No one ever really questions the theory of money because we are taught at a young age to accept money’s function, value, and purpose. This general knowledge of money can be questioned and changed by reading the stories of the island of Yap, inflation in Brazil, and the exchange of gold between the United States and France.
When reading the story of Yap, I could not help but think how strange it was to use gigantic limestones as a form of money. Using heavy stones as big as cars as currency sounds preposterous, especially when you realize that they could not physically exchange the money but simply accept that the ownership of the stone was changed just by word of mouth. The people even accepted its value when it was lost at the bottom of the sea. Similarly, the United States simply moved and labeled some gold bars to secure their debt to France. It is amazing how they never really had the money, but yet it was still deemed as belonging to them. I thought how strange this all was until I compared it to our monetary system today. With more than half of our money exchanges, we never see the actual cash. We simply write some information on a piece of paper or swipe a card to exchange money. The digits in our bank accounts adjust and we simply accept the fact that we now have that amount of money. Just like the people of Yap, we did not actually physically obtain that money, but yet we still trust and accept that it is ours.
The story of the island of Yap also showed the insecurity of money. When the Germans came and marked the fei, the people of Yap were terrified and therefore did what the Germans asked. This seems absurd to most because money cannot just lose its value because it has a mark on it, but in their minds it did and it would still scare us today. Whenever there is a news report stating that there is a recession or the market is crashing, consumers get scared. They are forced to believe that their money is ultimately worth less than it might have before. These reports and worries of harsher times are our money’s “black marks.”
The inflation in Brazil, the most shocking story of them all, was caused by just creating more money, with no value backing it. This bad decision by the government caused the severe rise in prices, thus hurting their people. In order to save their economy, they created a new form of currency. They then tricked their people into believing their money was still worth the same and that prices were not rising. In reality, prices were not rising, but the exchange rate was. This lie ultimately saved their economy, their government, and their people.
The lesson to be learned from all of these stories is that money is based on trust instead of numbers, markets, supply, or demand. Monetary policies and systems only work on trust. People trust that their money is worth some value. They trust that they truly do own the amount of money that some machine might tell them they have. They trust that their bank does move aside stacks of cash, puts them in a drawer, and labels them with their name when you deposit into one. They trust that their government will ultimately keep these policies in motion and will not disrupt the system in any way. They need to trust all of these things in order to use money as it is used today. Maybe, the saying “money makes the world go ’round,” should be changed to “trust makes the world go ’round.”