The island of Yap, located in Micronesia, adopted a peculiar method to manage its monetary system. By peculiar, I mean that it uses a method of payment that may appear irrational to us. According to Milton Friedman, the particularity about the islanders’ monetary system is the medium of exchange they’ve created called “fei”. While the American currency is made of 75 percent cotton and 25 percent linen, the inhibitors of the island use stone currency. It surprises me that they use rocks to pay for things, but why would I understand their monetary system? Money is abstract, think about the relation between money and faith. For us, the use of dollar bills appears to be a rational method of exchange because we grew up in a nation where the system imposes this idea on us since we are young. Money is abstract because the value of the physical things used to demonstrate wealth is logical only for those who also understand the monetary system that controls a specific region. For that, I might never completely comprehend how the “majestic” proportions and quality of stones worth enough to purchase houses or any other things.
After listening to the broadcast “The Invention of Money” I could not stop thinking about the abstract nature of money. The island of Yap and its monetary system is a form of financial innovation because it clearly represents the idea that we do not need to physically possess something to own it. When I first listened to the story of the magnificent stone that sank in the ocean, I found it irrational for someone to own a stone that is lost in the middle of nowhere. However, I realized that it is not too different from what we do today. Many of the money we think we have is just a value displayed on our checking accounts and savings. Today, money is simply information that is saved in technological devices as computers. In the technological era, people even pay their bills via internet, which means that payments are all about transferring information from one bank account to another. Clearly, money is fiction in any monetary system that exists. Thinking logically about money, allow us to see it as an abstract idea that defines how wealthy we are even if we don’t physically possess things.
The Brazilian economic growth illustrates the importance of the abstract nature of money in society. Brazilians suffered the consequences of the economic inflation for five decades causing the Brazilian currency to devaluate by 50 percent or even more. After multiple attempts to solve the leading political and economic issue in the country, a group of economists discovered that the only way to solve this problem was to make the Brazilian people believe that their money was as valuable as it was decades before. Surprisingly, the national economic situation was stabilized using virtual currency. This situation presents money in its most abstract way. It astonishes me that the economic chaos was solved by simply tricking the Brazilian people into believing in currency that did not even existed. As stated in the NPR broadcast, “Brazilians have gone from an absolute faith that their currency has no real value to an absolute faith that its value will never change”. In that case, money can be perceived as an illusion because it was just the idea of possessing valuable currency that saved the entire nation from the economic epidemy. My perspective about money has changed since I could not explain to myself what money is about, I never thought about currency as fiction. Now, I am convinced that money has always been an illusion imposed by the different monetary systems.
The entire nature of money comes from diverse political systems that use money as power to control the complete economic scope in society. According to an article called “The Nature of Money in Modern Economy,” Aristotle considered money to be an abstract legal power created by laws, not by nature. This does not surprise me after all because it is evident that human beings have always been so desperate about having control over everything. Money is the ideal source to get to power due to its natural, but fictional ability to make people have faith in it. The essence of money does not come from natural purposes, think of it as a political legacy used to control the flow of economy in society. If you are wondering how people’s lives are controlled by any monetary system, take into account the fact that today most people have created a dependency on the banking industry. Everything is about credit cards and checking accounts these days. People have access to the banking industry to lend money, to get paid, to purchase items, and to accomplish many other purposes. In the article “The Nature of Money in Modern Economy,” it is mentioned that “whoever controls the monetary system controls the nation”. The nature of money is not only powerful for its value in the market, but also for its ability to make human beings believe in it without even having a real value.
What is money? The monetary system adopted by the inhibitors of the island of Yap and any other system, including ours, are theoretical. No matter what kind of physical object represents money when the essence of money is what we care about. This assignment has blown my mind, most people use money as a method to exchange things, but not too many people think about the nature of money. Money is fiction and is purely based on faith.
References
Friedman, Milton. “The Island of Stone Money.” Counterintuitive, Stanford University, Feb 1991. https://counterintuitive2015.files.wordpress.com/2015/01/stonemoneyessay.pdf
Glass, Ira. “The Invention of Money.” This American Life, 19 Feb, 2018. https://www.thisamericanlife.org/423/the-invention-of-money
Zarlenga, Stephen and Poteat, Robert, The Nature of Money in Modern Economy – Implications and Consequences (July 2016). Journal of King Abdulaziz University: Islamic Economics, Vol. 29, No. 2, 2016. Available at SSRN: https://ssrn.com/abstract=3062008
Counterintuitive 