Money is any good that is widely used and accepted in transactions involving the transfer of goods and services from one person to another. Economists differentiate among three different types of money: commodity money, fiat money, and bank money. Commodity money is a good whose value serves as the value of money. Gold coins are an example of commodity money. In most countries, commodity money has been replaced with fiat money. Fiat money is a good, the value of which is less than the value it represents as money. Dollar bills are an example of fiat money because their value as slips of printed paper is less than their value as money. Bank money consists of the book credit that banks extend to their depositors. Transactions made using checks drawn on deposits held at banks involve the use of bank money. Nowadays a dollar bill can hardly buy you anything.

Is money really made up? That is a good question just like how money can or can’t make you happy. It can go both ways and it can be argued both ways. Explained by author Richard Davies of the 2020 New York Times article “The Fiction That Makes the World Go Round” there are many things in the world that are invented or even great thoughts, but nothing compares to money. While reviewing the book Money: The True Story of a Made-Up Thing by Jacob Goldstein, he stated that money is really  “a made-up thing, a shared fiction. Money is fundamentally, unalterably social.” Throughout the book and the article both Goldstein and Davies are talking about how money is fiction, it is all an imagination, but it was given a value so everyone follows by that value.

However, when stone money was presented in class I was very surprised. Milton Friedman’s essay “The Island Of Stone Money ” explores the economical system of the island Yap and its use of stone money.There’s a tiny island called Yap out in the Pacific Ocean. There’s no gold or silver on Yap. But hundreds of years ago, explorers from Yap found limestone deposits on an island hundreds of miles away. And they carved this limestone into huge stone discs, which they brought back across the sea on their small bamboo boats. It’s unclear if these stones started as money. But at some point the people on Yap realized that they needed something that everyone agrees you can use to pay for stuff. If someone had a shortage of crops or anything they needed they would trade the limestone for the items. The money was very very heavy and couldn’t be moved easily. If that money was traded or earned by someone else it would be passed over, but stays in the same spot. Everyone on the island knew who the new owner of the stone was.

When the United States was on a real gold standard, it was clear what money was and how much money there was. Each dollar corresponded to a dollar of gold that was in a vault somewhere. But when we went off the gold standard, somebody had to decide how much money there would be. In our country and just about every modern country today, we give that power to the central bank. Our central bank is the Federal Reserve. The Federal Reserve can create money any time it wants. It’s the one institution in America that can decide, the economy would run better, interest rates would drop, etc, if there was more money out there. Or it can decide there should be less money. It controls the amount of money in our economy, including in a very literal way. Alex Blumber and David Kestenbaum, two reporters apart of The Invention of Money broadcast, showed the listeners how the name of the Federal Reserve includes the word “federal,” but it’s not actually part of the government. It’s an independent institution tasked with something very simple. Creating money out of thin air. And during this last financial crisis, the leaders of the Fed did things that they would never have considered doing in the past. The government tricked a hundred fifty million people into believing again that their money was worth something when there was absolutely no evidence to support that claim. Recently the Federal Reserve made a change. Every six weeks in an ornate conference room inside the Federal Reserve building in Washington, DC, there’s a meeting. The meeting is closed to the press, members of Congress, even the president isn’t allowed. The meeting is run by the chairman of the Fed. It is a meeting of the Federal Reserve’s Open Market Committee. All of the Federal Reserve officials get up and make presentations about the economy. Talking about what are good and weak spots, how things are, and then after reviewing all of those questions they make a vote and decide whether there should be more or less money in the US economy.

Referring back to the people of Yap and their stone money, they have the same concept as us. The stone and the US dollar or anything that is worth or considered money, have a relationship due to the fact that no matter what it is if it is dealt with money it only has a value as to what the people make that value be. Back then things were cheaper and today everything is expensive, but objects from back then can be worth way more today than they were back then.

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 

Davies, Richard. “The Fiction That Makes the World Go Round.” The New York Times, The New York Times, 8 Sept. 2020, https://www.nytimes.com/2020/09/08/books/review/money-the-true-story-of-a-made-up-thing-jacob-goldstein.html. 

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