What is Money?
Money by definition is a medium of exchange that is in the form of cash and or coins. When we think of money, we think of it as the piece of paper that is used to pay for things such as food. But, in most cases, it is not. Money today is mostly just numbers on a screen in one’s bank account. The value of money in a bank account has a number value that is determined by the bank and by how much one has received through direct deposit. Since cash is becoming more and more obsolete, there have been new cryptocurrencies developed and are considered to be money. Digital currency such as Bitcoin (BTC) have taken off in the economy. This intrigues me. Interestingly, we use money daily to pay for products and it might not even exist? What even is money? I asked myself. Does it even exist? It seems counterintuitive. With further research, each country or region seems to have different interpretations of what money is implying that money overall does not exist. Money is what is it because we are told that it has value.
In his essay titled The Island of Stone Money, economist Milton Friedman writes about the island of Yap’s (an island in Micronesia) currency. Yap’s medium of exchange called fei are huge limestone wheels that weigh many tons. Fei stones were created over 400 miles away from Yap. Since fei are too large to conveniently carry around, the people of Yap were not required to have the stones in their very possession. According to Friedman, the stones still had purchasing power no matter where they were located, and people still had ownership of them. Then, Friedman talks about when the Germans purchased Yap from Spain, they painted black crosses on the fei stones as a fine and became the property of the German government. This made the inhabitants of the island help rebuild the highways that were in poor condition. After the highways were rebuilt, the Germans erased the crosses and in an instant, they had value again. In this situation, the German government had the power to decide whether something was money or not by declaring that it was not so. Even though the people of Yap declared that Fei was money, the German government still had the power to revoke the stones as currency simply because they claimed ownership over Yap. Therefore, Money is ultimately what people believe it to be. The Germans did not see the stones as currency while the people of Yap did. The stones were fictional forms of money to the Germans.
Like the people of Yap, the people of Brazil, strongly believe that their currency exists. In the first act of the National Public Radio broadcast, The Invention of Money, the hosts of the broadcast, Jacob Goldstein and Ira Glass talk about and introduce how Brazil’s economy changed drastically once the people there started to believe in a made-up currency. The problem in Brazil started in the 1950s when the Brazilian government was trying to build a new city called Brasilia in the Amazon rain forest. The government did not have enough funds to cover the costs, so they printed more money than they had. This resulted in inflation and caused prices to rise for decades. The purchasing power of the Cruzeiro started to decrease every hour. Then in the 1990s, four economists proposed a solution to stop the hyperinflation that was occurring. To stabilize the economy in Brazil, the four economists made people believe in a fake currency called the Unit of Real Value (URV). As people had faith in this fake currency, they no longer accepted the Cruzeiro as their currency. This as a result, caused the money supply of the Cruzeiro to decrease and in turn, it stabilized the rate of inflation. The made-up currency that was used to stabilize the Brazilian economy was determined as currency only because the people believed it to be so. Before the four economists developed URV, it was not believed to be a form of currency. Even Jacob Goldstein says in the radio broadcast that “The money doesn’t really exist. Not only is there no gold. There aren’t even bills for most of the money that exists. Most of the money that exists is just the idea. It’s just the bank saying, yes, there is this much money in your account.” In this case, the Brazilian government is saying yes, URV is money. And just like that, it had some value to be thought of as money.
In an interview with Jacob Goldstein the co-host of the National Public Radio broadcast, Planet Money, NRP’s Noel King discusses Goldstein’s book Money: The True Story of a Made-Up Thing. First talks about the invention of Paper Money created by Mongol Emperor, Kublai Khan in China. Before Kublai Khan arrives in China, the Chinese used iron coins as their currency. Then once Kublai Khan arrived, he made the new currency into a paper form. Because Kublai Khan came into China and demanded that paper money was the currency, the iron coins that were used prior became obsolete and no longer declared as currency in China. It is appealing that one man can come into a country and automatically change what counts as money. In Kublai Khan’s eyes, the iron coins were not considered to be money, but to the Chinese they were money. This further proves the point that the true value of money does not exist. It is just made up by whoever oversees a government or country. Kublai Khan in China made up a currency and made people believe that it was money.
From all these examples throughout history, it is evident that money is a figment of people’s imagination and does not actually have any physical existence. The people of the island of Yap believed their currency to be large sone disks while Brazilians believed money to be Brazilian Cruzeiros and the Unit of Real Value (URV). Money is a fictional entity. Money exists only because we are told it does to make goods and services payable.
Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University, 1991.
Glass, I. (2018, February 19). The invention of money. Retrieved February 17, 2021, from https://www.thisamericanlife.org/423/the-invention-of-money
What is MONEY? Jacob GOLDSTEIN’S book Explains ‘SHARED FICTION’. (2020, September 08). Retrieved February 17, 2021, from https://www.npr.org/2020/09/08/910586930/what-is-money-jacob-goldsteins-book-explains-shared-fiction