Yapping away at gold: lessons from the last days of the Rai

Mr Eliot Whitehead sent me the following e-mail message in response to my blog post ‘Gold – a six thousand year old bubble’:

“Regarding your FT article, Gold – a six thousand year old bubble, it would interest you to learn that Rai, somewhat since the end of WWII in the Pacific, no longer has value in Yap: to Yapese, it is, essentially, worthless and disregarded. Ironically, it has fairly great value to foreign collectors, but its export is strictly prohibited by law. In reality, more could be “minted”: a clever entrepreneur with the support of the Yapese government should be able to make Rai in Palau and Guam, transport it to Yap, and sell for a tidy profit to these collectors…but this will never happen.

With the advent of American administration (under UN guise), traditional Yapese cultural practice was undermined to be replaced by contemporary, American style consumer values: building materials, automobiles, roads (a pathetic fate for much, unmovable, Rai lining the original pathways), tin foods, clothing, et al. Of course, Rai had and has no value in obtaining these now necessary items.

I date the seeds of this reversal to the late 1960s and was in full swing by the mid-70s.

I can not imagine the circumstances under which Yapese would ever value Rai again. On a grander scale, could gold follow the same path?

Probably not. In any case, I only put my money in real estate.”

Far be it from me to assert that a fate similar to that suffered by the Yapese Rai will befall gold – another intrinsically worthless fiat commodity.  But the demise of the Rai as a store of value and means of payment, when taken together with the historical experience of pre-columbian native American tribes and nations that attached very little value to the shiny metal, should give the gold bugs some sleepless nights.  More importantly, it ought to discourage investors who are not rich enough to survive a speculative disaster from putting too much of their savings into this frivolous store of value.

Maverecon: Willem Buiter

Willem Buiter's blog ran until December 2009. This blog is no longer active but it remains open as an archive.

Professor of European Political Economy, London School of Economics and Political Science; former chief economist of the EBRD, former external member of the MPC; adviser to international organisations, governments, central banks and private financial institutions.

Willem Buiter's website

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