At first, the story of the people of Yap sounded completely foreign and abstract to me. I thought they were some fictional people with very ambitious methods of presenting wealth because of the massiveness of their currency, fei. I couldn’t grasp how these people could put so much trust in one another that they didn’t have to be in physical possession of the money to spend it. It had been my understanding that in today’s societies, money is really just a system of numbers that has arbitrary values depending on the society. I thought the value of money was really set by the government. However, now I know that money only has value if individuals are willing to trade for it. Those in charge of selling items, such as bread, will come up with prices they deem appropriate. This is where matters become very intricate. During periods of high inflation, because more money is available to the public, prices rise because the sellers generally need to adjust prices based on how much money is available. If the public people have incomes of $50, for example, then a $3 loaf of bread will cost 6% of their income. Whereas in a community of people with incomes of $200, then a $3 loaf will only cost %1.5 of their income.
Like why would five gold coins have more worth in one country than another? It’s impossible to precisely measuring the value of money without equating it with something else. The currency of different countries are usually weighted by how much gold the money represents. One could just as easily weigh it by how much bread that money is worth, but I believe gold is chosen because it is rare compared to many other goods. Money in its physical state, whether it be fei or the dollar, always works by the same principles. There was no method or formula to say how much the beauty of the fei was worth in Yap. Instead, people essentially barter the value of it. Relating this back to the American currency system, this helps explain why some issues have arisen in the past. At one point in time, the copper in pennies was worth more than the coin itself. People took advantage of this and melted down the coin to sell the copper. There’s also no material in the paper making one bill more valuable than another, it’s just the agreed value printed on it that makes the difference.
Now, like the people of Yap, we’re spending money without physically exchanging it. The people of Yap didn’t have to physically exchange their money because it was too tedious to actually transfer possession, while we give our money to banks keep tally of, and it’s our money to spend, even if it’s not in our physical ownership. So when paying with a check or debit card, we, like the people of Yap, are transferring ownership of some of our wealth without physical exchange taking place. In the simplest terms, money is just a placeholder for nonspecific items and its value today depends on how much of that placeholder is available.