Money, in essence, is theoretical. So why is it so hard to wrap one’s head around another form of money? The Yaps of the island Yap, have a more than peculiar monetary system. Rather than paper currency used in the United States and most major countries, they use massive stones as currency. Instead of trading the stones for everyday items, they keep the stones as representation of their wealth and do not trade the stones for anything but large purchases. There are many baffling aspects of this fiscal process, but when analyzed, one’s own currency is not much different at all.
As presented to us by Planet Money team at NPR, the Stone money is gigantic and a hassle to move, so it is left in place and is publicly known as the owners property. The system is reliant completely on trust, for example when a group of workers were sent out to carve a stone for a rich Yap family, the stone fell to the bottom of the ocean and was lost. The family though, were still considered wealthy based off of the fact that the rock did in fact exist somewhere, even if it wasn’t a tangible possession that they obtained. This is perplexing to some as it raises questions like, how is it known when the stone changes possession? What if the rock is stolen? What if the rock never existed at all?
In a society like ours, this system could most likely never work, but the community of Yap is so small and tight knit, that these things do not have to be worries about. They trust one another and base their economy completely on that trust. As crazy as it sounds, our own economy is not much different. As explained by Friedman in The Island of Stone Money, when the French wanted their money backed by gold in the U.S. reserves, all the government did was label some of the gold as the French’s. Even though they could not see or touch the gold, the French put faith in the government to keep that gold as their property. This can been seen today as people put their money in banks to keep safe, all the while the money is in circulation as the bank loans the money out to others.
The only real difference between the currency’s is that small portions of the stones are not traded for menial purchases. The stones represent the whole value of the wealth and there are not smaller currencies like the dollar bills we have. Though this is peculiar regarding U.S. currency, this method can be seen in in other popular currencies, like Bitcoin. As Anne Renaut writes in the Bubble Bursts on E-currency Bitcoin, a Bitcoin can only be cashed out if another person wants to buy it. So like the stone money, Bitcoin functions as a whole value of wealth rather than bits and pieces.
Though the Stone Money system seems on the outside to be illogical and maybe even ridiculous, when analyzed, it is not much different from the system we know so well. Both based on trust, one trust in each other, the other trust in the government. Faith in the government and our investment in the vale of currency is what keeps our economy afloat. If citizens were ever to question the value of their money and take their money out of the bank, the entire federal system would collapse. Without the money in the banks, no money could be loaned out or put in circulation. No one would be able to take out loans, all banks would shut down, and there wouldn’t be enough money to refund everyone who invested money in the federal reserves system. Basically, inflation would go through the roof and the entire economy would implode.
One example of the effect money can single handedly have on the government is when the French demanded gold backing from the United States, as written about previously, this sparked the nationwide crisis of the Great Depression. The money had a higher value while it was backed by all the gold the United States had but when some of that gold was “given away” to the French, the ratio of gold to dollars decreased appreciably. Thus, causing the value of a dollar bill to decrease as well, giving rise to inflation that spiraled the United Sates into the Great Depression.
The value of money is only the value that the government says it is. Money is merely a piece of linen with inscriptions and pictures printed on it, but when given a value it becomes so much more. This money and the citizens who have it now have the ability to effect the economy in even the worst ways. Currency has become such a vital part of our nation’s presence among the world that it could even effect the power the United States has over other territories and our abilities to defend ourselves against others.
This goes for the Stone Money system also. Though their system is much different than ours in process, the essence is the same. But, if something were to happen to their money, all would still have the same amount of wealth based on merit. The Yap people need no backing of gold because with trust and integrity, the money can never really be lost. In this way, the Stone Money system may be even more abstract than the common currencies.
Both the Stone Money system and our system are purely theoretical, and this idea gets even more abstract when you consider currencies of things like Bitcoin, and the idea of credit. Credit plays with the idea of buying something now on the basis that it will be payed for later, another completely trust based system. This really goes for any kind of currency. Still, money has a vital place in any governing body and is essential for power and ability. So even if money is purely abstract, the value is completely creditable and just as real as the person holding the money.
Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University , 1991.
Renaut, Anne . “The bubble bursts on e-currency Bitcoin.” Yahoo.com. 13 Apr. 2013. 30 Jan. 2015. https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html/
“The Invention of Money.” This American Life, 19 Feb. 2018, http://www.thisamericanlife.org/423/the-invention-of-money.