The Concept and Belief of Money

Within the past two days, my concept of money has most definitely changed. While I previously did have a basic understanding of money that others have, it never actually occurred to me that I don’t have that physical form of money and that it is all just numbers. This is only because the concept of it is so simple, that I never actually sat down to think about it. The numbers that show up in my bank account are genuinely just numbers that are given to me. I don’t have this cash on me to prove how much money I have. 

While money may not have been around forever, the concept of it has. Money is just a concept that has been built over time. In Milton Friedman’s, “The Island of Stone Money,” it is said that the first well-known concept of money was first seen, from 1899 to 1919 with the people on the island of Yap. The people from this island used large stones, called fei, to symbolize their wealth. That within itself is interesting, but the most interesting part about the fei is that nobody had to have possession of this stone for it to be worth something. While that may have been an option, nobody had to lug the stone around. If someone were to pay another inhabitant of the island and agree about who the stone belonged to, everyone who lived there would know that it belonged to the other person. 

Now, the question is, what does this mean? How can someone have money that belongs to them when they don’t have the physical form? Asking this question causes the realization that this is exactly how money works. This is the realization that I had when this discussion first arose. It is a concept that society has decided to collectively put their belief and values in. A big example of this comes from the people of Brazil. At one point and time, Brazil had some of the worst inflation in history. The inflation rates increased prices in Brazil by about 80% each month. In the broadcast, “How Fake Money Saved Brazil,” Edmar Basha, speaks about how he and three other economists hired by the government, made the people of Brazil believe that their money had value. 

This also raises the fear of how not having a physical form of money could quite possibly end badly for the people and the government as well. A prime example of this is The Great Depression. The article, “The Great Recession, Government Performance, and Citizen Trust,” by Yunsoo Lee, talks about the faults of the US government, and how this caused citizens to lose their trust in them. Lee says how the government was unable to handle the crisis at hand and failed to regulate financial institutions, which makes it their fault. This caused citizens to lose their trust in banks and the government because all of the money that was put into the bank just disappeared. From then on, people couldn’t trust banks, until Roosevelt gave his speech to ensure that financial institutions around the country were stable. 

This Great Depression and Brazil are two great examples of how society as a collective is why we value money. If we believe and entrust a certain system then of course it will be valuable. Sort of like Pokemon cards. We are told that certain cards are rare, so therefore those cards have more value, and we stick to that mindset. We stick to that mindset because we want to. It is the same with money. The value is given to it and then we oblige. 

Another example of this is Bitcoin. Although it started off rising to insane heights, it ended up falling off one day to only be worth about 54 dollars. “The price of the virtual “geek” currency had soared through the stratosphere in recent weeks, trading for a high of $266 on Wednesday — only to come hurtling back to Earth in just three days. By Friday, a single Bitcoin was worth just $54.” Bitcoin doesn’t even have a physical form, the only presence it has is on a screen. In everyone’s minds, or whoever chooses to believe, Bitcoin is worth a lot. Without a doubt, cryptocurrency has changed the global monetary landscape and system. These digital currencies aren’t controlled by any sort of central authority. These types of currencies can help financial transactions with increased security. This is because cryptocurrency uses different digital techniques to securely verify transactions. 

Along with cryptocurrencies come in-game currencies. In-game currencies are more abstract solely because they only exist within that game. In this case, we can call in-game currencies digital tokens, because necessarily that is what they are. These tokens can be compared to tokens at an arcade. Although arcade tokens have a physical presence they are the same. If you try and pay for something in a store with an arcade token it won’t be accepted because it doesn’t have any value there, but if you use it to play a game at an arcade it will be accepted. It all depends on the belief that people have for it. This goes for digital tokens as well. If you use it in the game, it is accepted, but if you try and use it to buy something off another website, it wouldn’t be considered a valid way to pay. 

Going along with the theme of money can be present without a physical presence. The US Federal Reserve Bank can create money and get rid of money. While they may not create money they can crunch the numbers and add a certain amount of money to whatever account they may like. However, they do this in some regard to not just make money appear out of thin air, but to purchase from banks. Doing this gets the money that the Federal Reserve Bank needs. 

This whole topic has shocked me and left me in awe. I never thought about how deep this could all be. I knew that everything had value, but it had never occurred to me that things only have value because it is instated by people around the world. Money is all a concept that has been brought to reality because people have faith in believing that it is worth something. Just like how the Yapese believed that the stones they used for currency were worth something. It is crazy to think that something that is so valued as a society, is solely valued because of the belief we hold for it as a whole.

 

References

Friedman, Milton. “The Island of Stone Money.” The Island of Stone Money (1991): 3-7. Web. 10 Sept. 2016

Joffe-Walt, C. (2010, October 4). How fake money saved Brazil. NPR. https://www.npr.org/sections/money/2010/10/04/130329523/how-fake-money-saved-brazil&nbsp

Glass, Ira, Chana Joffe-Walt, Alex Blumberg, and Dave Kestenbaum. “423: The Invention of Money.” This American Life. Prod. Planet Money. 7 Jan. 2011. This American Life. Web. 11 Sept. 2016.

Renaut, Anne. “The Bubble Bursts on E-Currency Bitcoin.” Yahoo! News, Yahoo!, 13 Apr. 2013, sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html. 

Lee, Yunsoo. “The Great Recession, Government Performance, and Citizen Trust.” Journal of International and Area Studies, vol. 25, no. 1, 2018, pp. 57–70, https://doi.org/10.23071/jias.2018.25.1.57.