Money: Worthless without Consent

Before reading and listening to these articles and stories I was already aware of the fact that the value of money is not static. I am not an expert on money, but I do have some knowledge of some basic information, such as the fact that printing more money devalues currencies and causes inflation. I was also already aware of the fact that the value of money is arbitrary and based on confidence in its value rather than possessing that value inherently, in part because I have already heard stories such as the Stone Money story before this assignment. After reading through the articles provided for us, my view of money has not really changed, if anything the articles provide viewpoints that should reinforce my own. Of the stories presented to us, I found the story about how Brazil repaired its economy to be the most interesting because it presented solutions to the problem of inflation which I never would have thought of. I also found the story about the US central bank interesting because they are an entity that I am aware of but don’t know much about.

The article Stone Money by Milton Friedman is about the currency system used by the Yap Islanders. The Yap Islanders use a currency called fei, which are limestone circles with holes in their centers (henceforth referred to as stone coins). These stone coins are quarried from a relatively nearby island and brought back to the mainland where they are used in exchanges, similar to coins in other cultures. On the island of Yap, due to the large size of the stone coins, the islanders do not believe it is necessary to be in physical possession of one of these coins to actually “own” it, for example, an islander could make a deal with another islander and in exchange be paid in one of the stone coins, the stone coin does not actually have to leave the other man’s property for it to be considered yours and it may stay in his property indefinitely. One story given as an example of how these islanders view the possession of these coins is when a group of these islanders were transporting a coin from the limestone island back to Yap, a storm forced them to abandon their coin, which was swallowed by the sea when they reported this loss to the other islanders, they were not really bothered and they still put the coin “into circulation” so to say even though no one physically possessed it. The author compares this story to a US story where the US needed to do an exchange with France. Instead of physically transporting gold to France, they simply marked certain bars as belonging to the French. Both these stories are very fascinating views on how money works, however, I cannot really say they have changed my view of money, partly because I have already heard one of these stories and it has already informed my view on how money works. The NPR article also called Stone Money covers essentially the same story This article essentially provides a simplified overview of the Stone Money essay. The article makes the claim that the economic system established by these Islanders helps answer the question “What is money?”. In this article, and all the other articles that discuss the Island of Yap, the aspect of the Yap islander’s currency that is focused on is the arbitrary value of the stones and the fact that the stones don’t need to physically change hands in order for their ownership to change. These two aspects of the currency are compared to how our currency works. The example this article uses is how in our society when we make a payment, all that often happens is that some values change in our bank account.

The NPR podcast, The Invention of Money goes over three stories, the first one is about the currency used by the Yap Islanders, the second story is about how Brazil managed to solve its inflation issues through the creation of a new currency, and the third one is about the operation of the US central bank, the Federal Reserve, or The Fed. The story they tell about the Island of Yap provides all of the same information as the other articles and the essay so I will skip over it. The story about how Brazil managed to save its economy was very interesting. Thirty years ago (twenty when the article was written) Brazil was facing an inflation crisis, the value of their currency was dropping every day, and their politics had devolved into a vicious cycle where a president would be kicked out of office in favor of a new man who claim he could stop inflation, only for his plan to make things worse and for the cycle to then repeat. Eventually, the finance minister of Brazil brought in a group of experts to help solve the problem (why this wasn’t done, to begin with, is beyond me) The solution the experts thought up was very interesting. The first bit of advice they gave was that the government had to slow down the creation of money, the second part of their plan was about restoring people’s faith in the currency, their plan was to create a new “fake” currency called URV. People still technically used the old currency however everything was always listed as a URV, the example the article gives demonstrates this well “Say, for example, that milk costs 1 URV. On a given day, 1 URV might be worth 10 cruzeiros. A month later, milk would still cost 1 URV. But that 1 URV might be worth 20 cruzeiros.” This effectively gave the appearance that the prices were remaining stable and it eventually restored people’s faith in the currency and stopped the inflation crisis, all because they had managed to trick people. As previously mentioned I found the story about the Federal Reserve to be interesting because before this I had very little knowledge on how they operate.

This article is an opinion piece that makes the claim that bitcoin is not a worthwhile investment. It uses three main points to support its central claim. The first point is that Bitcoin does not have a government or central bank in order to back up its value. The second point is that the level of anonymity in Bitcoin is actually a negative aspect as it leaves you with few options to deal with hackers and others with criminal intent. The third point it makes is that Bitcoin is volatile and changes value very rapidly due to unpredictable variables, such as hackers. The opinion piece then goes on to claim that Bitcoin is not totally without value, saying that the idea of a digital currency could make changes to future transactions, though it is not very specific. The main point of the article is that while bitcoin may have some value as an innovation it is not a safe investment for the majority of people.

This article is about the bursting of the Bitcoin bubble. It discusses some of the potential causes of this burst. The article attributes the bursting of this bubble in large part to the volatile nature of Bitcoin which is because it is not backed by a government or central bank, and thus confidence is based on investors who are unreliable, and also the fact that Bitcoin, unlike dollars is not a necessity for survival.

References

Friedman, Milton. The Island of Stone Money (1991) https://counterintuitive.blog/wp-content/uploads/2015/01/stonemoneyessay.pdf

Goldstein, J., & Kestenbaum, D. (2010, December 10). The island of Stone Money. NPR. https://www.npr.org/sections/money/2011/02/15/131934618/the-island-of-stone-money

Glass, Ira. (2018, February 19). The invention of money. This American Life. https://www.thisamericanlife.org/423/the-invention-of-money

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

Reeves, J. (2015, January 31). Opinion: Bitcoin has no place in your – or any – portfolio. MarketWatch. https://www.marketwatch.com/story/bitcoin-has-no-place-in-any-portfolio-2015-01-28

Renaut, A. (2013, April 13). The bubble bursts on e-currency bitcoin. Yahoo! News. https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html