Money is a synthetic concept that holds no value. It’s an abstract idea that we as people made and put worth to. Prior to our creation of this concept, the world ran smoothly. Ever since currency came into the world, it has provoked a series of new beginnings such as the economy. And what really is the economy? Another concept that holds no value, yet we measure it with numbers that are produced by money that again, holds no value. It has become apparent money causes a chain of unfortunate events, but we still long for these priceless pieces of paper.
As I read Milton Friedman’s essay “The Island of Stone Money”, it occurred to me that money is only what we make of it. In other words, we only give money its value according to what we think it should have. We give items its value only on the basis of what we think that item is worth. Also, other factors like inflation contribute to its worth, but it’s solely determined on its intrinsic value. On this island of Yap, their currency consisted of large, round stones with a hole in the center to stick a pole through for easy transportation. These stones called fei were delivered by a raft from a distant island miles away. It was said that it wasn’t necessary for the owner of a stone to display it physically as long as its known by the community that they own that stone. There was a family who had irrefutable wealth, reason being, they had an enormous fei that their ancestors acquired generations before. When the German government arrived, the conditions of the pathways in Yap were bad so they claimed ownership of the stones by marking them with a cross painted black. Once the people fixed up their island, the government was to take away the crosses and the people believed that their wealth came back to them. As simple as that, that was the currency of Yap. An exchange of labor for a stone. Now how crazy is that? All the government had to do was put a mark on the stone or take it away to indicate the ownership. Money in it of itself, has no value, but it does in fact have exchange value. You can look at money and say it’s worth this much, but in reality it’s not until you put it to use it then has value. What really has value are the gold and silver that were used way back when.
Your wealth is only measured by the money you have physically, which makes wealth only a mere idea. Money is what deceives people into actually believing you are wealthy. If you own a lot of money that means your wealthy. But do you actually own all that money? No, not really. Here’s a scenario. Say you go out to lunch to buy food. You sit down and enjoy that nice Panera mac and cheese. You go home and boom that mac and cheese goes down the drain, literally. It has no value to you now. It is gone. Yeah you can say it has filled you up, but where is it now? Nowhere because it has no value. Now let’s take money for example. Once you put those green paper things with numbers on it in the bank, the bank now owns it, and the longer you keep it in the bank, the value of it starts to decrease. Eventually, that money you had initially put in the bank will lose all of its value and you are left with absolutely nothing. And this is because of what you might ask? One word, inflation. Almost everything in life loses financial value. Some lose its value in as quickly as day just like that mac and cheese. Going all the way back to around 1929, the worst economic event crashed America, The Great Depression. It wasn’t until this event that the word economy revealed importance to Americans. The government then came up with GDP or the Gross Domestic Product, which is basically a sum of all the goods and services produced in the country calculated through a period of time, usually annually. In an NPR radio broadcast by the correspondent and co-host of Planet Money podcast Jacob Goldstein, says GDP measures the economy. It ultimately affects how the economy is set up. If GDP goes up, the economy goes up as well. If the economy goes up, prices goes up. And if prices go up, Americans are left struggling trying to keep up with the economy. Just like money, GDP is only an idea. Both have no set value because they are always changing.
Inflation like any other monetary term previously mentioned is only an idea. Prices go up, which means money value goes down. Imagine being in a country where inflation rapidly occurs every second. That’s exactly what happened in Brazil in 1990. 80% a month, inflation arose. In the NPR Broadcast “The Invention of Money” they gave an example of how fast the price of sunglasses rose. Say a company is selling sunglasses for $10. A month later, those sunglasses are now $18 because of the 80% increase. Now that still seems like a reasonable price, right? Now fast forward six months from that point. Those sunglasses are now $340. In a year, they become $10,000. Think about if that was food. Eventually, those people are going to have to starve and live pay check to pay check just to survive in a booming economy. And it all comes back to the idea that money has no value. Prices will go up, value of money goes down. Since the world still exists, the economy will continue to grow. Nothing is stopping it from thriving.
As I conclude the concept of money, I now have a much more clear understanding of how it actually works. It really only is an idea when you think about it until you have it physically in your hands represented by pieces of paper. Money has no value, yet we as people still value it. We need it exclusively for exchanging goods or services, but we don’t need it to live. Money is abstract. You can’t hold it, you can’t see it, you can’t smell it, but you think about it because it purely is just an idea.
Friedman, M. “The Island of Stone Money”. Diss. Hoover Institution, Stanford University , 1991. https://counterintuitive2015.files.wordpress.com/2015/01/stonemoneyessay.pdf
“The Invention of Money.” 423: The Invention of Money. This Is American Life, WBEZ. Chicago. 7 Jan 2011. https://www.thisamericanlife.org/423/the-invention-of-money
Goldstein, J. 28 Feb 2014. “The Invention Of ‘The Economy'”. NPR. https://www.npr.org/sections/money/2014/02/28/283477546/the-invention-of-the-economy