Invention of Money — Jon Gonzoph

Money as an abstract concept is not an overly foreign idea to me. Taken out of any societal context, exchanging fairly worthless metals or paper for immediate and real goods and services doesn’t make much sense. However, it’s also quite easy to understand how money works in the present day. Money is the ability to purchase something, a sort of short-form contract where everyone agrees that a unit of currency is worth something, though exactly how much that unit of currency is worth greatly varies.  Since everyone follows this model, it’s easy to see how money works, at least on a micro level.

What fascinates me more is how money gained its value in the first place. How does a bartering society, one that exchanged real goods and services, go to exchanging these same goods and services for intrinsically worthless baubles?

My hypothesis is that any currency started out as something only the upper class in society had. For example, with the Yap Islanders, after the fei was discovered or popularized by explorers, it could only be acquired by those with the means to put together and crew ships. The fei also had to be scarce enough that not everyone who wanted the pretty rocks could have them, so it could become a status symbol. This symbol was then given to those that had done them some sort of service, and eventually became recognized as currency in that fashion. It not only represented the upper class in society, but was also a measure of skill and expertise – a bad smith, for example, wouldn’t have as many customers as a good one, and consequently less money. They could then exchange money for what they wanted, and the cycle continued. Eventually this evolved into the complex system a multitude of countries employ today, where the value of money is no longer tied to the upper class giving it meaning, but rather a government. In present society, even if the upper class moved to declare a currency worthless, as long as the government still considered it an official currency, it would remain so. It now functions as a contract, one that cannot be broken without the government setting an appropriate penalty.

The most striking thing about the Yap economy is not that they use massive stone discs are money, but that their ownership system doesn’t have any safeguards. In America, we have banks that secure and track money, government agencies that regulate the banks to make sure everyone is being treated fairly, and public media to spread the word when a bank does something unsavory; in Yap, the only way to identify who possess which stone disc is by shared belief and word of mouth. There are dozens of ways this could be exploited, so I am quite surprised that they’ve somehow kept to this idealistic form of ownership.

On the other hand, it is clear that sometimes the government has no idea how to manage its own money either. This is brilliantly illustrated in Brazil’s economic woes starting in the 1950s, where they printed money without caring to think about how it would affect inflation. To be fair, I also don’t have a secure grasp on how inflation works, but I’m also not employed by the government as an economist. Equally sad is how each new plan of fixing it seemed to make the problem worse. Locking the prices when money was quickly becoming worth less and less had the obvious effect of convincing people to not sell anything, and I’m amazed the idea of confiscating everyone’s money only ended in an impeachment, as opposed to a revolt and subsequent assassination. Even the URV is a  a strange idea; it seems to work only because people failed to realize that the cruzeiro itself was still fluctuating.

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4 Responses to Invention of Money — Jon Gonzoph

  1. davidbdale says:

    This is nice work, Jon. I’ll make comments paragraph by paragraph.

    In P1, you characterize the degree of abstraction and oddness well. Of course money seems odd when we look at it directly, you say, but the oddness is easy to resolve and embrace with a little bit of thinking. I like your phrasing too, particularly “immediate and real goods.”

    A colon would be the better choice of punctuation following the word contract. Like a very narrow equals sign, the symbol : indicates that what precedes it is very similar to what follows it. (The dash is a great second choice though.)

    I want to agree with your characterization of money as a contract, but I can’t. My agreement to pay you in cash for the good or service I receive from you is the contract; the money is just one of the considerations exchanged. I do understand what you mean, but we disagree on the terms. As you’ve described the chain of events, no contracts are required, just exchanges.

    But what you say about the system working because everybody understands the money received can be later exchanged for value is certainly true.

    P2 is just terrific.

    P3 contains some grammatical sloppinesses you can easily correct once you recognize them. S3 has at least one too many its, for example, and S4 contains a confusing “traded out those.” The hypothesis, though, is well reasoned and nicely described. It doesn’t quite describe the motivation for traveling so far to bring back shaped stones in the first place, but once the pretty things are features of the Yap landscape, you’re on solider ground.

    I wonder if you would consider their beauty and rarity intrinsic values? Diamonds aren’t utterly useless, even if we’re being uncharitable about them. They are attractive adornments. Less defensibly, perhaps, it’s hard to understand why they’re “worth” more than extremely good fakes only a jeweler can distinguish.

    I very much admire your observation about the status conferred by ownership of the big fei: that they indicated skill or capability or business acumen. Very nice. I presume at this time you’re still talking about rocks big enough that they were displayed, say, outside the home, so that the neighbors could admire them and envy their owners.

    I’m a little uncertain how the value of money was “backed up by” the upper class in your characterization; perhaps you can clarify that a bit. I’d also like to suggest that we mostly care about government backing for our money only when the government is our customer. If you give me money for a haircut, the government’s hardly involved; my only concern is that the sub shop will accept the money you gave me for a sandwich.

    Maybe the contract, if there is one, is not between citizens conducting business, but between our government and us? The government puts money into the system with nothing to back it up besides the government’s own reliability. To do what, it’s not entirely clear.

    P4. Your rhetorical skills are impressive, Jon. Your voice and tone are consistent throughout, for example, in your reminders about what you find most interesting: the truly remarkable versus the momentarily odd.

    Grammar lapses: “giant discs are money,” “gleamed,” “is only know.”

    What’s most interesting to me about the US is that, as skeptical as we are about the reliability of our government, we still trust that it will always pay its debts.

    I could speculate, and maybe you’d agree, that there were relatively few Yap, and even fewer wealthy Yap, when the story was written. It’s also likely that most daily transactions were conducted through barter, not the transfer of enormous stones.

    P5. I’m delighted to see that you examined and considered the story of Brazil’s invention of the real, Jon. Your analysis of the episode is less satisfying than your examination of the fei, but it’s certainly entertaining, and I do appreciate it.

    Your last sentence needs a semicolon, and the “only” is misplaced.

    Congratulations on hitting the 600 words we agreed to, Jon. I hope it made some sense to you even though the number we chose was entirely arbitrary. I do want to make clear to your classmates who might read this comment that I didn’t establish a word count for anybody else.

    Very nice work overall.

  2. Blueitem (Jon G.) says:

    …services doesn’t make much sense.) For example, there is a small section of the internet that uses a currency called “bitcoins” – bought with any backed currency from euros to URVs — for all transactions. Despite these being literally electronic chunks of data with no physical representation, they are still accepted as currency by this community. (However, it’s also quite…

    (I just really wanted to mention these, since I learned about them a day after I submitted this essay, and they fit so well~)

    • davidbdale says:

      Well, they are a charming little item, and I’m happy to learn about them too. I wonder if they’re really any more abstract than the euros or yen they represent. What do you think?

      What I found truly interesting (sort of disturbing too) were those eerie real estate bubbles that developed when Second Life seemed like an alluring idea (Does it still to anybody? I’ve lost track.) to so many. I don’t know if a new currency evolved, but I do remember people were spending “real” dollars to buy completely abstract virtual real estate in virtual neighborhoods, and re-selling them for profit. Imagine paying capital gains taxes to the IRS for an office building with a storefront in a “place” without a physical address.

  3. davidbdale says:

    Many fine revisions, Jon.
    Grade recorded.

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