“Shaka” is not a Hawaiian word (it’s not clear when or how it came into use) – but it is believed it started as a Hawaiian hand gesture and has grown to universal acceptance.
It has many meanings
Originally it means to "hang loose", or to chill and be laid back. It can be used as a positive reinforcement. If somebody did something good, cool, or righteous, you can give them a shaka as a sign of approval or praise. It can also be used as a welcome/goodbye sign. Most people would give the shaka as a sign of howzit, wassup or hello, use it as a way of saying goodbye, and even use it as a thank you. (UrbanDictionary)
Most point to Hamana Kalili (June 18, 1882 - December 17, 1958) as its originator.
In 1985, 550 people signed a petition giving credit to Hamana Kalili, a big man on Lāʻie beach and in the Mormon Church during the 1920s and 1930s. Kalili was a folk hero — fisherman, tug of war champion and hukilau organizer of the community. (Krauss)
Beatrice Ayer Patton (Mrs. George S Patton – Patton was stationed on Oʻahu during the mid-1920s) described Kalili as “a magnificent example of the pure Hawaiian. A man in his sixties, with white hair and a deeply carven face, he had the body and reactions of a teenager. He lived and fished on the windward side of the island. … We went to several luaus … they were the real thing”. (Patton-Totten)
When fellow Mormons in Lāʻie planned a hukilau to raise funds to replace their chapel that had burned down, they turned to Kalili, a renowned fisherman, for help; Kalili supplied the nets for fishing. He also portrayed King Kamehameha during the entertainment portion of the hukilau.
To make a simple Shaka: make a fist (not a tight fist;) extend both your pinky and your thumb and lightly shake your hand. (The Shaka sign resembles the American Sign Language letter for Y.) There are multiple variations on the finger extension, speed of shake, etc.
Kalili’s Shaka didn’t start this way.
Prior to 1937, Hamana Kalili had lost his second, third and fourth fingers of one hand in an accident. Kalili's grandnephew Vonn Logan explained that Kalili's job was to feed sugar cane into the rollers at the sugar mill, which would squeeze out the juice. He lost his fingers when his hand got caught in the rollers. (Star-Bulletin)
“..he had lost three fingers on his hand. So, you know since we were making fun of him, but we would wave to him … (gestures waving with three middle fingers folded down) And we folded our fingers on our hand to show what his hand look like.”
“And we would wave to him, and he would wave back at us. And we would laugh, because he would wave back to us without his fingers. … he was always like a father to us in the community.” (Roland Maʻiola “Ahi” Logan; Kepa Maly)
"One of his jobs was to keep all the kids off the train. All the kids would try to jump the train to ride from town to town. So they started signaling each other. Since (Kalili) lost his fingers, the perfect signal was what we have now as the 'shaka sign.' That's how you signaled the way was clear." (Logan; Star-Bulletin)
In the late 60s. we put a lot of effort, and was able to convince Mayor Fasi and other people about the ‘shaka’ sign. And Mayor Fasi took it upon himself to declare that Hamana Kalili was the originator. And we were all in the Mayor Fasi’s office to take credit for my granduncle.” (Logan; Maly)
A local car salesman, David “Lippy” Espinda, picked up on the Shaka sign and used it and his pidgin language in his TV commercials. He emceed his own show, “Lippy's Lanai Theater.”
Much sought after as a benefit auctioneer and banquet speaker, he appeared in "Hawaii Five-O" and "Brady Bunch" segments and had minor parts in some movies. “Shaka, Brah,” was his trademark and he popularized the "Shaka" sign. (Star-Bulletin)
Politicians used the “Shaka,” as well. Frank Fasi used it while campaigning for Mayor of Honolulu in the mid-seventies.
In a 1999 Star-Bulletin interview, Fasi credited the late Bill Pacheco with using the sign and saying "shaka brother." "I think he meant shake it up, buddy. How's it going? Aloha. Have a good day. All those good meanings. It just meant a world of goodness”.
The image shows Hamana Kalili. In addition, I have included other related images in a folder of like name in the Photos section on my Facebook and Google+ pages.
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I distinctly remember watching a 'Lippy's Lanai Theater' where he talked about the shaka sign (I remember it so well because I was so surprised by what he said). He expressly said that the hand sign that we all know (and you talk about in this post) as the shaka sign really stands for "Easy Brah," and that the proper hand sign for shaka is the sign most of us know as the 'Okay' sign (thumb & index fingers curled and touching each other).
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