Money Revised–Jonathan Otero

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.

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1 Response to Money Revised–Jonathan Otero

  1. davidbdale says:

    Hey, Jon. I’m glad you decided to post a revised version of this assignment. You’ve made significant improvements to the original.

    I still have questions.
    Why do you think the bakers of bread are in charge of what bread costs? They may think $20 a loaf is appropriate. They can think whatever they like. Customers determine how much a loaf is worth, don’t they? The baker certainly does not take into account what percentage of a family’s income is spent on bread when he prices his product, regardless of whether there’s inflation.

    What makes you say five gold coins are worth more in one country than in another, Jon? (Who uses gold coins anyway?) To be clear about this, I don’t think there’s a country in the world that ties its currency to gold since the US abandoned the gold standard almost 100 years ago. So the space you devote to whether currency is based on gold or bread is not quite on topic any more. The question of what dollars are worth in terms of commodities like bread that have intrinsic worth, though, is certainly relevant.

    I love the illustration of the copper penny. It’s a valuation system completely upside-down. I remember an old story about a counterfeiter putting more than 25 cents worth of silver into fake quarters, back when quarters were worth faking. They’re mostly copper now, for exactly the reason we’re talking about.

    I admire that you’re working to simplify and clarify your points, Jon, and I think you’re both getting better and capable of more improvement. If you have the time to examine any one paragraph for examples of what I think could still be said more clearly, I would welcome the opportunity to help.

    Grade Recorded.

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