Are there any paper notes with gold (or other precious metal) strips on them? And are there any of these notes with values based solely upon how much gold or metal is in them (1/25th oz., 1/50th oz., and so on)?
I am interested in the answer to this question too. This could make small purchases viable with gold too.
Gold is the traditional fiat money. Taxes were collected in gold (forcing people to trade things for gold); prices were fixed in gold; gold was declared “legal tender”. Gold’s “value” is based on the probability of it returning to fiat status.
I don’t think you understood my question. I am asking if there are any paper notes out there with physical gold strips actually on the paper or contained within by a plastic outer layer. And if there are, are they set by how much physical gold they contain (i.e. is one marked 1/25th ounces of gold, 1/50th ounces of gold, and so on).
From a technical standpoint, it doesn’t make much sense. Bearer notes originated as titles to property and, in the case of banknotes, this property happened to be money (gold or silver coins). If you issue such notes, you wouldn’t want people to be able to counterfeit them since you’d go bankrupt, so it makes sense to adopt methods to prevent counterfeit. But putting the goods onto the note doesn’t make any sense to me. The point of using notes is that they are easier to secure and transport than the actual goods themselves and can have other security features (think of traveler’s checks… even if you lose them, you don’t necessarily lose your money).
Silver has often served the role of money for low-denomination transactions. If you need to go even smaller than that, you can resort to copper (a one-ounce copper coin would be worth about $0.25 in today’s prices) or nickel. So, one could envision a competitive paper currency market with standardized gold denominations emergin (say, 1/10, 1/5, 1/2, 1, 2 and 5 gram notes) backed by real gold coins, of course, and supplemented with silver notes, silver coins, and copper and nickel coins. If history is any guide, there would likely emerge just one international standard unit (say, the gold gram or gold ounce) but a myriad of local monetary standards which can be converted from one to another in terms of the universal medium of exchange (international money, gold). Since there would still be tyrannies even if there was an international gold monetary order, there would be local regions where there is fiat money.
Clayton -
“The point of using notes is that they are easier to secure and transport than the actual goods themselves and can have other security features (think of traveler’s checks… even if you lose them, you don’t necessarily lose your money).”
But such paper notes would indeed be just as easy to secure and transport as any other fiat note. The idea behind having the actual intrinsic money in your hands without having to use coins might be to follow the words of wisdom of Austrian economists who believe that it is important for the people to deal in the actual, physical money itself. I believe there will still be a demand to be dealing in physical money (and particulary lower possible denominations of higher-end metals), but phsyical money that is not so cumbersome (or in the case of very small increments, unfeasible) as the coin.
Another benefit of such money would be to be able to exchange it with virtually anyone and not have to fear that someone is not accepting a paper issued by you local bank. Writing this, I realize that this would be an oppurtunity in a fully free market for extremely small banks to issue money. They do not have to be recognized worldwide, they just have to print paper money with goldstripes.
I think you are misunderstanding the Austrian stance on this point. Austrian monetary theory does not say that a sound monetary system can only be had if people are only, ever dealing with the physical money itself. Austrian monetary theory does, however, expose the fallacy in the idea that money can be freed of any tie to physical property, that is, an actual backing commodity, such as gold or silver. Fiat money is inherently insecure, in particular, it is insecure to the detriment of its users and to the benefit of its issuers, cf John Law. Other economic schools have no opinion on the nature and form of money.
And what’s wrong with coins? Compared to paper money, coins are much cleaner and the market could meet whatever demand people have for coin size and purchasing power. Copper or nickel coins could be made for extremely small transactions. If value density is the problem, at current prices, gold is only 3x heavier than the equivalent amount of $100 bills. Compared in $20 bills, gold is lighter. But if you want to beat $100 bills, you could use Rhodium which has insane value density. Perhaps the super-large cap banks would begin using Rhodium bars so they could store billions of dollars worth of value in a small volume.
Clayton -
Yes, you are correct and I realize this. However, I have heard certain Austrians mention in their lectures emphasize (in opinion) that people continue to connect the idea between money and something intrinisically valuable rather than being in a total state of disconnection between the cards or convertible notes used in transactions and the reserves of physical money.
I absolutely realize this to be true as well, however, some people (if only by personal preference) may wish to be dealt smaller denominations still within the precious metals of gold and sliver rather than copper or nickel and, of course, once you get past certain divisions (think 1/10,000th of an ounce of gold) you can’t possibly make a coin small enough for that demand.
“once you get past certain divisions (think 1/10,000th of an ounce of gold) you can’t possibly make a coin small enough for that demand”
You can always mix gold with other metals.
Also, think of the individuals who are adverse to idea of coins being more prevalent in transactions (if for poor reasons or not). Perhaps these curmudgeons will begin to perceive the use of physical money in everyday transactions in a better light if this physical money was made to handle like their beloved paper notes.
Ah, yes, this is correct. Still, paper money does have its advantages of convenient handling that coins do not. Take for instance, a clerk who takes payments and must count up the money at the end of the day, sticks the money in envelopes, and sends them off to different banks or addresses. Granted counting coins would garner the use of a coin counter, but dealt with enough coins and the weight of carrying, mailing, and slower sorting can create an inefficiency that might be cured by these notes with the physical metal in them (without resorting to fiduciary media).
What you are implying is gold strips of metal in bills, and that the value of these bills is the same as the amount of gold in them? Why add to inconvenience and just make exchanges with pure gold coins? You want to mix a bank note with physical money. Plus, why would you want to mix gold with other metals to reach a certain amount of monetary value? It seems like a waste of gold.
Take for instance, a clerk who takes payments and must count up the money at the end of the day, sticks the money in envelopes, and sends them off to different banks or addresses.
First, it’s their job to count money. Second, are you referring to sticking gold coins in envelopes? People don’t even stick bills in envelopes to mail (unless it’s some small amount for a birthday card, etc).
Alright, forget the mailing part in that example. But I do know that paper bills are often paperclipped to things, stuck inside folded papers, cards and other places that aren’t conducive to holding coins. It may be the person’s job to count the money, but if enough coins are involved, then that person is being less productive in comparison to if that person were counting paper money.
Another thing to think about is the banks that would now accept the fiduciary notes of other banks. Instead of going through the step of verification of the note from a separate bank, these physical metal notes might be more efficiently verified (and possibly widely accepted depending on the bank) than the fiduciary notes (and I’m assuming that the convenience of fiduciary notes have been preferred in this situation over coins).
As I stated before, someone might prefer to be payed in a higher-end metal like gold (maybe for reasons of consistency) even if it is a very low denomination.
Absolutely incorrect. Gold and silver emerged naturally as the common media of exchange through voluntary free market activity. In other words, they were chosen by the market because they were the most marketable/liquid commodities (used as jewelry, had other industrial uses, and weren’t too valuable). Money is an economic good which must be valued if it is to perform its function as the common medium of exchange. Thus, kings were forced to accept and employ gold/silver because individuals did not value their fiat paper currency, and because they would undo any forced intrusions into the monetary system (Gresham’s law would take hold). Over time, as international trade strengthened, there was a trend towards the demonetization of silver in favor of gold.
What you’re describing would have the same effect as a bank minting its own coins. The paper with stripes would indeed have to be recognized just like coins would need to be.
I encourage others not to think of these physical-metal notes as some widely used form of money, outdoing or trying to outdo what coins do so well anyway. Rather, I imagine them as more of a “niche-market” money, available those who prefer to use them over coins or fiduciary notes in answer to peculiar demands (some discussed, some not yet realized). Also, some people like to use $2 bills because they think Thomas Jefferson is cool or because they like to carry them instead of one dollar bills. Maybe these physical-metal notes would make cool collectors or numismatic items if nothing else.
Only if the market demands it. I have not heard such a demand.