To avoid derailing similar discussions I’ll ask my question here. What do people here think about US coinage (e.g. dimes, quarters, nickles) being used as money in a hypothetical situation where legal tender laws and the Federal reserve are eliminated? Are the current metal present in US coins valueble enough to hold value on their own? ect.
I heard that pennies [even the ones after 1980] and nickels are worth about double their face value as metals, and that dimes and quarters are worth less than face value.
I think the answer is that it is impossible to know ahead of time how copper, zinc, and nickle-plated-copper tokens would trade in a market exchange. My thinking is they would have a similar value to pebbles found a beach.
There might be more demand for them as a commodity than as a money. Perhaps quarters would trade like pennies do now, everything else would be melted down. Perhaps billions of them (and I do mean billions) would be melted down, then, after a time, the comparatively few that remain would trade like money. Or perhaps they would trade like collectibles, not money. See the problem? It’s impossible to tell what would happen.
These tokens are identifiable, are consistent in size & weight, but they are made of an extremely common base metal.
As value is determined subjectively, any commodity could become money, including copper tokens, but some commodities are superior to others. Gold is a proven winner.
I don’t think so. I’m 100% for issuing silver and gold coins as money, as I’m sure everyone else on here is. I think it would actually be really cool to have only coins instead of paper money just because we could carry around awesome sacks of coins like the old (prosperous) days.
I think most folks around here would want the market to decide. Perhaps gold and silver would win out, perhaps not, perhaps a combination of commodities.
Also, no need to carry around sacks of gold. Redeemable paper could work, and checkbook money (backed by the commodity), could work just fine. Problem is, the banks would lobby the government for protection and intervention, protecting them from the consequences if they choose to inflate. The market would sort them out if government does not intervene (but that is what government is designed to do).
So the Austrian idea is that there can be paper money, so long as it is backed up to the gold standard?
Also, what would be the key to stopping regular banks (assuming no Federal Reserve) from simply printing money and causing inflation? The only solution I’ve come up with for this problem is that each bank has their own designataed money, so you have to keep tabs on the bank whose money you carry around. Therefore, if the banks were to irresponsibly print money, they’d only be accountable to their clients and would not ruin the entire economy of more responsible banks.
As I believe someone else noted in the other thread, ‘commodity paper money’ exists to an extent in Somalia. Paper money could very well be elected as a form of currency by the market if people value it as such. I for one doubt commodity paper money being too significant in the long run though, with its value rarely going above the cost of a normal piece of paper. Al though I do have a pet theory that we would see certain paper products used as quasi-money in some limited circles. Namely trading cards, sports or game related.
As for stopping banks from over-issuing certificates, we would presume that those banks purposefully devaluing their own certificates would go out of business. Eventually only ‘good’ banks would remain and it would be with their certificates that we’d conduct trade in. If you’re talking about banks printing ‘national currency’ then the paper commodity would lose its position to other forms of money that much more quickly. Remember multiple forms of money can exist in a market, it is simply that there is a tendency for certain types to dominante (e.g. gold, silver).
Returning to the topic of this thread, the reason I brought up whether US coinage could have a potential as money in the future is because I’m a bit curious as to what would fill in the niche of pocket money. No doubt everyone’s favorite metals would be used for larger transactions, and certificates could be used for middle priced goods and services, but I have a hard time seeing people pay for a candy bar in silver or gold; even with infinitely small certificate denominations. I know we can’t know the future, but I think we can guesstimate to an extent. If not coins of less precious metals , then what? What has historically been used for smaller transactions?
Michaelangelo,
Interesting thought. Although the base value of the raw commodity with which the money is minted is low, the fact that it is now an artifact, rather than a simple ingot, may itself imbue the coin with value, to some. If the production was halted, it could arise as a scarce commodity used for reckoning the value of other commodities.
No, I wouldn’t say that is an Austrian idea. I’m am saying that in an unhampered market, the market would decide.
That is the basic idea. In an unhampered market, banks and their depositors would face the consequences of their actions. If banks inflate, the danger exists that there will be a run on the bank. If depositors place money in such a bank, there is a risk the depositors will lose their money in a bank run.
Banks that act responsibly, who see a demand for sound lending, will provide a safe haven for depositors. Depositors will place money there. The key to whole thing is no intervention or coercion from the government. No backstop. The government must not protect banks or depositors.
Sounds harsh, but the alternative is disastrous, as we are witnessing right now. In time, such a banking system will work as any market process works. Depositors who want risk will take risk. Depositors that don’t, won’t.
Presumably, free market firms will form that will audit banks and provide ratings, or provide private insurance. They would be compensated in such a way as not to influence their conclusion (unlike Standard & Poors and Moodys, etc). Banks that don’t submit to audits won’t get ratings, etc. The market will sort it out.
Perhaps money changers would arise, who would exchange various notes from various banks into commodity money, or notes from sound banks. Such activities existed in the past. Again, the market would sort it out.