Stone Money — kevinbacon

It is surprising how confusing and intricate the idea of money is. Money is something we use everyday, and for the most part no one questions where its value comes from. After listening to the NPR broadcast on stone money, and reading Friedman’s essay I have gained a stronger insight on the aspects of money’s value. Also, how it really is a fictional concept dictated by mankind. As bizarre as fictional money sounds, it tends to become a clearer idea when you take into account the Stone money of yap, and the housing crisis of 2007.

In the first ten minutes of the NPR broadcast, many of my questions on money had already been answered. One of the first details about money that was brought up was that it had a fictional nature. This confused me because how could something that is in physical existence and used everyday to buy commodities fictional? It makes sense when you take into account the housing bubble of 2007. When the housing market crashed and the U.S economy lost trillions of dollars, people wondered where that money went. However, it didn’t go anywhere because it never existed. The value of the properties simply decreased. Why did it decrease? Because people said so. The government and banks agreed that the houses were now worth less, so in reality no physical money was lost. The value of assets just decreased. This put it all together for me because if man can dictate the value of money, one day it can be worth five times as much as it was worth a week ago. In addition to the housing crash, the broadcast also covered the monetary system of the Island of Yap, and the American money system. I drew many similarities between the two. The people of the island of Yap used large limestone blocks, too heavy to move, as their currency. It didn’t matter where the stone was, and even if it wasn’t in your possession you could still own it. It is almost as if this system was built on trust. Similar to this is the U.S banking system. Pre-1930’s gold was used as money’s value. Pieces of paper represented the amount of gold one owned. Instead of toting around gold bars, people has small slips of paper representing their wealth. Now the Yaps didn’t have pieces of paper, but we both did not carry around the main sources of wealth, so how does one know how much money they really have? I believe this question can be answered with, it is the idea of money constructed by man that signifies the wealth of an individual.

Reading Friedman’s essay raised many questions about money. It helped me draw many parallels between our current idea of money, the Yap’s idea of money, and when the French stored gold in U.S banks in the 30’s. In today’s time our money is represented by online banking statements, or stocks and bonds. These are simply just numbers put in front of our faces. There is no physical evidence of this money. This is same with the islanders of Yap. In Friedman’s essay he talks about how a very rich native on the Island lost a stone at the bottom of the ocean. When he returned the the Island he still held the same amount of wealth that the physical stone would posses. No one questioned where the stone was, they all believed he owned it no matter if it was at the bottom of the ocean. Friedman goes on to talk about how the French stored gold in our bank. The gold was separated and labeled as the French’s. The gold was not located in the country of France, it was stored in the United States, but still was owned under the French. This increased the buying power of the Franc and lowered the value of the U.S dollar. Friedman asks the question, “…how many of us have literal personal direct insurance of the existence of most of the items we regard as constituting our wealth? Entries in a bank account, property certified by pieces of paper…” How do we really know what our wealth is when the only thing indicating it is a string of numbers on a computer screen?

After I read the article The Bubble Bursts on E-Currency Bitcoin, it was immediately evident that Bitcoin, a virtual currency, exhibits the same nature as actual money and the stone blocks of Yap. It all relates because much like the housing crash of 2007, the Bitcoin market rose to unsustainable heights and followed with a plummet of value. bitcoin was created as a currency that would be independent of any baking system. Even though it is not distributed or backed by any banks, its prices can still fluctuate. Bitcoin started out valued only at a few cents. This then rose to about $19,000 a few years later. People quickly began to take interest in these high prices, realizing the value of Bitcoin. Eventually there were too many investors and the rarity of Bitcoin began to decline, ultimately declining its prices. Money takes its attributes from the idea of supply and demand. These shifts can quickly alter the value of any type of currency. This is why prices and value are dictated by man. If everyone wants Bitcoin its value will go up until the consumers are satisfied. This then leads to a crash because whats the value when everyone has a share? Behind all these concepts lingers the fact that there is no physical evidence of value. This is especially true to Bitcoin, making it “”a very uncertain, speculative venture,” because it is not backed by a commodity”” according to Professor Steve Hanke of john Hopkins University. Sure you might have five bitcoins in your account but what is that number virtually displayed on the computer screen really worth?

Money truly is this fictional idea created by man. It is fictional because it is not really there. Money doesn’t hold the physical value that gold, or limestone blocks do. Man can decide how much money is worth at any given time because it is a concept and doesn’t represent the rarity of gold, or physical labor that is put into retrieving a massive stone. The sources I used gave me good insight into the concept of money as a whole, along with reversing my understanding of money. Looking at the monetary systems at a whole new angle, I now have many more questions fueled by this new knowledge.

 

References

Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University , 1991.

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

“The Invention of Money.” 423: The Invention of Stone Money. This Is American Life, WBEZ. Chicago . 7 Jan. 2011. https://www.thisamericanlife.org/423/the-invention-of-money

 

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