What is money? This is the question that is being asked. It can be defined as a medium of exchange, as a store of value or a unit of account (Principles of Economics). As I listened to the Prologue of The Invention of Money by NPR broadcast, everyone has different concept or idea of what money really is. As I continued to listen to the reporters, I keep hearing that money is imaginary, and in a way, this is true. The physical green paper that we all hold is no longer backed by gold, it was just printed by the federal government. The money is actually created out of nothing and it is apparent that this paper has become more and more useless.
This idea of cash money not having as much worth as it’s supposed to in Act 2 of The Invention of Money. The federal government printed one trillion dollars and bought bonds from the bank, so they can lend it out at a lower interest rate and in exchange for assets. This was the safe way to put money into the economy for decades, which is smart in preventing a depression, but then the actual dollar is not worth as much as it is supposed to be worth.
The American currency is composed by physical cash and electronic cash. The physical and electronic money are supposed to equivalent, but the former is slowly losing its worth. When we work and receive a paycheck as a direct deposit into our checking accounts, our “money” is a number on a computer. We are never actually in contact with our money since it was never there. While reading Milton Friedman’s The Island of Stone Money, I realized that American’s electronic currency is similar to the idea is close to the Yap people of the island of Yap in Micronesia. The people of the island have a large limestone, and it is equivalent to being rich. The limestone itself never moves, the different tribes just know who owns it. If the “owner” decides to trade it for something else, the new “owner” does not move the stone, it is just verbally known that it is theirs. This is just like our electronic money; we see numbers change and it is ours, even if we never actual come in contact with the money.
This notion of ownership is also similar to the when the Friedman talks about the French wanting their gold back. The United States in 1932 did not want to fulfil France’s request to have their gold shipped to France because of the possible financial crisis. Instead the government told France that they would separate France’s gold and label it as theirs in the national reserve. This satisfied France’s government. Even though they didn’t actually receive their gold, they felt as though they had ownership of it, even if it is across the ocean.
Who is to say that one dollar is really worth one dollar? It is just a piece of paper without actual worth, unlike gold and silver, which have both had worth for hundreds of years. Gold and silver are the most widely used forms of commodity money, along with having actual value jewelry and industrial use, apart from their use as money Principles of Economics). This disadvantage with commodity money is that the quantity can fluctuate, so the worth fluctuates along with it, just like the federal government printing excessive amounts of money.
I have always felt that in a way our paper money isn’t worth as much as we want it to be worth. The federal government is not backing our dollars with gold or any other standard leaving our economy open to crash. The only reason the US dollar has worth is because we say that it does. Trillions of dollars have printed in over the last couple of decades. Our faith in the value of our money is the only receive it has value. If the entire country decided that the one dollar bill no longer was worth one dollar, the it technically would lose its value.
I reiterate that money is imaginary in a way, we feel as it is ours even if it isn’t really in our hands. I have always felt that in a way our paper money isn’t worth as much as we want it to be worth. The physical objects that we traditionally use is just a demonstration of wealth. We are no different from the Yap people who feel as though their stone is wealth. The thought of money is just a crazy security, whether it is a stone or gold in another country.
[Author removed at request of original publisher]. “Principles of Economics.” University of Minnesota Libraries Publishing, University of Minnesota Libraries Publishing Edition, q 2016. This Edition Adapted from a Work Originally Produced in 2010 by a Publisher Who Has Requested That It Not Receive Attribution., 17 June 2016, open.lib.umn.edu/principleseconomics/chapter/24-1-what-is-money/.
Friedman, Milton. “The Island of Stone Money.” Counterintuitive, Stanford University, Feb. 1991, counterintuitive2015.files.wordpress.com/2015/01/stonemoneyessay.pdf.
Glass, Ira. “The Invention of Money.” This American Life, 19 Feb. 2018, http://www.thisamericanlife.org/423/the-invention-of-money.