On one Pacific island, a fortune was lost in a storm and spent for generations afterwards. The true story of what money actually is — and why every note in your wallet works the same way.
Ten items. Work through the four activities — say your answer out loud before you reveal it.
Three items: an IOU · a vault · worthless. Say the right one, then reveal.
Read each part. After it, there's a quick check (answer from memory first), then one question to discuss.
On the island of Yap, in the western Pacific, wealth was measured in stone. The islanders used rai: great limestone discs with a hole through the middle, some no bigger than a plate, the largest over three metres across and heavier than a car. The limestone was not found on Yap. It had to be quarried on Palau, four hundred kilometres away, cut with shell tools, and carried home by canoe and raft across open ocean — a journey on which men were regularly drowned. That was precisely the point: a stone's value came from the story of how it had been won, and the biggest stones were remembered by name, along with the names of those who had died fetching them.
The discs were far too heavy to hand over, so they were not handed over. A stone stayed where it stood, often at the edge of a path, while its ownership was transferred by public agreement — everyone simply knew that the great stone by the third house now belonged to another family, in the way that everyone in your street knows who owns which car. And then the system revealed what it really was. A canoe carrying an enormous new stone was caught in a storm, and the stone was lost over the side into deep water. The crew came home and reported that the disc was magnificent, that it had been properly cut, and that it was now on the seabed. The island considered this and agreed: the stone existed, its quality was not in doubt, and its owner was therefore rich. That fortune was inherited and spent for generations without anybody ever seeing it again.
It is easy to smile at this, and Western visitors did. But in the early 1930s, when France grew nervous about whether the United States would stay on the gold standard, the Bank of France asked the New York Federal Reserve to convert some of its dollars into gold. Clerks went down into the vault, moved a quantity of gold bars a few metres across the floor, and painted or labelled the drawers as French. Not one bar left the building — nothing was shipped, nothing crossed the Atlantic — yet newspapers reported that America had lost gold and that France had gained it, and financial markets responded accordingly. The economist Milton Friedman later set the two events side by side and drew the obvious conclusion: the men of Yap and the central bankers of New York were doing exactly the same thing. Both had agreed that something valuable existed somewhere, and both were trading the agreement rather than the thing.
1. Where did the rai stones come from, and where did their value come from?
2. What happened in the New York vault, and why did Friedman compare it to Yap?
1. Quarried on Palau, 400 km away, and carried home by canoe — men died on the journey. Value came from that story of difficulty and danger, not from the rock itself. Stones were never moved; ownership changed by public agreement, and one stone lost at sea stayed valid currency for generations.
2. The Bank of France converted dollars to gold; the Fed simply moved bars across the vault floor and relabelled the drawers. Nothing crossed the ocean, yet the world reacted as if it had. Same principle as Yap: what is traded is the agreement, not the object.
On the first of May 1970, after a pay dispute went unresolved, the main Irish banks shut their doors. They were expected to reopen within weeks. They stayed closed until the middle of November — around six and a half months, during which most of the country's money supply sat locked in vaults that nobody could enter. Economists at the time were clear about what would follow: a modern economy without banking would seize up within a fortnight. Wages could not be paid, cheques could not be cleared, businesses would be starved of cash, and the whole thing would grind to a halt.
It did not grind to a halt. People kept writing cheques — and everyone knew perfectly well that those cheques could not be cashed. That turned out not to matter. A cheque was accepted as payment, then passed on to somebody else as payment, and then passed on again; handwritten promises began to circulate as currency, endorsed on the back by each new holder. The critical job — deciding whose promises were good — was quietly taken over by the people best placed to do it. Ireland had roughly twelve thousand pubs and countless small shops, and the publican or shopkeeper had served the same families for years: he knew who was in work, who was reliable, who was drinking away a wage, and who had never once let anyone down. Credit was assessed the way it had been assessed for most of human history — by somebody who knew you. When the banks finally reopened, the mountain of paper was gradually cleared and the overwhelming majority of it was honoured. Losses were surprisingly small.
The lesson is not that banks are unnecessary; the Irish system was slow, local, and would have failed completely on anything larger than a familiar community. The lesson is what money was revealed to be when the machinery was taken away. It was not the notes, which stayed in the vaults. It was the ledger — the running record of who owed what to whom — and Ireland turned out to have one that did not need banks to exist, because it had been kept, all along, in the heads of people who knew each other. Money, that summer, was demonstrated to be a social relationship wearing a paper coat. Take the paper away and the relationship was still there.
1. How long were the Irish banks closed, and what was predicted?
2. What replaced the banking system, and who did the most important job?
1. From 1 May to mid-November 1970 — about six and a half months, with most of the money supply locked in the vaults. Economists predicted the economy would seize up within a fortnight: no wages, no clearing, no cash.
2. Uncashable handwritten cheques circulated as currency, endorsed and passed on. Publicans and shopkeepers — who knew their customers' work, habits and reliability — did the credit assessment. When the banks reopened, almost everything was honoured and losses were small.
The paper coat came off officially on the fifteenth of August 1971, when President Nixon suspended the right to exchange dollars for gold. The link had been weakening for years and the announcement was presented as temporary; it was never restored. Since then no major currency has been backed by metal. A euro, a pound or a dollar is now backed by a government's word, by the fact that taxes must be paid in it, and — mostly — by the belief that everyone else will go on accepting it tomorrow. This is called fiat money, from the Latin for "let it be done", which is admirably honest: it is money because it has been declared to be money and because we all behave as though the declaration were true.
Then comes the fact that surprises almost everyone, and it is not a conspiracy theory — it is stated plainly by central banks themselves, including in a well-known Bank of England paper published in 2014. Most money is not printed by governments at all. Notes and coins are a small fraction of the money in a modern economy; in the United Kingdom, roughly ninety-seven per cent of it exists only as numbers in bank accounts, and it is created by ordinary commercial banks in the act of lending. When a bank grants you a mortgage, it does not take somebody else's savings out of a drawer and pass them to you. It writes a new deposit into your account, and that money did not exist a second earlier. It is destroyed again, just as quietly, as the loan is repaid. The textbook picture — banks as careful middlemen moving other people's savings around — is, at best, an approximation, and the real question of who is allowed to create money has been answered, in most countries, in favour of private companies.
Which brings us to the present argument. In 2008, in the wreckage of a banking crisis, an anonymous author calling themselves Satoshi Nakamoto proposed a currency in which no institution had to be trusted at all — a ledger held by everybody, secured by arithmetic instead of by law. Whatever one thinks of what has since been built on that idea, and there is plenty to think, the underlying question was the right one and it is the question this whole lesson has been circling: not what is money made of, but whom are you trusting when you accept it. On Yap, you trusted the island's memory. In Ireland in 1970, you trusted a publican who had known your father. Today you trust a state, a central bank and a private company you have never met — and, as with the engineered choices in the food conversation elsewhere in this collection, the arrangement works beautifully right up until you ask who designed it. The note in your pocket is worthless paper and it will buy your lunch. Both of those are true, and the second one is only true for as long as everyone agrees.
1. What happened in August 1971, and what does "fiat money" mean?
2. Where does most modern money come from — and how is it destroyed?
1. Nixon suspended the convertibility of dollars into gold — presented as temporary, never reversed. Since then currencies are fiat: money by declaration, backed by the state's word, the tax demand, and everyone's expectation that it will still be accepted tomorrow.
2. Commercial banks create it when they lend — around 97% of UK money exists only as bank-account numbers, written into existence as a new deposit rather than moved from a saver. It disappears again as the loan is repaid.
Read part one again and count: the stone was quarried, was lost, was inherited; the drawers were relabelled; nothing was moved. Money is the most passive subject in English, because in almost every sentence about it the person responsible is unknown, unimportant, or extremely keen not to be named.
Rewrite so that the underlined idea becomes the subject. Keep the tense.
1. Men from Yap quarried the limestone on Palau. → The limestone on Palau.
2. Nobody has moved the gold since 1933. → The gold since 1933.
3. Shopkeepers were assessing the cheques all summer. → The cheques all summer.
4. You must honour a debt. → A debt .
1. was quarried 2. has not been moved 3. were being assessed 4. must be honoured
Notice 2: "nobody has moved" becomes a negative passive — the agent disappears completely, because "by nobody" is not English.
Each sentence ends with an agent. Decide whether by… is worth keeping, and say why.
1. Most of the money in Britain is created by commercial banks.
2. The banknote was printed by a printing machine.
3. The stone was declared valid by the whole island.
4. My card was refused by the card reader.
1. Keep. The agent is the entire news — that it's private banks and not the government is the point of the sentence.
2. Cut. Obvious to the point of comedy: "The banknote was printed."
3. Keep. Who agreed is exactly what makes the stone money — a collective decision, not an official one.
4. Cut. "My card was refused" — or, far more naturally in speech, "My card got refused."
Say the more natural version aloud, then reveal. There is a right answer each time, and it depends on what the sentence is about.
1. (Talking about the Irish banks) They closed on 1 May. Nobody reopened them until November. / They closed on 1 May. They were not reopened until November.
2. (Explaining who profits) Money is created by banks when they lend. / When banks lend, they create money.
3. (Reporting a theft, thief unknown) Someone stole the gold. / The gold was stolen.
1. The passive — the paragraph is about the banks, so keep them in the subject position. Jumping to "nobody" throws the topic away.
2. Either is grammatical, but the active is stronger here: if your point is who is responsible, put them at the front where they can't hide. This is exactly the choice politicians make in the opposite direction.
3. The passive — "someone" adds nothing at all.
Put each verb into the right passive form, then read it aloud in a newsreader's voice.
The banks on the first of May and for six months. During that time, cheques from hand to hand as if they were cash. The system by nobody; it simply appeared. When the doors opened again, the paper gradually, and almost all of it . Since 1971, no major currency by gold, and today most money by private banks in the act of lending.
were closed · were not reopened · were passed (or were being passed) · was designed · was cleared · was honoured · has been backed · is created
The two that catch people: "has been backed" — present perfect passive, because "since 1971" runs up to now; and "is created" — a present simple passive for a general, ongoing truth.
Take the passive into the Speak tab — Task A is almost impossible to tell without it.
A note on the record: the Yap stones were described by a visiting anthropologist in 1910 and the comparison with the New York vault is Milton Friedman's, published in 1991. The Irish bank closure of 1970 is documented history and was studied afterwards by economists. The 97% figure and the description of bank lending come from the Bank of England's own published explanation of money creation, not from anybody's pamphlet.
All of it out loud, against the clock — and where the doer is unknown or unimportant, let the passive do the work.
Tell it whole: limestone quarried four hundred kilometres away → men drowned fetching it → stones that never moved and ownership that did → the disc lost at sea and spent for generations → gold shuffled across a New York vault and relabelled → Ireland, 1 May 1970, six and a half months → uncashable cheques circulating as currency → the publican as credit officer → 1971 and the end of gold → 97% created by private banks → and the question underneath all of it.
Use at least six passive verbs and five key words (backed by, ledger, circulate, IOU, worthless, vault, honour, creditworthy, trustworthy, interest).
Round one: FOR the present system — private banks judge borrowers better than any ministry, lending drives growth, and the alternative puts the money supply in the hands of politicians who face elections. Round two: AGAINST — a public good is being produced privately for profit, the profits are kept and the failures rescued, and nobody ever voted for it. Concede one real point each, then say what you would actually change.
Your country's banks close tomorrow and stay closed until spring. Work through it out loud: how you'd be paid and how you'd pay; who near you is trusted enough to vouch for others; what you'd start hoarding in week one; which businesses die first and which quietly thrive; and what you'd do differently when the doors reopened. Then answer honestly: would your community pass the Irish test, or fail it?
Prefer other ground? Take one of these: