The dollar bill was never valuable, but it assures the promise of valuable things so it’s worth something. If you want an XBox that cost $300, the only reason you want the $300 is to receive the XBox. If there was another way of getting the XBox without having the $300, then depending on the circumstances, chances are the money wouldn’t even be considered. Say if you could get the XBox in exchange for 300 pieces of grass. The same grass that you walk on everyday just became of worth because it assures you something you value. In the podcast “The Invention of Money, the Planet Money team at NPR discusses an island called Yap that uses stones for money. The bigger the stone, the wealthier you are. But their stone system is no different than the use of money in America or any other country that uses currency. The stones are not valuable at all, but the fact that owning one gets you something you want, it’s worth having. The concept of money is actually false. The people on Yap proved it with their story of the giant stone that resides deep in the ocean a few meters out from their island. No one has ever saw the stone, but they still trade around it’s value. No one cares about physically having the stone, but that the idea of owning it gives you something you actually value.
It’s similar to if someone told you they had $20,000 in their bedroom closet. If they gave you a proposition asking for your house and cars in exchange for the money, you could choose to believe them and give away your possessions. Then if you wanted to buy a property for $20,000, you could tell the property owner about the money and if they believe you then you have a new property and they have $20,000. No one robs the bank just to have a million pieces of green paper. They rob the bank because they value what those pieces of paper can get them. So ripping a flimsy piece of paper that has the number $100 on it could be similar to throwing out all the food in your fridge and cabinets. Money only has value because people value that the money can get them something valuable.
The hard work and labor that goes into acquiring the money is already mentally engraved in our minds as being for whatever object or service we desire. According to the article by Milton Friedman titled, The Island of Stone Money, the people of Yap did not have the stone they used as their currency on their island. If you wanted more stones, you had to travel to an island 400 miles away, find the stones, and bring them back to Yap over dangerous seas. The people of Yap were never doing all that arduous work for a stone. But they may do it to retrieve a dead family member off of foreign land. The stone is just a physical representation for the work you had to do. Similar to people going to work and saving up for something they want. No on would work eight hours everyday just for a piece of paper, but they might to buy a new car, or a new house. Money holds the value for the things that people value.
This thinking begins to boil down to people making their own money. On Yap if you want more money, you can go to the other island that is 400 miles away and just bring back some more stones. But in countries that are like America where the people can’t just create their own money, how do they get more? Well they can work harder for more, but as aforementioned, the grasp on the concept of money is so loose that the question is hard to answer. In America you can loan money, which you can’t do on Yap. That’s why our country is trillions of dollars in debt, because we “borrowed money”. This is also a problem in Japan. In a New York Times article titled, Japan’s Latest Economic Transfusion, their prime minister, Shinzo Abe, is trying to rehabilitate the economy by putting a surplus of money into education, and healthcare, and other things that will potentially help japan from being stagnant. The problem is, so many other countries don’t agree with Japan’s decision. This is because Japan’s financial standings affect the countries that trade with them. So a false concept of money can start financial wars in a sense because of what people value. It almost makes you think the bartering system was better.
And to further the epidemic, Bitcoin, which is digital currency, is also available. In the MarketWatch article, Bitcoin has no place in your — or any — portfolio, San Francisco starts a $100 million company called “Coinbase”, which basically promotes online currency. As if the regular paper money isn’t complicated enough! I get the idea of online shopping and having money available for you in that regard, but what happens when people can’t distinguish their digital cash from their paper money. It will literally cause a currency clash.
The article from Planet Money titled “The Invention of Money” says it best. The economy is a 20th century creation. America was under the Great Depression so the country just made more money. The idea of money is so vague and abstract that it hurts to wrap your head around it. But in the end, the deciding factor for the future of money won’t be if it still has value, but do people still value it?
The Invention of Money
The Island of Money-Milton Friedman
Japan’s Latest Economic Transfusion
Jan. 13, 2013
Bitcoin has no place in your — or any — portfolio
The Invention Of ‘The Economy’