The Concept Of Money
The concept of money is not one that is usually a topic of debate. Currency is somethng that the world has had in common for centuries, as you need something to exchange for goods and basically everything. Money is at the forefront of society, and it can be argued that it is mainly present in the economy. The economy- such as vast idea for people to grasp at, some understand it much better than others, but we all know it affects our society greatly. When we look back through history and currencies of old, we think of silver and gold and other metals. But what if there wasn’t any metal for you to use? The people on the island of Yap faced that very problem.
Milton Friedman, a Senior Research Fellow at the Hoover Instituition wrote about the people of Yap and their solution to their lack of metal. The island, located in the south pacific ocean, was colonized by the Germans from 1899 to 1919. During that time, American anthropoligist named William Henry Furness III researched and wrote about the native people’s way of life. He was particularly fascinated by their currency, which were thick stone discs that could be as tall as 12 feet. Furness wrote, “As their island yields no metal, they have to recourse to stone on which labour is fetching and fashion has been expanded, is as truly a representation of labour as the mined and minted coins of civilazation.” These stones did not have to be directly exchanged when “buying” something, as the owner of the disc just acknowledged the new ownership. The disc was obiously too inconvenient to move around, so it just stayed were it was. It seems wild that people could sustain a monetary system such as this one.
This is not the only time we have seen strange systems of currency. Much stranger situations have happened in countries much bigger than the island of Yap. For example, Brazil found itself in maybe the worst case of inflation of all time. The government wanted to build a city in the deep rain forest that they knew they did not have the money for. They thought that it was an easy solution to just print more money. No harm done, right? Wrong. This sent the country into a period of infation, which cause caused the population to completely lose faith in their money, rightfully so. Chana Joffe Walt researched their crisis, talking to numerous subjects who lived through it.
The situation was solved by these four ecconomists who just happened to create a bizzarre plan to save the country in college, and they were reached out to by the government to help them. Edmar Bacha was called to help. The new administration’s finance minister called Bacha and said “Well, I’ve just been named the finance minister. You know I don’t know economics, so please come meet me in Brasilia tomorrow.” The plan was to slow down the creation of money, while regaining the publics trust in said money. The catch to this plan was, this money was fake. There would be no coins or bills, it would just be numbers. They called it the Unit of Real Value, or UVR. Everything would be counted in UVR. Wages would be worth UVR. Something like milk could be listed as 1 UVR. It’s pretty crazy to think about because it didn’t actually exist. The government convinced the entire population that this was their currency now, and as time went on, they believed it. From the ashes of decades of inflation, Brazil got 20 million out of poverty and became one of the worlds largest exporters.
Today, actual money is starting to die out. More and more people have all of their money in banks and carry around less cash. They use apps like Venmo and Apple Wallet for transactions. Another very popular form of virtual currency is Bitcoin. Bitcoin was created in 2009 right after the finnancial crisis, and people invested heavily in it in different ways, buying and selling rapidly. Well in 2013, it hit its first big snag. Shares rapidly dropped from $266 to just $54. Anne Renaut wrote about the crash. She said, “The software is written in such a way that it becomes increasingly difficult to generate new bitcoins, with the number in circulation designed to top out at 21 million.” essentially this means since there is a finite number of these “coins” availible, the more valuable they are bound to become.
We came into an unexpected recession last year due to the pandemic, but before that there was the great recession of 2008. The question was posed on This American Life, a podcast hosted by Ira Glass, where did all the money go? It seemed that it all just disappeared, when actually, the money just became less valuable. The episode of the podcast was titled “The Invention of Money”, and it featured Planet Money producer, Jacob Goldstein. They tackled the question by diving back through history, and taking a look atthe people of the island Yap, the Brazilian government’s failures to prevent inflation, and the United States federal reserve’s response to the recession in 2008.
So with all of this information, the way money has evolved over the years is prety remarkable. From stone discs the size of a house, to a completely made up currency that solved a multi decade long inflation issue, to now a more virtual world of currency. What is learned from all this, is basically that money can be subjective. There is no specific rule to how money is valued. Sure everything in life is based around money in some way. But why should it be. Why can’t it be based around how many lamps you have? Or how many electrical sockets are in your walls? Or anything else for that matter. Those four economists just created a new form of currency and convinced the people it was the real thing. If we wanted to, couldn’t we uproot our system and make a new one? Maybe, maybe not. But if we can look at money as this thing with subjective value, there are a ton of options to be explored.
Renaut, A. (2013, April 13). The bubble bursts on e-currency Bitcoin. Retrieved from https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html?guccounter=1
Glass, I., & Goldstein, J. (n.d.). This American Life- The Invention Of Money [Audio blog post]. Retrieved January 7, 2011, from https://www.thisamericanlife.org/423/the-invention-of-money
Friedman, M. (1991). The Island of Stone Money. In Working Papers in Economics (pp. 1-5).