Faith in Money

Money is one of the only things in life that absolutely everyone is affected by, and it’s rarely thought about. Sure, you might constantly be thinking about how much you have, or how much more you need to get, but rarely do you think about what your money actually is. In the past, it might’ve been a gold bar or even a rock, but as time moves on money is becoming less and less tangible. Nowadays, all that money is the faith that we have in it. Money and faith are perfectly intertwined, and they always will be. 

The story of the Island of Yap perfectly encapsulates the idea that faith is money. Planet Money’s podcast “The Invention of Money” discusses Yap’s history and the way it runs its own economy. Long ago, explorers from Yap found huge limestone disks. Their society then agreed to use these stones as their currency. However, no one wanted to lug around these huge stone disks. Instead, you would trade ownership of the stone, without ever touching the stone itself. The people relied on this faith-based system, and it worked out extremely well for them. Even when the stone was lost at the bottom of the ocean, the people still decided the money was tangible. The people of Yap were able to grow, prosper, and build their economy all on faith.

The Yap system might seem silly, but it closely relates to our own in the United States. Think about it, you have an online bank account. You can see the amount you have, and use it however desired. The bank doesn’t have this money in cash, nothing even close. If you went to them and asked to withdraw all of your cash, the probable answer is that they wouldn’t be able to, since they don’t have enough. Your online bank statement is giving you a promise that you have that amount, even if it isn’t tangible. However, you have faith in that amount. Our banks are just a confirmation of our wealth, and author Milton Friedmen states in his essay, “The Island of Stone Money,” exactly that. He tells of a time when the Bank of France asked the US federal reserve to store their gold in a US account, instead of having to ship it overseas. The federal reserve put that gold into an account, and all of a sudden headlines popped up stating that America was losing its gold reserve to France. The money didn’t move at all, but possession of it did. People’s faith in money is so strong, that even when the money itself isn’t affected, the fear of losing it remains. We fear whoever has possession over it, even when that person wouldn’t be able to reach it if they tried.

The US isn’t the only country that relies on the faith of the people, take Japan printing more money for example. For a few decades now Japan has been in an economic funk due to banks not fighting against deflation. Recently, however, as author Hiroko Tabuchi writes in his article “Back in Power, Abe Aims to Spend Japan Back to Economic Vitality,” Prime Minister of Japan Shinzo Abe has ordered the printing of almost 21 trillion yen.“From now on, the government is spearheading the economics of growth”, the Prime Minister says. He promises with this the economy will be stirred, and growth will prosper. While many fear this will cause inflation, people are excited about new possible economic growth. So far, the market response has been pretty positive, and all the Prime Minister had to do, was order for more money to be printed. None of this money is backed by anything, but the idea of their being more has given the people of Japan hope, and the stir for a better economy is what gets people excited. Many are warning that the new age of wealth will not come, instead, there will be rising inflation, risk of fiscal instability, and bond sell-offs. Despite all this, the country of Japan is hopeful about this new order from Abe.

Faith in money is the key factor in our economic systems and will never change, even with new futuristic advances. Bitcoin is a new currency that no one ever would have been able to imagine, but it also relies entirely on the belief people have. Just recently, author Anne Renaut reports for YahooNews in her article, “The Bubble bursts on E-currency Bitcoin.” The prices for this cryptocurrency dropped from $266 to $54, a sudden change that left many people scrambling. Some think the volatility of bitcoin is due to Russians and Cypriots with Cyprus’s banking crisis, while others think it burst due to peer pressure from investors. Many argue the value of Bitcoin since it’s entirely digital. The only reason the coin holds any value at all is that people want to buy it. People only want to buy the coin since it holds value, and this creates an echo chamber of back-and-forth selling and buying, giving the coin its value. There is no possible way to hold the coin in your hand, but people are investing millions. Mark Zuckerberg himself says it’s “free of politics and human error”. Bitcoin is foreseen as the currency of the future, and even then it still requires faith.

Despite there being so many different currencies and coinage throughout the world, from Yap to Japan, the key factor to it all is faith. The promise of the wealth we own, without ever seeing it. The belief in what we are told, and what we earn. That’s what keeps the economy afloat because, without it, our economy would crumble. We would never have such a simple and frictionless way of selling and consuming if it wasn’t for our faith in money, and that’s a fact that will never change. So whether it be a gold bar, some pieces of paper, a rock, or even just a number on the screen, it doesn’t matter as long as we have faith that it belongs to us.

References

Robinson: Milton Friedman: Robinson – Hoover Institution. https://miltonfriedman.hoover.org/internal/media/dispatcher/215060/full. 

Tabuchi, Hiroko. “Back in Power, Abe Aims to Spend Japan Back to Economic Vitality.” The New York Times, The New York Times, 22 Jan. 2013, https://archive.nytimes.com/dealbook.nytimes.com/2013/01/22/back-in-power-abe-aims-to-spend-japan-back-to-economic-vitality/. 

“The Bubble Bursts on e-Currency Bitcoin.” Yahoo! News, Yahoo!, https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html?guccounter=1. 

“The Invention of Stone Money.” 423: The Invention of Stone Money. This Is American Life, WBEZ. Chicago. 7 Jan. 2011.