a blog

by Josh Nicholas

Economics

An island of stone money?

The Island of Yap plays host to one of economics' most interesting stories. It's said that the inhabitants of Yap used gigantic round pieces of limestone as a form of currency.

I've encountered this story in a few popular books and even a podcast, but the academic literature seems pretty thin. I've just started my research, but I can only find a few papers and books with more than a passing allusion to the stones.

And many of the few references are to one book from 1910, called, funnily enough, the Island of Stone Money. I'm not going to dwell too much on the book itself as it's so full of orientalism the author thought nothing of beginning:

"Like all other primitive people (it hurts one's feelings to call them savages or even uncivilized, - one is too broad and the other too narrow) they are shy at first, either through mistrust or awe..."

But the book is a good starting point to investigate the stones. It's got an entire chapter on money and currency. And it's all there - fei stones, sea shells, coconuts. Anything you'd want to trade on an island paradise.

"...as far as mere existence is concerned in Uap, there is no use for money. But nature's ready- made clothes, though useful, are not ornamental, and the soul of man, especially of woman, from the Equator to the Poles, demands personal adornment."

Of course, there are a few criteria for something to be considered money. It has to be a medium of exchange, a store of value and a unit account. And looking through this story, the stones do appear to tick all the boxes.

They are used for exchange. Although, mainly for high value transactions, as they are cumbersome and rare. These same two points also make them a rather convenient store of value - they were created hundreds of miles away, on another island, in another time, and are far too big to be stolen. And the book clearly denotes several goods in terms of the fei.

The book even makes a halfhearted stab at connecting the stones with the labour theory of value.

"Here then the simple-hearted natives of Yap, who never heard of Adam Smith nor of Ricardo, or even if they should hear of them would care no more for them than for an English song from the phonograph, have solved the ultimate problem of Political Economy, and found that labour is the true medium of exchange and the true standard of value."

But there's one great story that exemplifies the problem with taking this book at face value.

"...my faithful old friend, Fatumak, assured me that there was in a village nearby a family whose wealth was unquestioned, - acknowledged by everyone, and yet no one, not even the family itself, had ever laid eye or hand on this wealth; it consisted of an enormous fei, whereof the size is known only tradition; for the past two or three generations it has been, and at that very time it was lying at the bottom of the sea!... The purchasing power of that stone remains... as valid as if it were leaning visibly against the side of the owner's house..."

The entire thing is anecdote. We need something more.

The path dependency of higher education

An interesting paper by Etienne Leppers at the LSE suggests that where central bankers (specifically, those on the Federal Open Market Committee of the the US Federal Reserve) were educated has a "systematic impact" on the way they vote on monetary policy.

This is true even considering the more than four decades that have elapsed since Chairwoman Janet Yellen got her PhD.

"graduate training in economics is the first place for the formation of biased preferences, because of the substantial ideological sorting that exists across universities."

"The literature on the determinants of central bankers’ voting behaviour has already revealed that governors do not simply respond to economic variables and models’ outputs. They are influenced by deliberation, by the chairman, by politics through appointment choices and by pressures in and out of election times; and by their pre-central-bank career and post-central-bank career plans. In this paper, the analysis is extended to include yet one more variable: ideologically influenced academic training."

Economics may be a special case here, as there is significant debate in some areas, with identifable ideological "camps". And, in America at least, certain universities can be clearly identified with schools of thought.

"Robert Hall already drew in 1976 a clear ideological and methodological line between two schools: the freshwater school (Midwest of the US: e.g. Chicago or Minnesota), for which the government is not capable of reviving the economy because fluctuations come from supply shifts as opposed to the saltwater school (in coastal US universities: e.g. Berkeley, Harvard or Princeton) which focuses on stimulating demand through government policies."

But I am still astounded at the sheer length of time over which this effect can be observed. It goes to show how much an impact not only early ideas and influences can have, but social connections too. Your mentors, your friends, your favourite books and first job... Your choice of university is huge.

"...earlier professional life is not the most important period for the formation of inflation preferences. Instead, we try to demonstrate the role of academic training and the socialisation that happens not in the different types of careers, but in the different types of universities."

Can you think of any biases that still hang around from your university days?