Hard Money

Money and its use in society is an extremely complex topic, or a very simple one depending on who you ask. Most people in modern societies will think of paper cash, or possibly checks, or coins, or loans, or digital wallets, or bitcoins. It’s odd that all these vastly different types of currencies can be considered valuable but if someone were to include large slabs of stone the size of cars, many would raise an eyebrow. Alternative currency like this might sound unthinkable and impractical, but it might not be any crazier than the economic systems in America or Japan. Exploring the nature of money and how different societies interact, it’s easier to be compelled that not only is the different currency the same in many ways, it’s not real at all. Sure the paper you hold in your hand is real, but its value is just a societal construct. Different currency and economic systems from around the world are all valuable in the same way because they all rely solely on faith and confidence.  

Milton Friedman’s essay “The Island Of Stone Money” explores the economical system of the island Yap and its use of stone money. Yap doesn’t use coins or paper, but a type of heavy thick stone wheels known as “fei”, that can be greater than 12 feet in diameter. These stones are used for major transactions, and they don’t move physically, the only difference is that the receiver is known as the owner of the stone even if they may never see it with their own eyes. Friedman explains how in one occurrence on an expedition to gather this currency, which requires travel of a few hundred miles away, a large amount of it was lost at sea. Even lost to the point of never being retrieved, the inhabitants of the island still agreed the stone had value and was able to be used in transactions. This might sound laughable, but when we think of the number of times we’ve physically seen our own money the similarity starts to show. When someone pays a phone bill, they hit some button on their computer telling their bank to send an amount of money to their phone company. The phone company revives the payment and the customer’s bank account numbers change, but no one receives the physical money. Both the Yap and phone bill scenario play out with physical objects as currency, but all anyone really cares about is the idea that the holder of it changes hands. 

Economic stability seems questionable in a place like Yap, though looking at Brazil’s case we can see how doubt in our imaginary currency systems is a common experience. Going into the case of Brazil, we can see how all money is more in the imagination than we have been led to believe. The NPR broadcast “The Invention of Money ” explores both Yap and the period of time Brazil was going through an economical crisis. In the 1990s, inflation in Brazil was going up 80 percent a month. Simple objects such as sunglasses could reach price equivalents of hundreds to thousands of dollars. Their savior came from four economist friends chosen to address the issue by the government. They created a new currency called a URV that was not a coin, a bill, or a check, it didn’t exist at all. In the end, the use of this new currency led to the ending of this radical inflation. As frightening as untouchable money might sound, stone or URV, all anyone really cares about is if it fixes our problems. We’ve also seen instability recently with bitcoin. Anne Renaut’s Yahoo!News article “The bubble burst on e-currency Bitcoin” from 2013 tracks the price fall of the digital currency, being worth $226 on one day, and only $54 three days later. This rise and fall are common in bitcoin and other similar currencies, but even a bubble burst as great as this did not completely stop people from buying it. Because once again the value of a currency isn’t what is important, it’s that people have faith in it. The fact is bitcoin is unstable, but the confidence of its believers is what makes the difference between a usable currency and just some number on a screen. 

One might try to argue that the dollar has a “value” set by the government, but in reality, the value is not worth no more than one of those large stones, at least if that’s what the public believes. We can step aside from our familiar dollar bill and look at bitcoin as an example of this. In an opinion article from Market Watch journalist Jeff Reeves goes into detail on why he thinks bitcoin should not be on your portfolio radar. He specifically describes a “greater fool” theory which states that the only worth bitcoin has is whatever someone is willing to pay. Even if you don’t understand bitcoin, you can understand that his statement not only applies to it but to every form of currency.  Money is only truly worth its buying power, at least that is all that you and I really care about. If an enormous stone in Yap has the same buying power to purchase a new car as a few thousand dollars because the seller says so, how could you say one is more valid than the other.  It’s the confidence in the money that makes it “real”, not some number the government gave it. 

After looking at all these different examples it would be hard to say that the people in Yap are that out of touch. Stone slabs are only worth as much as someone will give them, just like a dollar or a euro. As unstable an economy as that sounds, all economic systems are a rocky boat. One day things are worth something, the next they aren’t. Money doesn’t always make sense, so it’s time to stop believing one is more real than the other. 

References 

Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University, 1991. https://miltonfriedman.hoover.org/internal/media/dispatcher/215061/full 

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

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. (n.d.). The bubble bursts on e-currency bitcoin. Yahoo! News. from https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.htm