Thursday, June 2, 2011

Cold Cash and Hard Coin

Utah has passed a law intended to encourage residents to use gold or silver coins made by the Mint as cash, but with their value based on the weight of the precious metals in them, not the face value — if, that is, they can find a merchant willing to accept the coins on that basis.
To pay with cash today is to pull a few bills out of our wallets. We’re sometimes obliged to accept a few coins in return. Its good to have a little loose change on hand, preferably exact change, because if we don’t they won’t let us on that bus. Mass transit excepted, coins today are just a pain in the back pocket.

But in antiquity, all currency was hard and all cash was cold: it was universally metal. Gold was Europe’s original common currency. It is portable (a ratio of weight to value), durable (with a shelf life upwards of several billion years), and has weight, substance, and value: all made it a perfect proxy for “money.”

In Room 9, Floor 2 of the Richelieu Wing at the Louvre is a depiction of early 16th-century Antwerp (and presumably of early 21st-century Utah): Quentin Metsys’s The Moneylender and his Wife. The dealer weighs the coins while the viewer, reflected in the scene (look closely), waits for payment.

In 1541, bills of exchange and promissory notes were in use but banknotes had yet to appear. When they did, they were often mistrusted. In American Colonial times Franklin’s call for more circulating paper money was resisted by the wealthy who feared depreciation “to the prejudice of all creditors.” The scheme worked, though, “increasing the trade, employment, and number of inhabitants in the province,” although Franklin conceded limits to paper “beyond which the quantity may be hurtful” [HC01.065].

The circulating paper of a “hard” currency requires stable, responsible governments with stable, responsible neighbors (like Greece) and global standards of exchange. One was the gold standard, ended only in 1971 but which evokes nostalgia among those who would have gold back up paper—or plastic:
Craig Franco, a coin dealer south of Salt Lake City, said he was finishing an arrangement with a bank to create a depository through which people will be able to spend their gold and silver indirectly, by using a Visa credit card that makes charges against the value of their holdings. 
Unsustainable development
Conceptually, a prepaid Visa Gold Card is no different from a promissory note dated 1541—just beware of the gold price. If you've pledged your doubloons on credit and the price of gold reverts to its thirty year average, well, too bad, Craig: your Visa debt just tripled. Proxies for money have changed since Metsys’s day, but debt is a cosmological constant. So is ignorance:
[S]upporters…say the law’s most important feature may be that it eliminates state capital gains taxes on the sale of gold and silver… [b]ut federal capital gains taxes would still apply.
“I would hope the federal government would simply concede: ‘O.K., you’re right, it’s money, so we can’t tax it,’ ” said Larry Hilton, a lawyer and insurance broker who first took the idea to lawmakers.
Gold is not Money. Gold is Bacon. Adam Smith [HC10] would agree. So while you’re at it, Larry, please ask them to revoke the capital-gains tax on my growing drift of swine.
“This is an incremental step in the right direction,” said Lowell Nelson, the interim coordinator for the Campaign for Liberty in Utah, a libertarian group rooted in Ron Paul’s presidential campaign. “If the federal government isn’t going to do it, then we here in Utah ought to be able to establish a monetary system that would survive a crash if and when that happens.”
There’s a technical name for Lowell’s post-apocalyptic monetary system. It harks back to an older, simpler age—the Stone Age—when money was money, when five flints got you a quern-stone, three pigs went for a cow, and a cord of wood scored a nugget of yellow metal. It’s called “barter.” 

Just remember to carry exact change. 

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