What Is Money?

When I was six, I helped my dad clean out the garage and he handed me a dollar bill, and I was pumped. It was just one dollar, but it meant I could purchase something – it held the value of a few packs of gum. Today, I question the value of that dollar as I look at my own electronic bank account with “money” saved in there, yet I do not hold physical paper money in my pockets as I once held that dollar bill. This begs the question, what is money, and how does it hold any value when I rarely see it anymore? 

Money has been valued differently through various times periods and cultures. In America, we can see a ten dollar bill and know that we can purchase x amount of items at a grocery store because somebody somewhere assigned those items certain face values. But what is backing this idea? 

We can start by looking at a tiny island called Yap. Located outside of the Pacific Ocean, explorers from this island discovered limestone deposits on another island, turned them into giant stone discs, brought the discs back to Yap, and bam! Suddenly these discs were associated with wealth. What’s interesting is the discs were so heavy they never moved; they just had different owners, and this “stone money” was their version of gold blocks. But how and why did the people of Yap accept this as a form of currency? How did they look at these stones, and decide that they held more value than crops and food, or a dead warrior? In Yap, the concept of money seems fictional and primitive. 

But in the NPR article by Jacob Goldstein and David Kestenbaum, “The Island Of Stone Money,” they claim that stone money is equated to our own system of money: “’This system, in the end, feels really familiar. If you go online to pay your electric bill, what’s really changing in the world?’ At the end of the day a physical hundred dollar bill is the same thing as transferring money through your phone bank account. The physical dollar may be nice to have and you may feel like you have accomplished something but nowadays this is how the views on money have changed.” Like stated earlier, my money is in the bank, but the bank is lending my money to someone else who needs it, who gives that money maybe to a store to buy a product, so really, where is my money? Does it actually exist, or is it just a digital number in a computer system? Our world views money as this real thing, but I have never seen the amount of money that I apparently have in my bank account, making us not much different from the Yap people after all.

Furthermore, right now, we are experiencing a surge in inflation. It is difficult to understand how this price increase is happening, because who decided that the price of everything should just go up? It’s also hard to understand how the prices increase so quickly compared to how much money is being printed. For example, currently the prices of houses are going up every minute as seen on Zillow, gas prices are going up, etc. So the question is, where will regular people like you and me get the money to pay for this, if our own salaries are not increasing in accordance with the prices of products? And eventually, the market will “collapse,” as history repeats itself. Ira Glass, in the podcast called “The Invention of Money,” discusses how so much money was lost when the house market collapsed in the past, and says that, “Money is fiction. So the answer to the question, where did the money go when the housing market collapsed turns out to be that the money never existed in the first place. All those houses used to be worth a certain amount and now they were worth a lower amount. Simply because that’s what everyone now agreed. No money changed hands, no many vanished.” This is a mind-blowing concept because we as a society will learn from the media one day that the housing market has crashed, and we will simply say “okay,” without understanding where the money went…

And in today’s modern world, we are hearing all over the news about crypto-currency arising, particularly Bitcoin. People believe that this may actually soon be the currency used in the future in place of the United States dollar. That being said, there is still a lot of uncertainty because this currency changes per minute and there is no physical currency to back it; it’s a technological currency. How can it hold value with no backing? The Yahoo News article, “The Bubble Bursts on E-currency Bitcoin,” shares how Bitcoin “…was created in 2009 in the wake of the global financial crisis by an anonymous programmer who wanted a currency independent of any central bank or financial institution.” Keyword: “created.” Something that is created is made up by someone, making cryptocurrency just like the Yap stone money, just like our bank accounts, just like the Stock Market. So aside from Bitoin seeming fictional because it is online, how can we trust it, when there are so many hackers? The same Yahoo News article explains how “…the central bank noted…that the virtual currency has been vulnerable to cyber attacks, including in June 2011, when hackers targeted virtual wallets and wiped some people’s accounts clean.” Same question as the housing market crash – where was the money originally, and where did it go? Did it even exist, to begin with?

The next time I purchase gum from a store, I would love to offer the cashier stone money and see their reaction. After all, it was of the utmost value in Yap. What is funny to think about is that my stone money would not be accepted for a pack of gum, but my credit card would. And my credit card does not have any money on it! I’ll have to charge the gum, and pay the store back in the future using my electronic bank account, which again contains money that I myself have never seen. So basically, is the gum free?

References

Goldstein, J. & Kestenbaum, D. December 10, 2010. The Island of Stone Money. Washington, D.C. NPR

https://www.npr.org/sections/money/2011/02/15/131934618/the-island-of-stone-money

Glass, I. Walt, C. Blumberg, A. Kestenbaum, D. January 7, 2011. The Invention of Money. Chicago, Illinois. This American Life

https://www.thisamericanlife.org/423/transcript

Renaut, A. April 13, 2013. The Bubble Bursts on E-currency Bitcoin. New York. Yahoo News

https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html