Unveiling the “Made-Up Thing”: Examining Money as Presented by Jacob Goldstein
By Joseph Gozon
Money is a social construct. This might be shocking since money and wealth seem very real–with genuine consequences. In his work, Money: The True Story of a Made-Up Thing, Jacob Goldstein shows us how the value of a dollar is rooted in societal ideas. He unveils this social agreement’s surprisingly intricate and dynamic nature, which profoundly shapes our world. By revealing the historical context across space and time, Goldstein presents an exciting and intriguing depth to the argument through ear-catching narratives and witty remarks.
In this narrative, Goldstein uses creative and engaging storytelling and unique anecdotes to enforce the well-propagated idea that money is a social construct. The book begins by describing a conversation with his aunt, discussing the 2008 financial crisis. Goldstein’s aunt highlighted how quickly the money she thought she had vanished–becoming fiction in front of her eyes. This conversation sparked Goldstein to explore what exactly this “fiction” meant–and through years of interviews, talk shows, and podcasts, he finally concluded that despite how real money feels, it is simply a shared construct, “fundamentally, unalterably social” (Goldstein). Throughout the book, Goldstein effectively lays out complex theories and policies, establishing that money’s viability and purpose depend on the collective perception of the concept as a society. He states, “The thing that makes money money is trust — when we trust that we will be able to buy stuff with this piece of paper, or this lump of metal, tomorrow, and next month, and next year” (Goldstein). Goldstein argues that the essence of money is trust; it has value because people collectively believe in its worth and accept it as a medium of exchange.
Despite the rich storytelling experience and witty remarks, Goldstein weaves into the story of money, the argument of his book might leave potential readers wanting. At face value, the notion of money as a social construct might appear too philosophical to grasp. We might find ourselves asking, “Isn’t that obvious?” This sense of familiarity with an intangible and seemingly overwhelming topic likely emerged from the ubiquity of such constructs within our daily lives and the current nature of money. Given the propensity of media and humor stemming from the meta idea of social constructs, we readily accept that shared beliefs shape our social norms. Naturally, we would then find Goldstein’s observation and prevailing thesis somewhat essential, perhaps even comical.
Additionally, modern versions of money are mere depictions of pictures with ink and paper alongside coins made of common metals. Most people don’t even use physical cash for transactions, opting to pay digitally via mobile phones or cards. The apparent lack of intrinsic value and the inherent abstractness of contemporary currency makes it difficult to grasp Goldstein’s thesis at first glance–if money is floating in the ether always at the ready, how can it be a mere social idea?
This initial dismissal, however, underestimates the depth hidden within this deceptively simple truth. Goldstein’s exploration goes beyond money’s construction. He delves into the historical tapestry woven from these agreements, revealing how societies across time and space have constructed wildly different forms of currency and how these constructions, while social inventions, still operate within a complex web of rules and limitations. By exploring these historical nuances and the surprising rigidity within this “made-up thing,” Goldstein demonstrates that money’s social construction is far more intricate and impactful than it initially appears.
Goldstein breaks down the social construct of money through narratives of currency throughout history, demonstrating how it developed physically and socially. Goldstein posits that the social construct of money came into focus as soon as bartering was abandoned for paper money in early China. The proliferation of paper currency began around 995 AD in the province of Sichuan. Given the scarcity of bronze for minting coins and the recent progress of paper production, Goldstein analogizes the birth of paper money to coat checking: merchants would leave their numerous but cheap iron coins and receive a paper receipt in return. As the receipts were transferable, people started to use them to purchase goods, and the government even collected taxes on both coins and receipts. The advent of paper money in China sparked a commercial boom and a social revolution. Now that taxes were paid in the form of money, planting, weaving, and farming solely to pay taxes became obsolete. However, the Mongols took the concept even further. Kublai Khan, grandson of Ghengis Khan, valued the speed of paper money and the ease at which it could be transported. Kublai abstracted the receipts even further after two failed invasions into Japan, mandating government offices to refuse their exchange for precious metals. Money, backed by nothing other than the iron fist of the Great Khan, continued to support the economy. Beyond the trust instilled by the citizens of the Mongol empire, Kublai’s implementation of fiat currency relied on the centralization of the empire’s authority over the currency. His actions underscore the power dynamics inherent between currency creation, management, and social cohesion.
Fast forwarding to the 1900s, Goldstein presents a thought-provoking examination of the Great Depression, shedding light on the influence of economist Irving Fisher’s ideas during this tumultuous period. Fisher’s debt-deflation theory analyzed how the dollar’s value depended on repayment pressure businesses faced–and how quickly this could crumble once this pressure grew too large. Fisher’s insights into deflation and the instability of the US dollar, particularly his critique of the gold standard, profoundly influenced Franklin Roosevelt’s actions in 1933. Fisher found, as a result of the gold standard and the slow increase of the gold supply, that the value of money was unstable, causing prices to fall. Hoarding, defaults, and bank failures followed in the ensuing chaos. Stephen Cecchetti and Kermit Schoenholtz, economics professors at Brandeis University and NYU, respectively, gather the following from then-Federal Reserve Board Chair Ben Bernanke’s 2012 lecture on the Great Depression: “When the central bank fixes the dollar price of gold, rather than the price of goods we consume, fluctuations in the dollar price of goods replace fluctuations in the market price of gold” (Cecchetti, Schoenholtz). Fluctuating prices of goods lead to fluctuations in the value of the dollar. However, Roosevelt’s decisive measures, including temporarily closing banks and confiscating gold from American citizens, marked a significant departure from traditional economic policies, going on to “ignore the advice of his closest advisors and some of the most prominent economists in the country”(Goldstein). Despite being the agreed-upon foundation of money and its value, countries all over the world discovered the correlation between economic prosperity and the move away from the gold standard. This opened up a new world of money, giving people the courage to choose other options.
Even in the 2000s, new types of currency are being created. Goldstein then examines the stories of Harry Brown and Bruce Bent, the creators of the money market fund. The money market fund allowed people to deposit their cash at interest rates higher than regular mutual funds due to the use of short-term treasury bills, an ultra-safe investment. Investors carried no risk in leaving their money in a money market mutual fund, able to leave with as much as they bought in for. As a result, these money market funds became incredibly popular, so much to the point that they received hundreds of billions of dollars. These money market funds began lending money to hedge funds and investment banks, becoming a sort of quasi-banking system in the shadows of the regulated banking system. As firms began to crumble under the collapse of the housing bubble, the shadow money lent out by the quasi-banks received a safety net: the government was going to offer insurance for the money market funds and act as a lender of last resort against the commercial paper held by money market funds. The money created by the shadowy, quasi-banking organization turned into real money as necessitated by the collapse of numerous financial institutions.
Goldstein effectively and fluently evaluates the different patterns of money throughout history. These constructs have often failed spectacularly, mainly due to human design or selfishness. Before countries gave up the gold standard, for example, relying on precious metals to barter and exchange goods had been a method for millennia. Overcoming the notion of valuing goods and services based on gold or any other valuable mineral deposit was an overwhelming obstacle accomplished only through necessity during the Great Depression. In a similar fashion, momentous and unconventional monetary policy found itself passed during the 2008 financial crisis. Against the belief and trust of those invested in money market mutual funds, shadow money simply failed to uphold the quasi-banking practices it was being used for. Only by averting catastrophe by bailing out businesses and banks too big to fail had shadow money officially become real money. Money, despite being constructed by the values and perceptions of society, remains constricted by rules beyond the confines or influence of social bounds.
Expanding on the limitations of money as a social construct, the famous philosopher Karl Marx presents numerous theories on money’s nature and the rules governing its behavior. He posits that two types of money are based on function: credit and income. While credit can be influenced by the policies of the central and private banking system, credit can only turn into income when it embodies social labor and purchasing power (Ivanova). Yet, even the abolition of money itself cannot rid us of this constraint on the credit system, as Marx states, “the inconveniences which arise from the existence of every specific instrument of exchange, of any specific but general equivalent, must necessarily reproduce themselves in every form, however differently” (Marx). As Goldstein takes us through the historical narrative of money, he challenges readers to reconsider their assumptions about the nature of money and its role in society as he details the struggles through various iterations. By revealing the inherent fragility and contingency of monetary systems, Goldstein prompts us to question established norms and imagine alternative possibilities for the future of money.
Sources
Cecchetti, Stephen G, and Kermit L Schoenholtz. “Why a Gold Standard Is a Very
Bad Idea.” Money, Banking and Financial Markets, Money, Banking and Financial Markets, 6 Jan. 2017, www.moneyandbanking.com/commentary/2016/12/14/why-a-gold-standard-is-a-very-bad-idea.
Goldstein, Jacob. Money: The True Story of a Made-up Thing. Hachette Books, Hachette Book Group, 2022.
Ivanova, M. N. (2020). Marx’s Theory of Money: A Reappraisal in the Light of Unconventional Monetary Policy. Review of Radical Political Economics, 52(1), 137–151. https://doi.org/10.1177/0486613419856727
Marx Karl. 1993 [1939]. Grundrisse: Foundations of the Critique of Political Economy. London: Penguin Books.
