Invisible Money

Ask anyone around the world what money is and you will most likely get the same answer everywhere: Money is what we use to buy things. While this is certainly true, it doesn’t actually answer the question of what money is, it only answers what we do with it. Money, in reality, is just a concept, or an idea if you will, that society has accepted as a way to exchange services and/or goods. I was a believer that money had value and that the little slip of paper I carry in my wallet has worth. Since reading “The Island of Stone Money” by Milton Friedman, I have started to question what I actually believed money to be. 

In his article, Friedman discusses the people on an island called Yap. It’s a small island,  with only five to six thousand people, where their only form of currency are large stone wheels made of limestone called Fei. The island doesn’t have the type of rock to make these stones so the people have to travel about 400 miles away in small, bamboo boats in order to get the limestone. They carve them on the other island and then sail back to Yap with them. These stones “coins” are too big and too heavy to move between people for every transaction, so they came up with the idea that you don’t need to physically have the stone in your possession to know it’s yours. 

In the NPR broadcast called “The Invention of Money,” and in Friedman’s article, the story about a trip some people from Yap had taken to retrieve the stones from the other place was brought up. These people traveled to the other island to get more stones and, during their trip home, a storm forced them to let the stone go in order to survive. When they got back to Yap, they told the other people what had happened and that the man’s stone was on the bottom of the sea. They all had no problem with the idea that this stone, which they had never seen before, belonged to the man and that he could still use the stone as currency. This demonstrates the concept that money doesn’t have to change hands to be used, and that  money doesn’t have to be seen in order for it to exist. 

The German Government took over Yap and the surrounding islands in 1898 after purchasing them from Spain. There were no roads on the island but there were paths the people used to travel on. When the Germans came to the island, they saw that their paths were in bad condition and decided to place a fine on the chiefs of the islands for being disobedient and not cleaning up the paths. This involved sending a man to the places where people were disobedient to their rules “where he simply marked a certain number of the most valuable fei with a cross in black paint to show that the stones were claimed by the government.” This made the people of Yap want to clean up the paths and highways and make a clear way from one end of the island to the other. The Germans then sent their men back to erase the marks they had previously made, as their fine was paid.

A similar incident occurred between the United States and France in 1932. The Bank of France was worried that the U.S. wouldn’t stick to their arrangement, so they asked the Federal Reserve in New York to convert whatever money that had into gold. Since it would be a hassle to ship all of the gold back to France, the Federal Reserve just stored the gold on France’s account. Even though France didn’t physically have the gold they possessed, everyone knew that the gold was France’s. It was put into drawers and was labeled to indicate that the gold belonged to France, just as the Germans had done with the stones. 

The idea that money is a mental concept and it doesn’t really matter who physically has it to be claimed by someone else can be seen in the article “Bitcoin Has No Place In Your — Or Any — Portfolio,” by Jeff Reeves. Bitcoin is the latest form of digital currency that is taking over the world. While it is becoming increasingly more popular over the years, this form of cryptocurrency has no actual value. Reeves claims that “a bitcoin, then, is simply worth whatever a random person is willing to pay — derisively known as the “greater fool” theory, because profits rely on your ability to find someone more foolish than yourself who is willing to buy higher.” Bitcoin is just the idea of money that exists solely in the digital space, which is similar to how we, in the U.S. view our money.

In the NPR broadcast, Jacob Goldstein brings up the fact that whenever we get paid from our employer, it just gets put into our bank accounts via direct deposit and “it’s not like they give [us] a bunch of hundred dollar bills every week.” The money is just numbers on a screen being transported back and forth between people and companies. Goldstein also goes on to mention that when we pay bills online, no one from the bank is actually going to that company and handing them money. “So currency even now is like old-fashioned. You don’t have to touch money. You don’t have to see it. It’s just information.”

The “invisible” money we all have sitting in our bank accounts are only worth the value that we assign to it. We don’t have to have it to spend it, and that can be seen since the beginning of currency. The people of Yap believed that to be true, and even now with bitcoin we see the same thing. People tend to value how much they have based on what numbers show up on their screens. Right now, if everyone in the world went to the bank and wanted to withdraw all of their money, the bank wouldn’t have nearly enough to cover it all. This just goes to show that money, while we give it so much value, is just a made up concept that we show with silly green pieces of paper.

References

Friedman, M. (n.d.). 1991 Island Stone Money. Collected Works of Milton Friedman. Retrieved September 26, 2022, from https://miltonfriedman.hoover.org/internal/media/dispatcher/215061/full

The Invention of Money. (2011, January 7). This American Life. Retrieved September 26, 2022, from https://www.thisamericanlife.org/423/the-invention-of-moneyReeves, J. (2015, January 31).

Bitcoin has no place in your — or any — portfolio. MarketWatch. Retrieved September 26, 2022, from https://www.marketwatch.com/story/bitcoin-has-no-place-in-any-portfolio-2015-01-28