Stone Money Draft-TaxManMaxwell

A Valueless Commodity

The currency we use holds no value. A dollar bill itself is not useful or something to be wanted. The only reason people seek out dollar bills is due to the expectation that they will be able to trade them for something that is desirable. This then begs the question as to whether our currency is worth the time we invest to use it. Older methods of exchange like the barter system require no investment and trade goods with intrinsic value. Everyone knows a camel, or a saw can be useful, but modern currency is inedible and lacks the usefulness of any common tool. So why not trade with items of value? Are credit cards, paper money, and cryptocurrency superior to the barter system?

In the heart of South America lies Brazil a country whose hyperinflation was answered by a unique solution that lends a deeper understanding of currency itself. For fourteen years Brazil suffered from hyperinflation, a period in which its currency devalued dramatically. In the PRI podcast “The Invention of Money”, Chana Joffe-Walt communicates the fear present in the people at the time. As within a month goods would routinely cost 80% more than their original price. For example: A loaf of bread that cost $1.00 at the beginning of the month would cost $1.80 at the end and at its peak hyperinflation would increase the cost of bread by over 2000% in a year meaning that same loaf would cost over $2,000.00 a year later. This instability created a run on merchants as consumers wanted to spend their money immediately rather than let it devalue in their pockets. After years the instability seemed to be a constant, but a solution was eventually found by issuing a new currency. The new currency, the Unit Real Value or URV did not affect inflation rates but it was used as a constant placeholder. Instead of seeing prices skyrocket in Brazilian cruzeiros, the value would be listed in URVs which did not change. Upon purchase an exchange rate would be used to determine how many cruzeiros were needed. The solution worked as consumers began to believe cruzeiros were to blame for the crisis and that URVs were a stable solution. After transferring to using the real as an official currency Brazil has seen no difficulty with hyperinflation. It may seem odd that belief a currency was stable could cause it to become stable, but belief is a staple of every currency.

Across the globe in the Pacific Ocean lies Yap, an unsuspecting Island with a curious currency. The fei used by the islanders are stone discs with a hole in the middle. What makes this money truly unique is its size with the largest stones being twelve feet in diameter. This makes them largely immobile so instead of exchanging the giant fei islanders simply acknowledge that ownership of them has changed. In “The Island of Stone Money” Milton Freidman describes a more peculiar situation in which a wealthy family holds possession of a fei whose exactly location is a mystery. While being transported to Yap, the fei was lost at sea and yet it was determined that this fei was still legal currency. This belief that an untouchable object can hold such value may seem strange, but as the Yapese entrust that the fei hold value the fei are exactly that valuable. This belief that an invisible, intangible exchange can trade value is not confined to the island of Yap and has found increasing usage in modern times.

In “The State of Cash: Preliminary Findings from the 2015 Diary of Consumer Payment Choice” credit cards were found to be used exceedingly often and electronic transactions are growing even faster still. These transactions are being carried out without anything physically being transferred. Rather the respective banks of the patrons partaking in the transaction communicate the transfer with one another. The people involved then trust that the banks have faithfully carried out the transaction often without seeing any evidence. This confidence that value exists in absence of evidence mirrors the use of fei on Yap and in other modern currency exchanges.

During the 2008 financial crisis Fannie Mae and Freddie Mac stocks plummeted as their investment in housing collapsed with a housing bubble burst. CNBC’s “Back From the Brink: 10 Years On” it is mentioned how loans totaling roughly $5 trillion dollars were in danger of default and media outlets spoke of the value lost from the economy. Despite the loss no money had left circulation. Instead it was the belief in the value that had changed. The housing bubble began with home values inflating ever onward and ended with the collective belief that they were worth nowhere near as much. The only value that had been lost was the value the general public believed the market to have. As an example: a house that had been worth $1 million dollars and then half as much after the market collapse would not have needed to be compromised to reduce its value. The only difference is that before the collapse consumers were willing to pay $1 million dollars, and after none of them would pay more than half that value after the collapse. This demonstrates that there is no intrinsic value to the goods we buy. Instead only we consumers decide the value of common goods. This value generation does not end with goods as it includes the very currency we use for purchases.

In Washington D.C. members of the Federal Reserve meet to discuss the future of the United States. They decide the value of the U.S. dollar by deciding the rate at which money is added to the economy. In Act 2 of the PRI podcast “The Invention of Money” the method through which the Federal Reserve creates money is explored. The process begins with the U.S. government issuing treasury bonds to finance debt or excess spending. Banks buy the bonds which accrue interest and are a nearly guaranteed investment. When the Federal Reserve wants to add money to the economy it then buys an amount of treasury bonds from banks that has been determined at committee. Although the Federal Reserve can add money by other means, this is the typical method used. This seemingly normal generation of wealth happens entirely digitally so nothing of value has been exchanged. In lieu of valuables the bank is trading an expectation of being paid over time for the belief it has money now. This expectation is based entirely in faith and has no more legitimacy to the faith that goes into any other currency.

Altogether the benefit of any one economic system over another is based largely in faith. If everyone chose to believe that giant stone fei are the only genuine source of monetary value then we would soon find ourselves memorizing each fei’s most recent owner. In the past items of value were traded without an intermediary with the barter system. Today the value of the currency we use is determined by how many electrical pulses move from one computer to another. It is as though we are simply using a more portable version of fei even in today’s era. With the constant uncertainty present in our everyday lives why not use currency with value that is certain? Are we truly better off with this monetary system?


Friedman, Milton. “The Island of Stone Money.” The Island of Stone Money(1991): 1-5. Web. 2 Feb. 2020.

Glass, Ira, Chana Joffe-Walt, Alex Blumberg and Dave Kestenbaum. “423: The Invention of Money.” This American Life. Prod. Planet Money. 7 Jan. 2011. This American Life. Web. 2 Feb. 2020

The State Of Cash: Preliminary Findings from the 2015 Diary Of Consumer Payment Choice Wendy Matheny – Web. 2 Feb. 2020

Olick, D. (n.d.). Decade after housing crash, Fannie Mae and Freddie Mac are Uncle Sam’s cash cows. Decade after Housing Crash, Fannie Mae and Freddie Mac Are Uncle Sam’s Cash Cows. doi: 10.5040/ Web 2 Feb. 2020

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1 Response to Stone Money Draft-TaxManMaxwell

  1. davidbdale says:

    TaxMan, I’ve had only a few minutes to scan your work, but I’m quite impressed with your ability to choose from a rich supply just the details to prove your point. Your explanation of the Yap stone and the URV are as good as I’ve read in a first draft.

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