In the early 20th century, the isolated Pacific Island Yap was home to an unusual monetary system. The economy only contained three goods: fish, coconuts, and sea cucumbers. Yet, Yap had a highly developed system of money. Its coinage—fei—were large stone wheels, some with a diameter of twelve feet. Owners rarely possessed their fei. After completing a bargain, a simple acknowledgement determined new ownership between sellers and buyers. One family even “possessed” a large fei that had lain on the bottom of the sea for generations. No one questioned their wealth.
In Money: The Unauthorized Biography, Felix Martin asks, “What is money, and where does it come from?” Economists typically argue that money emerged as an alternative to barter. Before money, we would trade fish or corn and other goods but it was an inefficient system. Money became a stable commodity—a medium of exchange—that lubricated the markets. For Martin, however, this view is deeply flawed because it draws on a history of money that relies on what survived.
At first glance, that makes sense. If you want to study money, the first thing you examine is the evidence—coins. However, if you only study what physically survived, you’ll never get the full picture. “Coinage may have been only the very tip of the monetary iceberg,” Felix Martin says.
The unfortunate incineration of one of the largest collections of “Exchequer tallies” tells us why. From the twelfth to the late eighteenth century, financial operations in England relied on thin wooden sticks (tallies) typically harvested from willow trees. An Act of Parliament abolished tally sticks, and in 1834 the government burned millions of the defunct sticks in a large stove in the House of Lords (inadvertently starting a fire that burnt down the Houses of Parliament). Thus, an “immense wealth of knowledge that the Westminster archive embodied about the state of England’s money and finances throughout the Middle Ages… [was] irretrievably lost.” By analogy, if a natural disaster destroyed the digital records of our current financial system, we’d hope that future historians studying the Great Recession don’t only examine nickels and euros.
Coinage, in other words, is not essential to a monetary system. “It is the underlying mechanism of credit accounts and clearing that is the essence of money,” Martin writes. Currency is ephemeral and cosmetic; it is not itself money but a representation of credit. Remember the fei at the bottom of the sea.