Make belief; we all know that as a child’s ideology, but how would you describe our current economy? For starters, the economy as we know is the wealth and resources of a country. For centuries our monetary system has been somewhat on the radical side, with little understanding on what a currency’s worth is. It all started with barter trade; a system where people exchanged livestock or objects for other objects or sheep. This system did not involve any legal currency of sorts. Then the first legitimate medium of exchange “money” was introduced around 5000 B.C; this was because barter was not as efficient, but money is. What is money anyway? You will find that this question has echoed for several generations, and has had many different definitions with loosely similar terminologies. But the real question is, why is money so important in our day to day life even though we can almost agree that money is fictitious. Consider this example of the stone money on the island of Yap from the Planet Money team at NPR. As explained by Professor Hodges from Rowan University, essentially begs the notion; money and wealth are abstract, and it dwells solely in the minds of people. Would you believe a limestone could be worth so much? Well, the people of the island Yap would disagree with you. In Yap wealth is measured by the ownership of huge a limestone found miles away from Yap. Milton Friedman, the writer of The Island of Stone Money, shares with us some insight of how Germany “slowed” the economy of Yap by putting marks on the stones possessed by the people for not heeding the orders of the Germans. With time the people of Yap began to impoverish and eventually did what was ordered of them. The stones were later unmarked and given back to the original owners of Yap, and something astonishing happened. The little island return back to their wealth and everything was back to normal.
After hearing this, I was in awe of how a whole society was impoverished by merely putting a mark on a stone. The idea of stone currency even though as crazy as it seems is not as bad. After all, we put our faith in a paper to perform our daily transactions. But the fact Germany was able to impoverish the people of Yap by placing a mark on the stone is mind-blowing, and yet we have similar things happening in our worlds. If you think our society is so different, how about the panic that occurred when the New York Federal Reserve Bank allotted some amount of gold into a drawer labeled bank of France in its basement. This action made the US dollar weaker to the French franc, as Milton Friedman explains. How is this any different from what the Germans did to the people of Yap. The stone never left Yap neither did the gold, yet people viewed the US dollar as a weaker denominator to the France franc, funny right. The idea that wealth is abstract, and money is not. We physically see and touch money, and even though wealth compromises of money, wealth is abstract. Jacob Goldstein, Planet Money producer, and the individual who read about the pre-industrial Yap in the book ‘The Island of Stone Money.’ talks about a scenario where a wealthy family enjoys generations and generations of riches from a stone that has never been seen before, yet the family is considered wealthy. Compare that to a wealthy man visiting the bank to check the amount of money he owns. He does not physically see the money, yet we still consider him wealthy.
To even further explain how abstract wealth is, let’s return to the conversation of Planet Money team at NPR, “The Lie That Saved Brasil”; the title of the segment we will be discussing. In this segment, we find out how four drinking buddies save Brasil’s economy. In 1990, Brasil had 80% inflation a month, and this was a problem solved with fake money which would, later on, become their standard government currency. Before that, the Brazilian currency lost its face value at a rapid pace, which decreased people’s faith in it. One of the ways the four buddies tackled the Brazilian inflation problem was to convince people to believe in the “fake money” they invented, and like that the economy of Brasil took a different direction.
Another example is bitcoin and the craze that later followed. We remember the bitcoin bubble, and how investors rushed for a piece of the action. Which eventually lead to the bitcoin bubble. Well from The bubble bursts on e-currency Bitcoin, written by Anne Renaut of AFP News. We understand that Bitcoin, a cryptocurrency, with no backings, at one was worth a whole lot of money because people believed it did. Bitcoins are acquired by a process called mining and is stored in your computer hard drive as a virtual wallet. In this case, the owner did not have the physical acquisition of bitcoin, rather a computer code that displays on the computer screen that he owned it. Hundreds of individual battled to own a portion of this cryptocurrency, knowing the risks and dangers it may pose to the economy. From the bubble burst on e-currency, we understand that the cryptocurrency enables money laundering and other illegal activities due to its anonymity. We can see why no one cared about the warning given by the European central banking after all money laundering does not take away from their wealth, but it becomes a problem when people lose money. Money that did not exist, but was possessed by them. So we can agree that wealth is abstract, and money will always be money. In a couple of hundreds of years to come what will be our money, and how are we going to measure wealth? That’s a question for tomorrow’s people to answer. Hopefully, then, the concept of money and wealth will be properly understood by the vast majority.
Friedman, M. (n.d.). The Island of Stone Money (Working paper). Stanford University: The Hoover Institution. February 1991. https://counterintuitive2015.files.wordpress.com/2015/01/stonemoneyessay.pdf
Glass, I., Joffe-Walt, C., Blumberg, A., & Kestenbaum, D. (2011, January 7). The Invention of Money [Audio blog post]. Retrieved September 22, 2018, from https://www.thisamericanlife.org/423/the-invention-of-money
Hodges, David. Tue Sep 18 Lecture. Rowan University. 18 Sept. 2018
Renaut, Anne . “The bubble bursts on e-currency Bitcoin.” Yahoo.com. 13 Apr. 2013. 23 Sept. 2018. https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html