Stone Money – ChickenDinner

Under or Across the Ocean – Property Ownership and Physical Access

When you think about buying something, there is probably a certain sort of image in your mind. For example, if you imagine buying an ice cream cone, you might imagine handing somebody in an ice cream truck some cash and being handed the frozen dessert in return. But not all exchanges look like this. Beyond the most minor purchases, physical currency is scarcely used in trade today. Hardly anybody takes a briefcase of bills to buy a car, after all. And money isn’t the only thing that isn’t physically exchanged. When somebody buys stocks in a manufacturing company, they don’t expect a sliver of a factory to be sent to their house, but they own a portion of it all the same. These examples demonstrate a rarely thought about but crucial principle to an efficient economy; one can own something without having any physical access to it.

Even governments often have no way of directly accessing resources that are legally their property. See, for example, an interaction between France and the United States in 1933, the Bank of France asked the Federal Reserve (the central bank of the USA) to exchange some of the former’s US dollars for gold. Rather than ship gold across the Atlantic Ocean to France, the Federal Reserve simply marked some bars as belonging to the Bank of France’s account. In the eyes of both parties this simple change of label was, quite literally, as good as gold. And the general public wasn’t any more skeptical of the legitimacy of this exchange. As Milton Friedman writes, newspapers wrote “headlines … about ‘the loss of gold,’” and “markets regarded the U.S. dollar as weaker, the French franc as stronger.” The gold, without moving a mile, had been given from one nation to another an ocean away.

You might think that this separation of ownership and physical access is only possible in a large-scale economy, or one that has a certain level of technological advancement. On its surface, it seems like a reasonable assumption that only under these circumstances would it be expedient to trade for something you can’t see or touch. But the Island of Yap provides an example of why this is an error. The inhabitants of this island used massive stone disks with holes in the middle, called fei, for major purchases. Rather than moving these massive stones whenever they made such a transaction, they would leave it where it was, instead transferring an unwritten title of ownership, so to speak. As Jacob Goldstein explains, “(If I) pay you with this stone … the stone doesn’t have to move … but now everybody knows that’s (your) stone. I don’t own it any more.” An even more counterintuitive example from Yap comes from when one of the stone disks fell into the ocean.  Rather than chalking it up to a loss, the inhabitants of Yap accepted the value of the disk, even on the floor of the sea. Goldstein explains “the people of Yap said … ‘(we) believe … this giant stone on the bottom of the sea … exists. It’s still good money.’” And, if they trust that the giant stone disk is there, why should they not treat it like any other? As long as its ownership can be exchanged for goods and services, it is no different than any other fei. And as Friedman tells us, when the German government, which had conquered the island, wanted to fine the inhabitants, they did not go through the trouble of dragging stones away. They simply painted black crosses on a few valuable fei, to signify that they were property of the German state. And when the paths were repaired as the Germans demanded, the crosses were washed away, and ownership was restored to those the fei belonged to before the fines were imposed.

While ordinary people in our society don’t exchange gold bars or huge stone disks, we have greatly increased the distance between physical access and ownership. Friedman was right to ask “how many of us have literal personal direct assurance of the existence of most of the items we regard as constituting our wealth?” Over the past few centuries, we’ve gone from using golden coins, to paper bills that could be exchanged for gold. Then the government, seeking to make the money supply more readily expandable, terminated our ability to exchange paper money for gold. Then we moved on to checks and plastic cards, automatically transferring money between accounts, simply by changing numbers. Now with technological advances, almost all transactions are simply numbers being changed in a computer. Cryptocurrencies such as Bitcoin exist entirely on digital networks. They are intangible, and yet they have owners, just as much as a dollar bill or an ice cream cone. The example of businesses again makes the distinction between physical control and ownership clear. There isn’t any way a shareholder of a corporation can assert that a portion of it is their own, but legally and financially the claim is unquestioned.

Traditionally, people have built an association, without even giving it much thought, between owning something, and being able to grasp it with their own hands or see it with their own eyes. But ownership is not limited to the property inside one’s wallet or their house. It can be an ocean away, or not even physically real. Property takes many forms, from a stone in the depths of the sea, to gold in another continent, to numbers electronically stored on microchips. John Phillips wrote in 2014 that “Bitcoin saw its highest ever number of transactions in a single day in late November,” and it has only increased in popularity since then. Just as transfers of ownership have been done by painting plusses on disks or changing the labels on gold bars, it will be done through the changing of binary sequences of information, nearly instantaneously. The future is always uncertain, but as technology advances, we have every reason to expect an economy where people can go their whole lives without holding physical money, except, perhaps, in a museum. Indeed, people will have as little need to know where their blockchain savings are, even if they are under or across the ocean.

References

Friedman, M. 1991. The Island of Stone Money. Working Papers in Economics

Goldstein, J. Glass, I. 2011. The Invention of Money. This American Life. https://www.thisamericanlife.org/423/the-invention-of-money

Phillips, J. Bitcoin: What to Expect in 2015. CNBC. https://www.cnbc.com/2014/12/15/bitcoin-what-to-expect-in-2015.html

This entry was posted in chickendinner, Feedback Please, Stone Money 2021. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s