Tag Archives: history

The Island of Yap

As I studied economics, I ran across this story a number of times.  Perhaps you have heard it.  It helps me think about the nature of money and valuation.

The indigenous people on the island of Yap developed money that consisted of enormous round slabs of limestone, up to 12 feet in diameter, with holes in the middle.  Limestone was not found on Yap, but on a neighboring island.  Quarry and transport costs accentuated its value.  Of course, nobody owned very many of these huge stones, called rai, but they did change hands for dowries, or as a last resort after a failed crop (though hopefully your crop was the only one that failed, otherwise you might be facing rai inflation).

But rai did not change hands per se.  They were too big.  Instead, when you acquired rai, it was merely acknowledged that the stone now belonged to you.  You left it in the town square, or marking the path, or wherever it lay.  It was yours and everyone knew it.  Now you had enduring stored value, ready for you when you needed it.

Once, while transporting a large rai stone, it fell into a deep part of the sea.  Oh no!  But after some discussion, everyone concluded it must be down there somewhere, and so it continued to be exchanged as if it was regular rai.  It is still traded, though nobody has seen it for over 100 years.

It seems to me that the brilliance of modern finance is to say, “Why are we going through the trouble of mining and transporting these stones (or in our case, precious metals) in the first place?  Seems like a waste of time.  Instead, why don’t we pretend that all our rai are already lying on the bottom of the sea?  We’ll just use banks, accountants, and ledgers to keep track of it all, just like we were doing already, but in order to lessen the impact of cycles of inflation and deflation, let’s create a quasi-governmental organization (the Fed) to control how much fictional rai at the bottom of the sea we are allowed to think exists.”  Brilliant.  If we are all going to play make-believe, we might as well ensure our make-believe world is as stable as possible.

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The Unique City

I thought David Rakoff’s book, Don’t Get Too Comfortable: The Indignities of Coach Class, the Torments of Low Thread Count, the Never-Ending Quest for Artisanal live Oil, and Other First World Problems, was going to make fun of these sorts of problems and provide insight.  Instead, he was serious about these meaningless difficulties.  It was a major disappointment for such a sweet title.

So, for entertainment and diversion, in the midst of this crazy adrenaline-filled week, I turned to a 14-lecture course on the History of Venice by Dr. Thomas Madden at Saint Louis University.  I enjoyed it greatly.  Kagan’s History of Ancient Greece is much better (you can find it on itunesU), but I think it is only because Venetian history is just so absurdly long, over 1,000 years.  It’s hard to create the magic of narrative when the story is so long and has so many players.

Venice is a unique city.  It did not exist during Roman times.  Nobody lived out on these tiny little low-lying sandy and marshy islands at the very northern tip of the Adriatic.  People started fleeing to them for safety as mainland Italy became less and less stable and it became a collection point for refugees from the Roman Empire.  As such, it kept a very close relationship to the Byzantines for hundreds of years, and it always associated itself, and rightly so, with the Roman legacy.

Venice’s location also set it apart from the mainland (more than literally).  While Europe adopted the land-based feudal system, Venice’s income was entirely based on the sea trade.  Ok.  They did make salt, and a few other things, but they were traders and not farmers.  In fact, their merchant-based economy did much to pave the way for modern finance (maybe I’ll discuss that in a different post).  Like Athens of ancient times, they enjoyed a unique combination of dominance at sea and relative weakness on land (if only Athens had enjoyed Venice’s supremely defensible marine location maybe the Pellopenesian War would have gone differently).

Unlike the other mostly monarchical governments of Europe, Venice’s government was originally a democracy in which the people voluntarily gave up their claims to a group of wise old men who in turn created an oligarchical republic.  Newly wealthy families could join the oligarchy, and this flexibility made it unlikely that the newly rich would agitate the populous in an attempt to gain political power.  The result was an incredibly stable republic in which everyone was subject to the rule of law, and this was good for business.

For centuries Venice enjoyed great privilege in trading with the Byzantines, and their seafaring abilities–they all grew up on the water–made them exceptional sailors for business and war.  However, with the opening up of the Atlantic passes to India by going around Africa and the discovery of America, Venetian trade became less important.  They were also slow to put cannons on ships, lose their rowers, and they never really got the hang of it.  They were incredible ship-builders during the Middle Ages.  In fact, they were the ones to really invent the assembly line, the factory (their “Arsenal” it was called), and interchangeable parts.  They would float hulls of boats down the docks to different stations.  At times, one third of the city worked at the boatyard and they could pump out a ship a day.  In 1450 they had about 3,000 ships on the water.  But eventually they couldn’t keep up with the French, English, or Germans.

Ironically, Napoleon, the product of the French Revolution, who thought himself the great liberator of Europe, the spreader of liberal ideas like equality under the law and republicanism, was actually the one to destroy the oldest republic in Europe, one which had always prosecuted those high-born and low-born.  In a sad series of events, Venice tried to placate Napoleon, but ultimately, Napoleon just wanted Venice.  He arrayed his cannons along the shore and was about to bombard the city.  Finally, technology had made obsolete Venice’s defense: the sea.  So, in an emotional meeting of the Great Council on May 12, 1797, after 1100 years of fairly even-handed and non-partisan self-rule, the last holdouts of the Roman Empire voted to voluntarily give up their republic and hand themselves over to French rule.

History makes me cry.