The Curse of Money - Fragments of Monetary History

Author: (USA) Milton Friedman / Country: Mainland China
Publisher:
Publish Date: 2006-07-01
Features: Money cannot be taken lightly; it must be entrusted to the central bank. — Quoted from The Tyranny of Money
The Chicago Tribune called Nobel laureate Milton Friedman the "Oliver Stone of economists," a title that clearly shows no one, from local small business owners to Wall Street bankers to U.S. presidents, could escape the influence of monetary economics. In this book, Friedman discusses the creation of value from stones to feathers to gold, outlines the dominant role of money, and reveals how money can trigger or exacerbate inflation. Through vivid historical anecdotes, he demonstrates the harm caused by misunderstandings of monetary economics, such as how the work of two obscure Scottish chemists ruined William Jennings Bryan's presidential prospects and how President Franklin D. Roosevelt's decision to appease a few senators in the American West altered the course of modern Chinese history. Friedman explains in plain language the significance of the current U.S. monetary system for individuals' wages, savings accounts, and the global economy. A lively and enlightening introduction to monetary theory, with a clear exposition of monetarism. — Kirkus Reviews
Because the island did not produce metal, its resources were stones, and all their labor was spent moving and grinding stones. Stones, like property and coins in civilized societies, represented labor. They called their medium of exchange fei, which consisted of large, hard, and heavy stone wheels with diameters ranging from 1 yard to 12 yards. A hole was in the center of each wheel, its size varying with the wheel's diameter. A sturdy rod could be inserted into the hole, matching its size and strong enough to bear the weight of the stone wheel for easy transport. These stone "coins" [were found on another island 400 miles away, made of limestone] were initially mined and shaped by local adventurers on the island and then transported back to Yap in dugout canoes and rafts. What is remarkable about these stone currencies is that their owners had no need to reduce their holdings. After a transaction, if the fei involved was too large to be conveniently moved, the owner would readily accept simple recognition of ownership and would even be reluctant to make a mark to indicate the exchange. The stone currency would still lie quietly at the former owner's feet. I have a trusted friend named Fatumak, who once told me with certainty that there was a family near his village whose wealth was undeniable—that is, their wealth was recognized by everyone—but not a single person, not even the family itself, had ever seen or touched it. This wealth was a massive fei, its size well-known through legend, which had been passed down for two or three generations. From then until now, this wealth has rested on the seabed! Many years ago, one of the family's ancestors, while exploring for fei, acquired this extraordinarily large and valuable stone. Later, it was placed on a raft, ready to be transported home. Halfway across the sea, a storm broke out, and to save their lives, the people cut the raft's ropes and let it drift, causing the stone to sink into the sea and disappear from sight. When they returned home, everyone testified that the fei was of immense size and exceptional quality, and the loss could not be blamed on the owner. From then on, everyone inwardly acknowledged that the stone's fall into the sea was merely an accident—a trivial one, too small to matter, and the sea miles away had no effect on the value of the stone, as it had already been shaped appropriately. Thus, the stone's purchasing power remained, just as if it had been untouched and lying safely in the owner's home.
Yap Island had no wheeled vehicles, so there were no roads suitable for driving, but there were several clearly marked paths connecting the settlements. In 1898, after Germany bought the Caroline Islands from Spain, it acquired ownership of the archipelago. At the time, the roads or highways on the island were in very poor condition. Several regional chiefs were notified that they must repair and maintain the roads. However, roads paved with large coral fragments were very suitable for barefoot locals to walk on. So, despite repeated orders, no one paid attention. Eventually, the German rulers decided to impose fines on the defiant chiefs. But in what form should the fines be paid? Later, the Germans devised a clever solution: they sent a person to visit every stone house (failu) and public gathering place (pabai) in the regions that had defied the order to collect the fines. Once there, this person need only draw a black cross on a batch of valuable fei to indicate that the stone had been confiscated by the government. This method worked wonders. The distressed poor people immediately repaired the roads connecting the two ends of the island, and the repairs were neat. Now, these roads look like park lanes. Then, officials sent some staff to erase the crosses drawn on the stones. In the blink of an eye, the fines were canceled, and the happy "stone houses" once again regained their capital ownership and enjoyed their wealth. P7-9