Fei and Our Concept of Credit
What if I told you that a big limestone wheel and an electronic bank balance are equally alike? Both entities are completely different, but some time ago, a big limestone wheel was worth everything. The origin story of our monetary system is fairly complex which I found very surprising. As time has progressed, money has gotten more abstract and complicated. Certain aspects of our monetary system today, specifically the use of credit and loans, would definitely surprise the people of the Island of Yap who used limestone wheels as their form of currency.
Milton Freedman’s piece The Island of Stone Money shows us how the people of the Island of Yap used their simple but effective monetary system. The Island of Yap was a German colony which had a population between five to six thousand. In 1903, William Henry Furness III, an American anthropologist, studied the culture of their community. To his interest, he came to find that their monetary system was quite remarkable. Currency on the Island of Yap was called fei, which consisted of huge, thick, stone wheels that varied from a foot to twelve feet. Everyone on the island’s wealth was unquestioned and was also acknowledged by everyone. There was a universal faithfulness of what everyone possessed. Their monetary system can be best displayed by one situation they had with Germany.
In 1898, Spain had sold The Caroline Islands (which the Island of Yap is in) to the German government so the Germans could have ownership of them. The German government soon realized after purchasing the islands that many paths and highways were in rough shape there. The chiefs of several districts were ordered to have them repaired. The people of the island thought their blocks of coral would do just fine but were not good enough according to the German government. For the chiefs of the districts disobedience to fix the roads, Germany fined them by drawing a large black “X” on their fei that told the people of Yap that those fei belonged to the German government. The action of fining them worked so well that the people started repairing the highways from one island to the other. Once they were finished, the German government took away the black “X”’s off the fei which meant the people of the islands paid their fine.
From the Yap’s history of their currency exchanges and possession of currency, we can see how simple and easily exchangeable their currency was, despite the difficulty of not being able to physically maneuver their currency. When they had been fined by Germany, Germany found a way to easily keep track of whose money was whose and when to take away their money. In the 1930s, the U.S. kept track of their currency in a very similar way to the Yap.
According to Freedman’s The Island of Stone Money, the U.S relied on the Gold Standard which established gold to be the standard for redeeming money starting in 1900. In 1932-1933, the Bank of France was afraid that the U.S. would abandon the Gold Standard. In response to their fear, they ordered the Federal Reserve Bank of New York to convert their dollar assets that they had in the U.S. into gold. Just like how the Germans marked down what fei was theirs, the France wanted to make sure their assets were defiantly secure. France’s fear soon caused the U.S.s’ gold reserves to be down. The Gold Standard was very similar to the principle of fei but the gold standard ultimately failed.
Since the Gold Standard had failed, The U.Ss’ monetary system eventually evolved into letting people borrow money that they do not have. Many other countries adopted the idea of credit which either hurt them or helped them. The idea of credit was a new idea to Brazil and credit led them to having high inflation in 1990. According to The Invention of Money broadcast, Brazil’s inflation increased eighty percent a month! The world of credit dug Brazil in a deeper hole when purchasing inflated items. Unfortunately, the U.S. monetary system went through our up and downs as well but also left us with an extreme amount of debt. In the 1920s, America was introduced to credit which let anymore borrow money they didn’t have as long as they paid it back to their bank. People who couldn’t pay back what they borrowed were in something called debt. As of 2011, the U.S. government had a debt of $14.4 trillion and that debt is increasingly rising as of today, according to Linton Weeks in his article, The Trouble with Trillions. He goes on to tell us that the number is so big that adding zeros to the number really wouldn’t matter. However, to the Yap, I think they would think it would matter.
The Yap only used the currency that they had available to them which leads me to conclude that their financing was a lot easier to manage. Since their money was easier to manage, the Yap would ultimately have no idea where to start on how debt is even a thing in the first place. The concept of credit is so abstract that it was always doomed for disaster. What good is credit if you don’t have the money to pay your debt back? Absolutely nothing. The Yap would not be able to implement this aspect of our system since they couldn’t fabricate the amount of limestone wheels they possessed. They would think the concept is too complicated to understand and fully manage. The fact that our monetary system now is more complicated than the Yap’s system is not surprising, but you would think that as time progressed, we would have a better, more sophisticated, and structured system that we could rely on. In fact, our system we have now is not nearly as reliable as the Yap’s. We borrow money out of thin air and some people don’t take into consideration how it will affect us in the long run when in the Island of Yap, they did not have to worry about fei they didn’t have! Whatever the Yap possessed, is what they had and there was no in between. I think that the people of Yap would be disappointed by the way we created a system where in some cases, we can’t bounce back from. It is now very easy to think that the people of the Island of Yap would find the U.Ss’ monetary system to be so fabricated and very bizarre.
Friedman, M. (1991) The Island of Stone Money. Hoover Institution, Stanford University
Glass, I., Joffe-Walt, C., Blumberg, A., & Kestenbaum, D. (2018, February 19). The Invention of Money. Retrieved September 20, 2020, from https://www.thisamericanlife.org/423/the-invention-of-money
Weeks, Linton. (2011, August 22). The Trouble With Trillions. Retrieved September 20, 2020, https://www.npr.org/2011/08/22/139846133/the-trouble-with-trillions