The Complicated Idea of Currency
The idea of the American Dream, or the idea of being financially stable, is something anyone can imagine for it’s been implemented into American culture for decades. Money is the biggest motivator for people today, and we praise the “hustlers” of the world for their work ethic and business savvy. But in today’s digitized world, how can materialistic wealth compare to numbers in your bank account, especially when you have never seen the cash with your own eyes? Countries around the world all have a different currency that represents a different amount of value, so the concept of money is not completely solidified. In the most abstract sense, money doesn’t even exist. Nowadays, money is a comforting illusion that simply helps keep important aspects of life organized, and encourages people to make more fictional money to grow the economy.
In NPR’s podcast episode, “The Invention of Money”, Ira Glass, the host of This American Life, and Planet Money producer Jacob Goldstein discuss their thoughts on the 2008 financial crisis, and explain where all that money could have gone. In reality, the money was simply worth less than it was. When the stock market crashed, no physical money was lost. Houses had lost their value “simply because that’s what everyone now agreed. No money changed hands, no many vanished.” I can see how many factors come into play when determining the value of something, but it is difficult for me to understand how markets can lower in value, how everyone could come to agree on that, and not do anything to regulate it or stop it.
Diving deeper into the concept of fictional money, Goldstein realized that in many systems of currency, there is an idea of how money is not a tangible commodity. This could be best explained by introducing the monetary practices of the people on an island called Yap. In Milton Friedman’s article The Island of Stone Money, he described that their currency was stone wheels that could weigh more than a car, and were only used for large, important purchases. The people of Yap did not have to bring the stone with them to know that it was theirs when they bought something. The person who “gave” them the stone had received what they wanted in return and did not have use for the stone wheel, so it does not harm anyone to leave it where it was. This counterintuitive system is comparable to the U.S. banking system prior to the 1930’s, when carrying around heavy gold pieces was becoming too tiresome. Instead of gold, Americans would carry around pieces of paper that could be exchanged for gold, which was kept in the vaults.
But as for money in the 21st century, Goldstein states that, “… currency even now is like old-fashioned. You don’t have to touch money. You don’t have to see it. It’s just information.” This made me think about my own bank account and how much of my money I actually obtain. At any job I have had, I have used direct deposit because it’s simply more convenient. But in today’s world even paper checks can be scanned and deposited into your account through a banking app. Money in the 21st century is evolving digitally and blurring the definition of what it means to make and receive money, especially with new types of electronic currency.
Bitcoin is still new and confusing to the world. In the Yahoo News article “The Bubble Bursts on E-currency Bitcoin”, written by Anne Renaut, she says that the currency was made by an unknown programmer in 2009, who wished to create a currency that was free from any financial bank and be able to use that money anonymously. Since this was created in 2009, it seems clear that he created this after suffering through the financial crisis. Over the years it grew in popularity, and the prices were steadily moving up. Then in 2013, Bitcoin had it’s first serious crash. But Bitcoin foundation chief Gavin Andresen states that he “predicted the crash would not spell the end of the Internet-era currency.” He believes that with more time for its value to grow, Bitcoin will have a price that’s comparable to other currencies.
The inner-workings of e-money is extremely complex, it is all made by intricate lines of code. “Mining” essentially adds transaction records to a page that anyone using a computer can access and make sure their transactions are accounted for. If Bitcoin was the main type of currency I was discussing in this essay, then I assume that complex lines of code would be the answer to questions like, “what is money?” or “where does my money go?” That explanation might be an easier way to comprehend how we exchange money. In a way Bitcoin shows proof that money is more tangible through coding. The bank takes the money in someone’s account and then lends that money to different people, but shows that person the number of how much money they think they have. I believe the future of currency is heading in this direction, but there are still vast improvements that need to be made and time to adjust to this large technological step. Though anonymity is appealing in some ways, European Central Bank claims it also could be a “monetary alternative for drug dealing and money laundering,”
Though thinking about the concept of money in this way is tough to grasp, it has always been a detail that was part of the systems of currency for centuries. Today, money has been pulled apart and become an abstract concept of the money that is made but never seen. If the use of card payments and other forms of electronic payment continue to grow, Bitcoin might be in the somewhat far future if it becomes more stable. As long as people continue to make the economy grow and keep it from inflating, deciphering the exact definition money is incidental for now.
Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University , 1991.
Glass, I. (2018, February 19). The Invention of Money. Retrieved September 21, 2020, from https://www.thisamericanlife.org/423/the-invention-of-money
Renaut, A. (2013, April 13). The bubble bursts on e-currency Bitcoin. Retrieved September 21, 2020, from https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html
I don’t quite get the point of your Introduction, CC. It’s nicely written, and it starts of strong and coherent. But it deviates into a brief reflection on the existence of many world currencies (which has no bearing on whether money is valuable or not), and then casts doubt on whether accumulating money has any effect on a person’s life . . . Or am I missing something?
In short, I don’t see the relevance of anything we read or listened to in the Stone Money unit that would support this: “But in today’s digitized world, how can materialistic wealth compare to numbers in your bank account, especially when you have never seen the cash with your own eyes?” If anything, the lessons of the unit should make it easier to accept that we don’t actually handle our cash these days.
There’s a fundamental misunderstanding in the following, CC, or a fundamental misstatement of what you DO understand:
When the stock market crashed, and the real estate market along with it, money was just as valuable as before. The STOCKS were much less valuable. Investors’ PORTFOLIOS were gutted of value. HOUSES were much less valuable than they had been. But money? . . . .
In effect, MONEY became MUCH MORE VALUABLE after the crash. Anybody who could scrape together $100,000 could buy a house that was on the market for $500,000 a week earlier.
See the difference?
The critical difference between the oversized fei on Yap and the pieces of paper that replaced (and could be exchanged for) gold in 20th century America is that there was no physical replacement for the fei as there was for the gold. The fei were always BOTH more physical AND more abstract than paper money because they were massive and clumsy (like gold bars) but they could be spent without anything changing hands (unlike dollars).
I like your “money is information” paragraph, but it’s inaccurate to refer to “new types of electronic currency” when referring to your own paycheck and bank account. You’re participating in ELECTRONIC TRANSFER of a very conventional currency, the US DOLLAR.
Bitcoin, by contrast, is a very UNCONVENTIONAL CURRENCY because it’s minted by some anonymous guy, not a national government. Its existence is entirely digital, never physical. But it can be exchanged for other currencies, and if you want to buy some, you can spend dollars to do so. It is truly a new type of VIRTUAL currency.
It makes no sense for Bitcoin “have a price that’s comparable to other currencies.” That use of the word price is nonsensical. It IS TRUE that Bitcoin can be valued in terms of other currencies, just as a dollar might be worth 1.15 Euros today and 1.25 Euros tomorrow. But today a single Bitcoin will cost you about $48,000. It makes no sense to call that a “price comparable to other currencies.”
Couple things about your Bitcoin paragraph.
Not quite sure what you’re actually saying in your conclusion, CC. I think the concepts are not new or overly complicated, but your language is simply not very coherent.
I’ve graded your post at Canvas, TheCommonCase. No rewrite is required, but you’ve shown me enough skill that I believe you could clearly make this better. You may, if you wish, for one week, respond to this feedback by revising your post for a Regrade. You will receive no further feedback since you didn’t request any before grading. But if you want to try your luck, make significant revisions and place this post into the Regrade Please category within one week starting now.