Part III: Ancient Money

There is an excellent example of sound money used by an ancient tribe called the Yap tribe, who lived on Yap island. Their money was a big stone called a Rai Stone. And with this one stone, they formed money that was salable across scales, space, and time. But how?

Well, with the primitive technology the Yap tribe had, these stones were tough to mine. They had to plan far in advance, travel in large groups, and many people died during the mining process. The stones had to be mined far away from where they lived, and they could only travel on log-built rafts. This caused many drowning deaths, which increased the value of the Rai Stones because they represented the complex mining process involving the human lives of people they loved.

As discussed in Part II yesterday, money needs to be salable across scales, space and time to be sound. 

The Rai Stones were salable across scales and space (which means it is easily divisible and portable) because every time a transaction happened in the village, it was first announced by the Chief in front of everyone and then carved into a rock and set out in the sun to dry, forming a ledger that couldn't be altered. All one needed to do then was to verbally communicate how much of the ownership of the rock they wanted to barter for something. For example, if you owned 2% of the rock, you could trade 1% for resources. Then it would be announced out loud, carved on the stone, and you can take your resources. You could divide up the ownership of the rock in any amount you wish. 

The Rai Stones were also salable across time because the stones were not prone to corrosion. They never got inferior in the eyes of the people who accepted it as their money; it stayed the same through time. And since it was tough to mine, it was hard to inflate the supply, which would devalue the money as a medium of exchange. 

Since everyone in the tribe was there for the announcement of any new barter agreement, and the Stones were kept in the centre of the village, if any individuals tried to steal or alter it, the collective consciousness of the entire tribe would band together and stop it, as it harmed everyone. It wasn't even logical to do that anyway because, as they knew it, they were the only ones around, and no one else even accepted their Stones as a form of money. 

But then, one sad day, a man named David O'Keefe got shipwrecked on the island. When shipwrecked, he noticed that the tribe was living in paradise and noted the money they used, which were Rai Stones. He quickly realized that back home, he could easily mine more of the stones they were convinced were very valuable due to their primitive tools. He wanted to trade the stones for coconut oil which he could take back home to sell for profit. 

He said his goodbyes and then sailed home. When he returned, he brought his tools and more stones. At first, there was a lot of contention about whether or not to accept these stones as equal to their existing stones because of how easily they were mined. They no longer represented extensive labour and loss of human lives; they were just easily mined rocks now. 

Eventually, enough people didn't listen to their Chief and accepted David's stones as money for the coconuts. The danger wasn't the loss of coconuts; the danger was now the supply of the stones was increasing rapidly. This caused the supply to inflate, which caused inflation in their tribe. Their money was less valuable now, and no one wanted to risk their lives mining it anymore when David could give them stones. 

This happened in Western Africa with glass beads too. They had primitive glassmaking tools, and making the beads they used as a medium of exchange was very difficult, just like producing Rai Stones for the Yap Tribe was. And the same thing happened; someone from another Country with better glassmaking tools found the Western African culture and returned with tons of glass beads, inflating the supply, thus devaluing it as a form of money. 

Our ancestors used seashells as money. In fact, as recently as 1636, seashells were legal tender in Europe. But since gold and silver coins were also money, as more trickled into the economy, people preferred and valued gold and silver coins more than seashells. Why? For the same reason that the Yap Tribe found Rai Stones valuable and that the culture in Western Africa found glass beads valuable. Because gold and silver coins were more challenging to make than seashells, and because they were harder to make, the supply stayed much lower than that of seashells. By 1661, seashells as a form of money were no longer accepted. 

The way seashells, glass beads and stones were devalued above is the same way our money is being devalued today. Inflation is caused by the supply of money increasing more than the demand, and it happens to the money that is easily made. 

There is a saying money doesn't grow on trees, and it used to be accurate, but not anymore. It used to be true because money was backed by metal, like gold or silver. But now, money is not backed by anything; it's a piece of paper. And what paper is made from? Trees!