What is money?

My dictionary — that’s Webster’s Ninth New Collegiate for those of you who care — defines money as “something generally accepted as a medium of exchange, a measure of value, or a means of payment.” That’s a good start, but like most dictionary definitions, it’s clearly not the whole story. 

Value can only be part of the equation. Your house and car have value, but they’re not money. Your wife and kids have value, and you wouldn’t consider them money either. (Or if you would, you’re sick.) The most important part of that that definition is that money is a medium of exchange, which is to say, it can be traded for goods and services.

Economists might add that money should probably also be:

• storable, which is to say, non-perishable, so that it doesn’t spoil on you;
• portable, so that you can take it around with you;
• recognizable, so that you don’t have to argue with other people about whether it’s money;
• and divisible, so that you can scale your expenditure to your purchase.

Small societies don’t need money, because their transactions are simple. I trade you a fish for three apples. You help work my fields, so I give you a share of the harvest. It’s the barter system, and it works. But at some point your society gets so large, and the transactions so complicated, that you need money. Maybe I need something right now and don’t have anything to trade, but a decade ago I was very generous to you. Maybe I need to acquire goods and services from a stranger who I may never see again. Money provides a quick, easy way of settling accounts that doesn’t require everyone in your society to have a long memory or keep elaborate records of prior transactions.

Most societies start off with what we call “commodity money,” objects which have some sort of practical use or symbolic value. There’s a balancing act to be done here. You want your money to have some practical use, but not so much practical use that you are tempted to actually use it. You want the money to have some symbolic value, but not so much symbolic value that you’re tempted to not use it at all.

Cultures have used shells, feathers, grain, spices, cloth, metal bracelets, just about anything you can imagine, really. The Lydians introduced gold and silver coins — low practical use, moderate symbolic value. The Spartans used iron coins, though it’s hard to imagine that practice lasting past the end of the Bronze Age.

The Stone Coins of Yap

Which brings us, in a roundabout way, to the subject of our tale: the Yap Islands, at the western end of the Carolines in the Federated States of Micronesia.

The Yap Islands are famous around the world for their money: giant stone “coins,” called rai or fei. These are large stone discs carved from a type of glittery limestone called aragonite, ranging in size from a few feet across to over twelve feet in diameter. They have a hole in the center, which allows them to be moved around, the smaller ones by ropes and the larger ones by wooden poles.

Now, you’re probably thinking, who makes money out of stones? They’re just lying around everywhere! Well, why don’t you hold your judgment until I tell you how they’re made.

First, you should know that there’s no aragonite on Yap. So to make rai, you first have to get your chief’s permission to paddle 250 miles southwest across treacherous South Pacific waters to the island of Palau. Once you’re there, you’ll have to strike deal with the Palauan tribesmen to gain access to their aragonite quarries. Depending on when you’re attempting to do this, the Palauans may be actively hostile, they may be indifferent, or they may just charge you an arm and a leg.

After the deal is struck, you’ll hike miles inland through the jungle to reach those quarries. Once there you’ll spend months or years painstakingly forming and separating a disc from a cave wall and refining its appearance. All of this has to be done with bone and shell tools, or if you’re lucky enough, maybe you have iron tools from European traders. Then, you’ll transport the finished stones back through the jungle to the shore.

At the shore you’ll maneuver the rai through the pounding surf and load them onto canoes or rafts. Then you’ll paddle back all the way back to Yap, this time with a heavy stone lowering your draft and making your craft less maneuverable.

Even though you’re home, that rai still isn’t yours. It belongs to the chief, and he’ll hold on to it until you’ve paid him off with labor, usually collecting baskets of taro or coconuts. He’ll also take about 40% of all the rai made on the expedition as tribute.

Once it’s yours, though, you’ll take that rai and put it somewhere prominent near your home or near the meeting house, so that everyone can marvel at your new-found wealth. If you’re feeling wealthy or ostentatious, you might line a nearby road or path with your rai, creating a “money bank.”

How did the Yapese even settle on such a strange currency? Oral tradition claims that hundreds of years ago the legendary navigator Anagumang, who had learned magic at the hands of the fairy mother Le-gerem, took a crew of seven brave men west to Palau to find the beautiful shining stone. First, they sculpted it into the shape of a whale, but that wasn’t very pleasing, and after repeated attempts they eventually settled on a round shape similar to the full moon. When the shining stones were brought back to Yap they were valued for their great beauty.

Archaeological evidence suggests that quarrying has taken place on Palau as far back as 500 CE. The quarrying increased in intensity after 1200 CE, when the chiefs of western Yap may have been promoting rai as a way to displace a shell currency called gau which was controlled by the chiefs of eastern Yap. One way they accomplished this was by promoting competition between navigators like Anagumang to bring back the largest, most impressive and beautiful rai.

If so, it worked. Some estimates claim that during rai’s heyday, nearly 10% of Yap’s adult male population would be involved in the quarrying and shipping of stones. That’s the equivalent of having fifteen million people working directly for the U.S. Mint printing dollar bills.

The nature of money

What’s also interesting is the way rai call into question a lot of our preconceptions about what money is and how it functions.

We mentioned the concept of “commodity currency” at the beginning of the episode. Most economists would say that it’s the earliest stage of money most societies go through. The rai stones don’t fit into this category at all, as they have no practical use and no symbolic or religious value. Instead, rai seem to be one of the earliest examples of “fiat currency” — money which has value only because we as a society agree that it has value. That’s a stage our own money only reached with the abolition of the gold standard in the 1970s, some 500 to 1,000 years after the Yapese.

Earlier, we talked about four qualities that money should have. We can all agree that rai are storable and highly recognizable. But are they divisible? You can’t exactly break up a huge, finely-sculpted stone into pebbles without ruining what value it does have.

The Yapese did’t even try. For regular transactions they used the barter system or shell money. When trading with other Micronesians they used woven mats. Trade with Europeans or the Chinese was done in commodities. Rai weren’t even used as the common medium of exchange. Prices on the island were usually set in baskets of taro root or other agricultural products.

So, if you’re not buying day-to-day items with rai, what good are they? Well, in one sense, they’re the ultimate in signaling, a luxury good like a Louis Vuitton handbag or a Bentley, that lets your neighbors know how good you’ve got it. And unlike luxury goods rai were exchanged, just not frequently.

Here we encounter another interesting fact: the stones have no set value. In general, larger stones are more valuable than smaller ones, but the primary determinant of a stone’s value is the story of the stone itself. Did it have distinctive craftsmanship or great beauty? Was the expedition that fetched it a perilous one that faced hostile tribes and crossed turbulent seas? Had it been owned by great chiefs or famous heroes? Did it have strange or memorable stories attached to it?

Particularly notable rai might have names attached to them — sometimes descriptive, sometimes names inherited from previous owners. One is called “the stone without tears” because it’s one of the few stones on the islands where no one died on the trip back from Palau, which was unique in and of itself. It’s valued just as much as stones where people did die on the trip.

How were they exchanged? Sometimes it was just a straight-up trade. A less valuable stone might go for a pig or a few months of food. But more often they were done as gift exchanges or for ceremonial purposes. They might be given to a newlywed couple as a sort of nest egg, or presented to a newborn child as a half-ton savings bond. More valuable stones might be traded between villages to secure allies in times of war, paid as reparations after a conflict, or left as a security deposit so that you could use a tribe’s lands and resources for a time.

Then there’s the matter of the exchange itself. You’ll remember we said money had to be portable. Well, we can all agree that something weighing hundreds of pounds exactly portable. So how do you trade something you can’t move?

Once again, the Yapese didn’t even try. Smaller stones could and would be moved, but larger stones would stay just where they were. After an exchange, word would get out and sooner or later everyone on the island knew the stone had a new owner. It was just a new chapter in the stone’s history and lineage. In effect, the oral tradition of the island became an early form of blockchain, where each stone carried its own transaction history around with it. One more thing the Yapese beat us to by a thousand years. Eat that, Satoshi Nakamoto!

With all that going on, it’s no wonder that when Europeans first encountered Yap they were fascinated and bewildered by money that seemed simultaneously years ahead and years behind of their own.

His Majesty

During the colonial period, Yap was a tempting target for Europeans. It was rich in natural resources: mother of pearl; bêche-de-mer or trepang, a sea cucumber highly valued in East Asia for its purported aphrodisiac qualities; and most importantly copra, dried coconut kernels that could be pressed to extract oil.

The Yapese, well, Europeans found them just as baffling as their currency. Their relaxed island lifestyle was often interpreted as laziness. They liked tobacco and alcohol, but seemed entirely uninterested in anything else the Europeans had to offer (or were willing to offer). And yet for a few weeks each year, the so-called “lazy” islanders would work themselves like dogs to make and buy seemingly useless stone money. It was utterly confounding.

The Spanish tried to exploit the islands for a few hundred years, but eventually gave up in frustration. Their resulting policy of benign neglect opened the door for Dutch, British, and German interests to try and make a go of it, but the returns were minimal.

Until the arrival of David Dean O’Keefe.

At first glance David Dean O’Keefe is a stereotype right out of central casting: a big burly Irishman with red hair and an explosive temper to match. Born in Ireland in 1824, he emigrated to America during the potato famine, eventually settling in Savannah, where he found work as a sailor. During the Civil War he ran the Union blockade; after the war, he plied a two-legged version of the triangle trade, ditching the slaves but keeping the molasses and rum. He eventually married Catherine Masters, a sharp-tongued harpy twenty years his junior. They did not have a particularly happy marriage but had one daughter, Louisa Veronica, better known as “Lulu.”

In 1866, when O’Keefe was captain of the Anna Sims, he struck crew member William Geary over some minor offense. Geary retaliated, and the fight escalated until Geary was lying dead on the deck with a bullet hole in is head. O’Keefe was arrested and thrown in jail. He was eventually found not guilty by reason of self-defense, but his reputation with the local sailors was ruined and he found it hard to find work or hire men to crew his ships. He decided to seek his fortune elsewhere and signed on as first mate on the Belvidere, bound for New York.

Savannah gossips circulated rumors about his abrupt departure, most of them implying he’d killed again and needed to get out of town quickly. In one version, it was in a drunken brawl outside Piggy McBride’s saloon. In another, it was in the last duel ever fought in Savannah. The truth was far less exciting.

He stayed with the Belvidere when it left New York for Liverpool, and made it most of the way to Manila before jumping ship in Hong Kong after an argument with the captain. He wrote a nice letter to Catherine back in Savannah, sending her a bank draft for $167, and promising to be home soon. That may have been his intention at the time, but he’d never see America again.

Which brings us to his arrival on Yap. In the most common version of the story, O’Keefe’s ship is sunk by a typhoon and he washes ashore on Yap, where he is nursed back to health by a local sorcerer. The truth is a lot less romantic: O’Keefe first arrived on Yap in October 1871 as part of a trading expedition. It’s not terribly exciting, so if you want to continue to believe the romantic version I won’t blame you.

However he got there, he liked the island, and the island liked him. In 1872 he returned on a run-down Chinese junk, named Catherine after his wife (how flattering) and set up shop. Within a decade O’Keefe would have Yap exporting hundreds of tons of copra a year, more than any other island in Micronesia, his own share more than every other trader on the island combined. His business empire included a coconut plantation on the island of Mapia and commercial interests on Sonsorol, and was valued at millions of dollars. He employed a fleet of ships, dozens of European employees, and hundreds of native laborers. He lived in richly-appointed mansion on the island of Tarrang. Locals called him “King O’Keefe,” though we should stress that he didn’t have any Kipling-esque delusions of grandeur. It was just a nickname.

How did O’Keefe succeed where others had failed? Well, he studied the situation in Yap and came to a simple conclusion: if the Yapese don’t value what you’re offering, find out what they do value and offer it to them. It seems obvious in retrospect, but at the time it was a stroke of genius.

In this case, what the Yapese wanted was rai. O’Keefe couldn’t quarry the stones for them, but he could make the process faster and easier. He offered the islanders safe passage to and from Palau in safer modern ships, and iron tools to work the stones. After the return voyage, he’d hold on to the rai until presented with an appropriate amount of trade goods, just like their chief would.

And the Yapese went for it. When O’Keefe first arrived on the island, rai were relatively rare. By the turn of the century, there were thousands. They also increased in size. Canoes and rafts could only safely carry stones a meter or two in diameter. O’Keefe’s vessels allowed the quarrying of much larger stones, some a staggering four meters across.

In essence, O’Keefe disrupted the economy, setting himself up as a new chief and allowing people to bypass the existing tribal structure to access the most coveted luxury good. This made existing chiefs none too happy. Keeping with Thomas Paine’s maxim, “That which we obtain too easily, we esteem too lightly,” they declared that the new rai were to be of considerably lesser value than their predecessors, despite their otherwise excellent size and quality. The new stones couldn’t be devalued entirely without calling the legitimacy of all the stones, so they had to retain some value. In effect, David Dean O’Keefe introduced the concept of inflation to Yap.

O’Keefe’s business rivals accused him of forcing the Yapese into slavery, flogging them, throwing the sick and injured to the sharks, despoiling their women and stealing their property. These were just jealous accusations with no foundation in reality. Generally O’Keefe had positive relations with the locals. He seemed to understand and appreciate their way of life, even if he did exploit it for his own ends.

Which isn’t to say he was all smiles and sunshine. When one of his ships went down off the coast of Palau, nearby villagers plundered the wreck before salvage operations could arrive. O’Keefe called in the British navy, who bombarded the village in retribution.

His business savvy and positive relationship with the Yapese allowed O’Keefe to build an independent empire greater than all other commercial interests in the islands combined. Other operators had to copy his techniques just to keep up. 

He would occasionally send checks to Catherine and Lulu to cover living expenses, though never made any real plans to either return to Savannah or bring his family to Yap. Most likely that was because he had bigamously married Charlotte Terry, the half-native daughter of a local trader, and openly kept her aunt Dolibu as a mistress. He had numerous children by both women. 

O’Keefe managed to beat the Dutch, the British, and the Spanish. He may have ultimately met his match in the Germans, who purchased most of Spain’s Pacific holdings in 1898. They quickly passed a law outlawing the production of rai. The measure was primarily intended to increase the number of available workers they could draft for civil engineering projects, but may have also been intended to break the back of O’Keefe and the traders who followed in his footsteps.

In the long run, it might have worked.  In the short run, it didn’t matter.

In 1901, O’Keefe took a routine business trip to Hong Kong with two of his sons. Their return trip left port on May 7, and their ship was never seen again. Eventually, they were declared lost at sea.

O’Keefe’s will left most of his estate to his Yapese family, though he did arrange a generous share for Lulu. He left Catherine out of the will entirely. German law at the time, though, guaranteed a legitimate surviving spouse at least 50% of any estate, so Catherine sued. Savannah papers claimed his holdings were potentially worth $10,000,000, but after Catherine’s lawyers visited Yap they downgraded that to a mere $500,000. She eventually settled for a mere $10,000. It seems like chump change, but chump change is probably preferable to fighting an expensive legal battle from half a world away.

The End of an Ara

In some ways, O’Keefe’s passing was an end of an era. The German prohibition on making new rai stood, though they couldn’t rob the existing rai of their value. In one charming incident, the Germans shamed locals into fulfilling their civic duties by defacing key stones with paint. It did the trick. The symbolic loss of the rai meant more to the Yapese than losing a few Deutschmarks.

After World War I, Yap passed into the hands of the Japanese. After World War II, the Americans took over. In 1986 it became part of the newly-founded Federated States of Micronesia.

In 1950, Lawrence Klingman wrote a highly fictionalized biography of O’Keefe, His Majesty O’Keefe, which was turned into a movie starring Burt Lancaster. The resulting publicity brought descendants out of the woodwork to press claims for a share of his fabulous wealth, which of course, no longer existed. O’Keefe’s business had been liquidated shortly after his death and the money was long gone. His land holdings had only been leases, and the mansion on Tarrang had been abandoned in the 1930s, turned into a Japanese munitions dump during World War II, and eventually bombed flat by the Allies.

A Japanese survey in the 1920s counted 13,281 rai on the island. By 1965 the number had dwindled to 6,000, some of the stones lost to time and nature, but many more destroyed by the Japanese during World War II to build fortifications.

Rai are still traded on special occasions, but as before most daily transactions are carried out with piddling small change. That used to be shells and woven mats. Today, it’s the U.S. dollar.