People living in Yap, an island group in the Pacific, at one time used as money large stone disks known as Rai. These disks can be up to 12 feet in diameter and were made of a stone that is not native to the islands, so they had to be transported by canoe with great difficulty and risk. The stones were valued both due to their scarcity and because of the history of their acquisition.
a. How well do large stones fulfill the functions of money?
b. In 1874, a Western immigrant to the islands used ships to transport more stones to Yap. While these stones were larger, they did not have the history of risk and hardship associated with them.
i. What happened to Yap’s money supply and to the overall value of stones?
ii. How does what happened to Yap’s money illustrate a central problem of commodity monies?
iii. How would you expect old stones to be valued relative to new stones? Briefly explain.