Chris Yencha, Outside Reading 2

My second outside reading entry is from A History of Interest Rates by Sidney Homer. Thousands of years ago on the Banks Islands in the Southwest Pacific, men dealt in a currency of strings of shells. These islands developed a relatively advanced credit and currency system for the time period. What was unique about these strings of shells is that the currency had very little value except as entry into a Men's Club; however, these clubs were important as they provided for a large number of key social connections which enterprising men required in order to engage in trade. The strings of shells are interesting in and of themselves as they are a unique example of a currency which shares characteristics of both commodity money and fiat money. The shells are not assigned a value based off of the value of the commodity that they are made of (as shells were of no value alone for anything other than entrance to societal clubs) but were assigned value based off of its use as entry into the club.

Admission into a club costs many strings of shells while promotion within the club costs many times more. The most fascinating aspect of these strings of shells from the point of view of historical interest rates is that coercive debting was a common practice within the islands. Essentially, a wealthy man with many strings of shells could force another man under law to accept a loan of shells. Loans were always for a 12 month period with a 100% annual interest rate. If a man could not pay off the debt that he was forced into, he was often put to death.

Retributive gifting, as I'll refer to it for the remainder of the entry, is an example of how this ancient concept is still in existence. In ancient Rome, for existence, rulers would often give gifts to citizens. It was custom to return the gesture of giving a gift by giving a gift in return of even greater value. Thus, rulers who gave gifts often made a profit when they received gifts back.

As strange as retributive gifting may sound, it happens all the time today. Birthdays gifts are a solid example of this concept in action today.