bitcoin costs 26,501 dollars. So from 2009 to 2023, Bitcoin was raised about 26,500 dollars. How did that happen?

Let’s rewind time a little bit more. In 1933,  Americans were told that we had less than a month to hand over all of our gold coins, bullion and gold certificates or we were to face up to ten years in prison or a fine of 10,000 dollars. Or both. This is similar to when the Germans went to the Island of Yap and painted black crosses on their fei. Even if you own a piece of money, there are still higher authorities who own it or, people who think they have the right to it. This is what sent the country through a fiscal cliff and into the 1933 banking crisis. A fiscal cliff is when a particular set of financial factors threatens economic decline. In 1933, thousands of banks throughout the nation failed and millions of Americans lost all of their money. The federal and commercial banks were fearing the potential drain of the US gold stock. During this time, a lot of banks were unable to secure loans from the RFC and started tapping in on the gold reserves. With the slow drain of gold, the Fed raised discount rates which led interest rates to rise across the board. 

This is kind of what happened in Brazil. All online monetary systems are new in Brazil. In 1990, inflation in Brazil was 80 percent a month. With the inflation, and the new online banking system, next month, something could be double the price as it was this month. Brazil was in desperate need to change this. A lot of changes were put into place but none of it worked until four economists were asked for help. They didn’t want to change the cause of inflation, they wanted to change people themselves. To them, people were the problem and had to be tricked into thinking money had value. One of the economists had a plan to use virtual currency. So if they money in our pocket doesn’t have value, how does this virtual currency have value? 

The only answer to this, is that money has no intrinsic value. We can believe that a large stone has value, we can believe that a coin online has value, but in all reality, none of it does. I could send someone 20 dollars through cash app and they would receive it, but does that money even exist? No it doesn’t.

References:

Ashmore, D. (2023, July 5). Bitcoin price history 2009 to 2022. Forbes. https://www.forbes.com/advisor/investing/cryptocurrency/bitcoin-price-history/#:~:text=Bitcoin%20was%20originally%20worth%20next,exchange%20took%20place%20on%20PayPal.

Council on Foreign Relations. (n.d.). Cryptocurrencies, digital dollars, and the future of money. Council on Foreign Relations. https://www.cfr.org/backgrounder/cryptocurrencies-digital-dollars-and-future-money

Engemann, K. M. (n.d.). Banking panics of 1931-33. Federal Reserve History. https://www.federalreservehistory.org/essays/banking-panics-1931-33

Reed, L. W. (2023, April 4). FDR’s other “Day of infamy”: When the US government seized all citizens’ gold: Lawrence W. Reed. FEE Freeman Article. https://fee.org/articles/fdr-s-other-day-of-infamy-when-the-us-government-seized-all-citizens-gold/#:~:text=Suddenly%20on%20April%205%2C%201933,fine%20of%20%2410%2C000%2C%20or%20both.

The invention of money. This American Life. (2018, February 19). https://www.thisamericanlife.org/423/the-invention-of-money

The Psychology of Money

Money is something that has been present in societies for a long time. Belief is an integral part of what makes money valuable. The belief that what we exchange for goods and services is valuable comes from the sense of security it affords. For centuries, civilizations used precious metals like silver and gold as currency. Nothing about these metals was intrinsically valuable, they were simply assigned value based on their looks and the effort needed to obtain them. Today we have many similar things the US dollar, in-game currency, and the Fei of Yap. Money is an essential part of human nature, the psychological effects it has on us are numerous and every person to some extent is affected by Money. 

The Fei hold value to the people of Yap because of their lack of precious resources that other civilizations would use for money. According to “The Island of Stone Money” by Milton Friedman (1991), it is brought up in the document that because the Fei are as large as they are, the islanders of Yap would strike up bargains to agree that a specific fei now belonged to whoever made the deal and the fei would stay in one place (Friedman, 1991, 2). This type of bargaining and agreement is similar to how modern banking systems operate. The belief of the islanders in the monetary system was so strong that when the German Empire, who took ownership of their island in the late 19th century, laid claim on all the fei around the ill-repaired roads. The islanders gave in to the demands to repair the ill-begotten roadways almost immediately. While the monetary system of Yap might at first seem strange it is certainly in line with what almost every modern nation and banking.  

For decades, Brazil’s economy was in a bind, its inflation rate was at such an exuberant amount that citizens had legitimate fears of all their money becoming worthless. This topic is the focus of “423: The Invention of Money” a podcast headed by the team Planet Money (2011) and specifically Act One “The Lie that Saved Brazil” by Chana Joffe-Walt. The inflation rate of Brazil in the early 1990s was at on point 80% per month. The people of Brazil had been living under economic conditions like this for decades, living with the consequences of the economic downfall of the Brazilian government (Planet Money, 2011, 12:16). The URV was the eventual fix to Brazil’s problem and it was a masterwork of smoke and mirrors. The URV, unit of real value, was the work of four Brazilian economists with two of them Andre Lara and Edmar Basha being interviewed for the podcast “423: The Invention of Money”. The plan these men came up with was to implement a new value system for banking, the URV, and to conduct business on their terms as well. The populace would still use the original currency, the Cruzeiro Real, and that would then be compared to the value of the URV. This means that while the Average Joe of Brazil would be receiving URV as payment and using them for taxes and such, the cruzeiro would still hold value as a daily conversion would be published  (Planet Money, 2011, 23:00-24:35). That was how Brazil planned and succeeded in stopping hyperinflation through the obfuscation of the cruzeiro and the temporary patch of the URV until the people of Brazil learned to accept the staying power of their money. The situation in Brazil is similar to what would later happen in the USA in 2008. During the housing crash, the Federal Reserve started to accept many things it would never have prior such as cheap plastic earrings (Planet Money, 2011, 40:30-40:35).

In-game currency in a way is similar to the URV of Brazil. They both are virtual currencies used in lieu of straight and standard purchases. They aim to disguise and hide how much one is really spending by confusing the customer by throwing them off balance with an unfamiliar monetary system. In “The Perils of In-Game Currency” by journalist, Jamie Madigan (2019) the psychological aspects of using a foreign currency are discussed at length on how people will use it in comparison with the money of their homeland. Psychologically money is an important thing to people all around the world and one way to dissociate someone from their value system is brought into play by Madigan, “You can, for example, disconnect the act of paying from the act of receiving in the mind of the shopper and make them willing to spend more” (Madigan, 2019). A silly little in-game currency is exactly what this is and many developers and publishers today are prioritizing these sales. It is an excellent sales tactic, but terrible for the consumer. This idea is prominent in the article “Smash Bros. Ultimate Lets You Spend Money on In-Game Currency” by video game journalist, Josh Coulson. The industry-wide standard of microtransactions plays into the attempt at taking away the conscious value we have of our money, another problem is that many of these games are also played by children who have potentially not developed our society’s importance of money. This idea of microtransactions is also grinding the gears of many people because some of these games can cost $60-$70 brand new which is the industry standard (Coulson, 2019). Young children often are loured into these transactions for appearance-altering items and characters which are often thinly veiled slot machines. 

Money is an important process in the modern world, while money cannot be grown on trees it often feels like it does with how products and expenditures are pushed upon us. The psychological nature of how people view money often reflects in what and how they spend their money. Whether that be through the faith-based system of Yap which takes on the appearance of some sort of proto-bank or even the URV of Brazil in their attempt to curb the hyperinflating tendencies of the populace.  

References

Coulson, Josh. (2019, Nov 8). Smash Bros. Ultimate Lets You Spend Money on In-Game 

Currency, Smash Bros. Ultimate Lets You Spend Money For In-Game Currency 

(thegamer.com). Accessed 21 Sep. 2023.

Friedman, Milton. (1991). The Island of Stone Money, stonemoneyessay.pdf (wordpress.com). Accessed 11 Sep. 2023.

Madigan, Jamie. (2019, Dec 19). The Perils of In-Game Currency. Forbes. The Perils of In-Game Currency (forbes.com). Accessed 20 Sep. 2023.

Planet Money. (2011, Jan 11). 423: The Invention of Money. This American Life. The Invention of Money – This American Life. Accessed 11 Se. 2023.

Minds and Money

Money is one of the things we are taught from a young age to value, along with possessions as well. Kids trade snacks at lunchtime, the same way trading goods was common before any currency was established, this was all to satisfy humans quid pro quo mentality. Money in our society is seen as a key, a key to gain almost whatever you want materialistically. We have been plagued by the question as a society wondering if money really buys happiness? Money and its value might be a great resolution, but it is also a great cause of many of the problems people face everyday. But how does paper in a notebook hold such less value than the paper we use for dollar bills? Money and currency of any kind is only considered to uphold any worth because of how a civilization holds values and depends on a specific currency to operate. 

Riches are most commonly known to be held by possession. The more money you have in a bank account, or in your wallet, the more rich you are. The online innovation and application of money now makes it so a lot of the money we have is not even real technically, it is all numbers being transported via computer. According to the This american life Broadcast  “The invention of money” People used to trade in gold in banks, and use paper money for easier transportation instead. This meant that the paper money actually held no individualistic value, it was the value that came from the gold you possessed that gave this paper trading value.The knowledge that there was gold being held in the bank in return for the money is what upheld the importance of paper which was seen as “fake money”. We see these numbers on a computer in the same way with digital money, where we don’t physically see the item of value, but we see the numbers on the banking app to indicate how much money you possess, transferring the value you hold towards your money over onto the number on your screen. 

Yap held massive stone sculptures for money also known as Fei, they were large, and the weight of some cars. Financial innovation was made meaning that you don’t need to possess a stone to own it, ownership is traded verbally, and everyone then knows it holds a new owner. This shows value is upheld further by what a society’s mentality collectively believes it to be. You do not need to physically possess something on this island for it to be under your possession. The value of these stones would hold no value in America, but on the island of Yap, they are used solely for large purchases, and the payment is expressing the ownership of the stone is now someone else’s. In the NPR broadcast “The island of stone money”, they discussed how a stone was moved into the ocean by storm, and the islanders agreed it is still considered valuable, and still traded ownership of who possessed the stone, or fei in the ocean. This item was not even able to be seen, but was still deemed to hold value due to an agreement amongst the people. 

Brazil had been faced with a large financial crisis where inflation increased by 80 percent, giving their money less and less value. The rate of inflation meant that as they made money, it would lose over half its value in a year around the 1980s. In the broadcast “The lie that saved Brazil ” Chana Joffe Walt discusses how they began to save Brazil’s rapidly declining economy. The idea was brought by 4 economists, to begin with stopping printing money, they decided to tap into people’s psychology. They implemented a fake currency, which was virtual, known as a URV. Prices were listed in URV’s which were stable, and were in words, used the same way we used paper money to use in conversion instead of gold. This began to sway public faith in the currencies. Brazil managed to trick their citizens into stabilizing an economy by determining stable pricing through fake money. This along with the balancing of budgeting managed to help the country have a stable new currency by 1994. 

In the BBC article, “Argentina inflation soars past 100% mark” Laura Gozzi discussed how Argentina has seen over 100% inflation, and the tactics being used to solve this problem. The solution to this is different from the Brazillians solution where the government keeps granting billions in bailout money. Is this money even real? People will still be swayed in the same way because this bailout is only paying off inflation by the numbers, not aiming towards the consumers who hold the value of this money. If this negative faith as well as protests stay instilled, the money will still not be seen as a progressive solution. In an article by The Guardian “Argentina’s inflation rate soars past 100%, its worst in over 30 years” You begin to gain a look at the disdain the economic impacts left over certain individuals. “I am tired, tired, just tired of all this, of the politicians who fight while the people die of hunger,” she told Reuters. “This can’t go on any more.”” The faith not only in the economy is being swayed, but the faith in the government as well, proving how the psychology of a society can cause further impacts beyond what is seen as just a financial crisis. 

Money and currency of any kind is only considered to uphold any worth because of how a civilization holds values and depends on a specific currency to operate. The idea of value and numbers is simply a product of what we make it. Everyone has something like a Fei, which to others holds no value but is to us individually. Also like a kid trading lunches, they see different values. If a society collectively determines the value of something the only way to manage an economy is through the psychology of the ones who determine it, which is the civilization where a currency lies. 

References

Friedman, Milton. “The Island of Stone Money.” The Island of Stone Money(1991)

Gozzi, Laura. “Argentina Inflation Soars Past 100% Mark.” BBC News, BBC, 15 Mar. 2023 

Glass, Ira, Chana Joffe-Walt, Alex Blumberg, and Dave Kestenbaum. “423: The Invention of Money.” This American Life. Prod. Planet Money. 7 Jan. 2011. This American Life. 

Joffe-Walt, Chana. “How Fake Money Saved Brazil.” NPR. NPR, 4 Oct. 2010. 

The Guardian “Argentina’s Inflation Rate Soars Past 100%, Its Worst in over 30 Years.”, Guardian News and Media, 15 Mar. 2023,