Can you imagine money that you can’t carry around? In 1910 an American anthropologist wrote about an island that was part of Micronesia situated roughly on the same latitude as the Philippines. It is an ideal tourist spot. The people who inhabited this island were called Yaps.
Stones?Their money was in the form of huge round stones with a hole in the centre. It was made of a substance similar to limestone. They were of varying sizes, some about a foot in diameter while others as large as ten feet. It was difficult to move these stones and so they were stored in various places.
The owner uses the stones to make purchases. How they used them to buy and sell things is interesting. Let us suppose A wants to buy a goat from B. B delivers the goat to A. A does not give the stone to B. He only makes a mark on the stone to indicate that the amount of money has passed to B. The location of the stone does not change.
Another fascinating fact about the way money was used. The island of the Yaps was a German colony in 1910. The roads on the island were in bad condition. The Germans wanted improvements to be made. The local people felt improvements were not needed. The Germans decided to collect a penalty from the people and they put a mark on all the stone money on the island to show that the money now belonged to the German Government. The local people wanted the penalty to be lifted. The Germans said, build the roads and we will see about the penalty. The Yaps improved the roads. The Germans lifted the penalty. How did they do this? They removed the marks from the stones!
Before we laugh at the simple Yaps and their primitive economy let us look at something else.
The Nobel Prize winning economist Milton Friedman points out how in 1932 the French government asked the U,S, to convert their dollar assets into gold. At that time the Federal Reserve of the U.S. used to hold gold bullion on behalf of other countries as well as their own. What did the Federal Reserve do when the request from the French Government came? They moved the gold from the vaults marked U.S. to the vaults marked in the name of the French Government. Of course, some changes were made in the records as well. The gold did not leave the custody of the Federal Reserve building. But, the ownership of the gold bullion moved from the U.S. to the French Government.
As a result there were headlines in newspapers about “the loss of gold”. The markets regarded the US dollar as weaker in value and the French franc as stronger in value.
Friedman asks, “ Is there any difference in the press believing that the U.S. had become poorer by moving the gold from one vault to another and the Yap practice of putting marks on their stones?”
Money does take many forms. But the uses to which people put it are essentially the same.
