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What Is Money? Jacob Goldstein's Book Explains 'Shared Fiction'


What is money? Jacob Goldstein, who co-hosts NPR's Planet Money, has spent years fixated on that question. In his new book, "Money: The True Story Of A Made-Up Thing," he writes that money is a shared fiction. We all agree to believe that a paper $20 bill or the numbers in my savings account are worth something. There are long periods in the history of money where not much happens, and Goldstein skips those parts. But then there's a revolutionary technology or a talented hustler who changes everything, like a thousand-ish years ago when the Mongol emperor Kublai Khan created the first paper money.

JACOB GOLDSTEIN, BYLINE: What happened in China is really amazing. I mean, that story really starts a couple hundred years before he showed up on the scene in a province in China where they actually used iron coins as money. And, you know, this was an era when the value of the metal was basically what the value of the money was. Iron was not worth a lot, so you had to use, like, a pound and a half of iron coins to buy a pound of salt, which is obviously terrible. You know, it's like having to use pennies to do your grocery shopping or something.

So these merchants started letting people store their iron coins with them and then giving people a receipt, sort of like a coat check or something for the coins, right? And then those receipts started turning into money. People started using just the receipts to buy stuff so that they didn't have to schlep the iron coins around. And that took off, basically, and China became the first place in the world, as far as we know, to use paper money. And so, you know, money and trade are all kind of booming in China. It's a prosperous time. Kublai Khan is like, OK, how about this? How about if the paper money is just paper and we all agree to use it as money?

KING: Shared fiction.

GOLDSTEIN: Shared fiction. And you know what? Since I'm the Khan, if you don't believe me, I'll kill you.

KING: (Laughter).

GOLDSTEIN: He says everybody has to use paper money, you know, upon pain of death. And we know this in part from Marco Polo, from other travelers. When Marco Polo comes back to Europe after seeing this, he is amazed. He's like, you won't believe it; in China, everybody uses paper for money. And people are like, no way. And, you know, eventually, what happens sometimes when you can make money out of paper is you make too much paper money. The Chinese finally, after a bunch of inflations, actually give up on paper money. Got back to using...

KING: This is my favorite part of the book - literally, my favorite part of the book. They've done all of this.


KING: They are leading the universe.

GOLDSTEIN: They really are.

KING: And then you have an emperor come on the scene, and he's like, no, I want to go back to grain (laughter).

GOLDSTEIN: Yeah, let's go back. And this economic flourishing that had happened, it just goes away. And people in China who had been getting richer, they get poorer. So, I mean, one of the interesting lessons to me of that whole arc is - we live in this moment now where, for a few hundred years, since the Industrial Revolution, we have been having this kind of boom of money and markets, and lots of people - there has been, you know, over the long run, broad-based rise in material well-being. But one of the lessons in China is that is not a one-way street, right? Sometimes lots of people get better off for a long time, and then things get worse, and everybody gets poorer.

KING: I was going to say, this is largely an optimistic book. But you've just managed to...


GOLDSTEIN: Good news, bad news.

KING: You've just managed to nail down the pessimistic part of it. I want to talk about the United States in the 1820s, I believe, when the United States had 8,370 different kinds of money. This actually - as much as I've thought about money, I don't think it ever occurred to me that there wasn't just one single American $1 bill, $10 bill, $20 bill.

GOLDSTEIN: So, yeah, this is one of my favorite periods in the whole history of money. So it used to be the case that banks printed their own bank notes. What paper money was was a note issued by a bank, a receipt, a claim on gold or silver. And if you brought your note to the bank, they would give you gold or silver in exchange. So this period in the U.S. - what happened was it was called free banking.

KING: Ooh.

GOLDSTEIN: Yeah, let's do it.

KING: (Laughter).

GOLDSTEIN: Let's let everybody who wants to be a bank be a bank. And there is actually this idea of, like, look - we believe in sort of free enterprise and free trade in wheat; let's have free enterprise and free trade in money. Let's have everybody who can meet a few rules set up a bank and print their own money. And you get this amazing proliferation, whereas you said there are, like, 8,000 different kinds of money, which raises some interesting just, like, how-does-that-even-work kind of questions, right? Like, you're a merchant, and somebody walks into your store and gives you a piece of paper that says it's from, like, the Waupun Bank in Waupun, Wis., and there's a picture of Santa Claus on it.

KING: A real place.

GOLDSTEIN: Yeah, it's a real place, but you don't know that. It's 1840, and you're a merchant in Ohio or something, right? So what you do is you subscribe to these special periodicals called bank note reporters that exist just to tell merchants, like, what bank notes are real, first of all - because there's a lot of counterfeiting, obviously. The other thing, slightly less obvious but interesting, is should you, if you're a merchant, accept the bank note at full face value, or should you say, I'll accept your dollar, but I'll only give you 90 cents' worth of stuff for it, I'll discount the value of it? So this was the world for decades of American money.

KING: So we're living in a time right now, 2020, where the world is very divided. The country is very divided. I've been thinking about this since I read your book, incessantly - money might be the one thing that we all still believe in.

GOLDSTEIN: (Laughter).

KING: You know, we tend to look often at money as a moral thing - wanting too much, having too much is bad. There's very little moralizing in your book, which I appreciate. But, ultimately, I guess what I'm asking you is - is money a good thing?

GOLDSTEIN: You know, I mean, one way to think about it is - what are the alternatives to money, you know? And you can think of sort of maybe a spectrum. Like, money is this social thing, right? It's a thing that societies create to solve some set of problems. And, obviously, it creates some other problems along the way. But how could you not have money? Well, you could be a really, really small, like, sort of clan-type self-sufficient society, right? A small group of people and you're all hanging out and making things and working together. It's not how I'm going to live my life. I feel like that ship has sailed for most on Earth, right?

KING: Yeah.

GOLDSTEIN: So that's pretty much off the table. You could go to the other end of the spectrum. You could build a big, complicated society without money if the government was basically taking everything everybody made and deciding exactly who would get what and nobody got to choose what they were going to get.

KING: Also terrible (laughter).

GOLDSTEIN: Yeah, I don't want to live there. So in the middle, you need money. Money is the tool that allows us to live between those poles, and I don't see any alternative. And, you know, it's useful. It does the thing it's supposed to do, even though it creates a lot of problems.

KING: Jacob Goldstein, author of the book "Money: The True Story Of A Made-Up Thing." Jacob, thank you so much for being with us.

GOLDSTEIN: Oh, it was so fun, Noel. Thanks.

(SOUNDBITE OF THE O'JAYS SONG, "FOR THE LOVE OF MONEY") Transcript provided by NPR, Copyright NPR.