Stone Money – bluntwriting88

All Money is a Matter of Belief

Money and its historical development is truly a remarkable thing. As Milton Friedman brilliantly showcased in his essay The Island of Stone Money, the idea of money being merely a myth in which the collective believe in seems to be more applicable today than ever before. That is, the concept of money is ultimately rooted by conscious experience and abstraction rather than material property. While money has its roots in literal concrete objects as we shall see, it fundamentally relies on a collectively perceived value for said money.

The island civilization known as Yap serves as a stark example of the evolution of money. Yap relied on large limestone wheels from 400 miles away as currency – very alien to today’s paper money. Due to the size of the wheels, once a transaction is completed, the new owner would simply acknowledge the fact that there was a ‘transfer of ownership’ without relocation of the limestone. As Friedman explains, while this may seem counterintuitive or illogical, the same mechanisms of transaction for the people of Yap applies to modern economics. In 1933, France had requested a conversion from dollar to gold from the U.S. Instead of shipping the gold across the Atlantic, ownership was similarly transferred as the gold now had France’s name on it. Inevitably, the medium of the currency becomes abstracted where only belief and recognition of value constitutes ‘money’. France never really possessed the lump sum of gold – they simply knew it was theirs regardless of where it was in the world just as the scattered limestones throughout Yap. The only thing which changed for France was a number on a sheet – completely void of anything physical.

Similarly, the U.S. economy operates under such a system run by the Federal Reserve which can declare money into existence via a computational entry. Fractional reserve banking allows the Fed to create money out of thin air and affect the economic landscape. Former Fed Chairman Alan Greenspan himself once states that the U.S. can simply print all its debt away with these methods. As stated in act one two of NPR’s The Invention of Money, so long as people believe in the Federal Reserve note, the abstraction holds valid. Many have criticized the Fed for operating in such a regime, while some claim it to be a blessing. The fact of the matter is that it is rather peculiar and occult to have a group of Ph.D.’s autonomously control the money supply and banking system. One property of money which many attribute to the Fed is inflation.

Inflation, like money, is also dependent on the conscious experience. But it is also dependent on prices. As pointed out in act one of the NPR broadcast The Invention of Money , when people’s faith in money is unstable, economic ails such as rampant inflation correspondingly follow. As in the case of Brazil in the 90’s, a new fiat money the Real was declared as an attempt to curtail the mass inflation of the cruzeiro. Brazilian’s faith in the cruzeiro was so low that they would immediately spend their money due to the fast loss-of-value. This aggressive feedback loop which leads to even more inflation is fundamentally rooted in the perception of money by its users, as Brazil’s inflation was. The new Real currency (for unit of real value) was not backed by gold or limestone. By fixing price levels in the Real units, Brazils consumers perceived a ‘fixed’ price (that actually varied day to day to adjust for cruzeiro inflation). Yet, counterintuitively, faith prevailed, and the Brazilian monetary system was saved from absolute collapse.

Like the Fed creating money from nothing, Brazil pursued a similar idea. The Fed may print trillions that needn’t be backed by a physical equivalent so long as the whole of society believes in and agrees as to its perceived value. Money from nothing so to speak. The limestone wheels from Yap likewise did not have anything of value intrinsically backing them. The islanders simply had faith in it as a means of exchange. Brazil’s case was no different. Time and time again, we see the same patterns and rules of money appear all over history – and we know that our employed methods of monetary policy have at least aided in regulating and manipulating money. Yet as was the case in Brazil, much of monetary policy revolves around simply manipulation of certain factors of perception in the human mind.

One good counter example is the sub-prime mortgage crisis of 2008. For decades almost everyone held the notion that mortgages were easy and ‘not that big a deal’. Credit in itself was strikingly easy to come by. The perception for decades was that everything was fine. And this is precisely where economic catastrophe meets cognition. The population, including banks, were fed lies on the ‘true value’ of mortgage backed securities which were really mostly low-rated mortgages sprinkled with little high-rated ones in order to make the entire package seem like an overall net-high-quality security. Like an aggressive self-fulfilling inflation cycle, overvaluation was a persistent malady. The lie was so great that the entire global economy was nearly annihilated. An article from The 2008 Crash: What Happened to All That Money?  highlights how tens of billions of dollars ‘vanished’ from ledger sheets. And just like how money can be created from nothing, it can return to nothing. If it did not exist in the first place, then only a mind-game is being played with it. Certainly, the world was shocked at the time when all this money vanished into thin air. But why should we be considering its abstract nature?

Much of economics and money is still a deep mystery. But as with the Fed, Brazil, or Islanders, money shrinks and grows via the value assignments people decide to adhere to within their minds (It may not even be a decision at all). It may ultimately come to acts of autosuggestion as a means for economic growth. What is without question though is the universally established fact on the mental nature of all currencies throughout history.


Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University , 1991.

“The Invention of Money.” 423: The Invention of Money. This Is American Life, WBEZ. Chicago 2011

Rauchway, E. (2018, September 14). The 2008 Crash: What Happened to All That Money?

Retrieved September 23, 2020, from

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1 Response to Stone Money – bluntwriting88

  1. davidbdale says:

    I admire your beautiful facility with language, BluntWriting. It’s always specific, terse, and for the most part clear. Beware the times it depends too much on sounding right without actually being right. Here, for example, is a sentence that makes very little sense:

    The concept of money is ultimately rooted by conscious experience and abstraction rather than material property.

    Your attempt to explain it meaning in the following sentence does partly undo the damage, but “rooted by conscious experience and abstraction” can’t be undone.

    Your Yap/France paragraph is similarly facile, and similarly problematic. For any reader unfamiliar with the Friedman essay, you provide just a bit too little background. The “same mechanisms of transaction” hints at a technique, but is very difficult to imagine. “Ownership was similarly transferred” compounds the illusion that you’ve explained something. Consider that emphasizing the bizarre nature of the transfers might be more effective than describing them as mundane. And remember France’s request for gold is evidence that they resisted the “medium of the currency becom[ing] abstracted” while they were willing to forgo physical relocation of their asset, they still wanted a tangible commodity. Also curious is your claim that France “never really possessed” the gold, which raises a curious and valid question. Do I “own” my house at the beach if I’m not there 50 weeks of the year? Do I “own” the gold in my vault beneath that house if I haven’t seen it in years? What’s the real connection between “ownership” and physical proximity?

    I’m asking these questions only to tweak your sense of perfection. Your work here is of very high quality, so I feel compelled to poke at it.

    I like your breezy description of the Fed, though it too appears to elide several steps in the chronic abstracticization (my invented term) of money. You might spend your last three sentences emphasizing that process instead of as you have.

    I do admire that you used inflation to transition to your Brazil illustration. Punctuation Note: [Brazilians’]. I don’t see how inflation can be dependent on prices. Easily the reverse. You need a few words to explain that the eagerness to part with cruzeiros places upward demand on prices before you can cite a “feedback loop.” You do point out the lovely counterintuitivity of the faith in a fake currency that only pretended to fix prices resulting in fiscal stability.

    Does “the whole of society believe in and agree to money’s perceived value”? in the case of the Fed’s fresh batches of banknotes? Or is it enough for holders of currency to trust that OTHERS will always accept them as payment? As you say: “faith in it as a means of exchange.”

    Usage Note: counterexample. (Yours is an example of a counter.) Punctuation Note: “not that big a deal.” (Americans ALWAYS ALWAYS ALWAYS ALWAYS ALWAYS use double quotes except inside double quotes.) Credit in itself was [perilously?] easy to come by.
    Were fed lies by whom? Want to cast some blame in the direction of the auditors?
    What was all that money? Nothing but the perceived value of the assets measured in dollars. That in no way indicates that there were ever enough dollars to buy those assets.

    A couple of claims in your conclusion are too vague to really pin down.

    money shrinks and grows via the value assignments people decide to adhere to within their minds

    Meaning that MONEY shrinks as valuations change? Or does it make more sense to say that valuations change, and our method of measuring that change is in amounts of money?

    the universally established fact on the mental nature of all currencies throughout history

    There may be such a fact, but you don’t name it? Do you mean money is a figment of our imagination?

    This has been fun for me, Blunt. I hope you’ll receive it in the spirit in which I offer it. As a prod to your best thinking. No need to revise this unless you want to. But do be as precise and clear as you can be in your Research Position Paper.


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