What is money ?

Our generation never really had to worry about inflation in the economy as much as other generations did, until now. So, what is money ? Why does it lose its value and what does it really mean to have money, even though we can’t truly see it?

I never really thought about what money really is and how things can drastically lose it’s value until last week’s class. I would normally go to the bank two or three times a week and deposit money in order to purchase things online but I never really thought about how a bank functions when it comes to loaning because, let’s be clear, we all know banks don’t keep everyone’s money at the same location. So, where did money come from in the first place and how did it come to influence our world? 

I listened to the podcast”  The invention of money“by Ira Glass and Planet Money, where they discussed how money doesn’t actually exist because “ it’s not solid and it’s value disappears” They went into detail about an island called Yap, and how their currencies was a large rock with a hole in the middle, bigger than a human person and heavier than a rock, used to be a way for them to show who had a lot of money amongst them. They would ever let the heavy rock sit there and people would already know who it belonged to and not touch it. That was considered a solid definition of what money means. Gold was also used in order to pay for things we wanted, but throughout the years, people no longer accepted gold as a form of currency but as a sign of richness. 

This podcast also touched on a very interesting topic; your money is the money that banks loan, so, is it yours when counting the amount of money in the world, or do you count it twice ? This topic really had me thinking about on whether banks are actually reliable when it comes to people’s money because there’s no guarantee that the market won’t crash like it did back in the great depression, and as we can all remember, many people went out to take back their money from the banks, but, there was nothing to give back. 

The Federal Reserve already has a solution to that. They have the power to create money that does not exist by buying bonds and giving it to the banks which they give to the people. This is a perfect example of why money doesn’t actually exist. Everything is digitally being transferred from one account to the other but were are not literally seeing or touching the money which has created doubt on whether money actually exists or not.

I also read the article “ The fiction that makes the world go round” by Richard Davies. He explains that the currency “ is partly a social compact which has the power to drain confidence.” At first I didn’t really understand what he meant by “ draining confidence” but then I realized that there’s a lot of factors to it which eventually will lead you back to the amount of money you have. Nowadays, we live in a world where buying expensive things and having the latest technology will categorize you as rich or cool amongst people. For those who cannot afford it have to settle with what they have or work hard every day in order to have some of life’s pleasures. So now let’s imagine the stock market crashing and everyone losing a big amount of money, or at least a huge decrease in the value of all these expensive things. This can really mess with someone’s mental health. Someone who thought their mansion was worth millions of dollars will eventually have to settle selling it for a few thousands of dollars, so how does things like this happen? I now believe that money and value are two separate, but important things. 

I read the article “The economics of bitcoin price formation” by pavel ciaian, miroslava rajcaniova and d’artis kacs, where it explains how the pricing of bitcoins works, resulting on a certain factor like supply and demand which means the popularity and attractiveness from the public are causing more and more bitcoins to be created since there are more investors. The amount of people willing to invest changes throughout the years which explains how the value of bitcoin lowers and rises. So technically money is worth what you can get with the amount of money you have. 

References

The economics of BitCoin price formation, Pavel Ciaian, Miroslava Rajcaniova & d’Artis Kancs, Pages 1799-1815 | Published online: 13 Nov 2015, https://doi.org/10.1080/00036846.2015.1109038

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

The Fiction That Makes the World Go Round