Money Without Banks and Governments

The Stock Market Crash of 1929 marked the onset of the Great Depression, but it took 30 months for the banks to fail. After all, the stock market had crashed often, sometimes twice in a decade. While the effects were not to be ignored, they were negligible in an agrarian, frontier society.  More than two years of government intervention were required before total economic collapse occurred. And even so, all that was missing was money. Most people had the same assets and liabilities that they held the day before and would hold the day after. What they needed was a medium of exchange. So, the Howell Board of Commerce issued "stamp scrip." In fact, perhaps 12,000 separate communities across the USA and Canada created a plethora of emergency currencies.

The First National Bank in Howell was placed in conservatorship on February 13, 1933. (Michigan governor William Comstock issued a midnight order to close all the banks, lest Henry Ford withdraw his money. Full story on Necessary Facts here.)  The Howell Trade Dollar was issued on February 22. Within two weeks, all 5000 notes were in circulation. This is telling because in order to get one, you had to spend $5. Some people bought automobiles in order to acquire many of them. Other people paid off accounts three years old. The notes circulated for 6 months and were widely regarded as having been successful.

Back of Howell Trade Dollar with Stamps

What made this scrip special and subject to study on the national level is that it depended on the "velocity" of money. The holder of a note had to spend it every three days. When the note was spent, a 2-cent stamp was affixed to the back. After 52 transactions, the note was redeemed by the Howell Board of Commerce for a real dollar. (If the note was not spent, the holder still had to buy a 2-cent stamp.) The idea was to keep this money in circulation.  Stamp scrip in particular and alternative currencies in general were a special interest of Irving Fisher, the creator of the Chicago "monetist" school of economics championed by Milton Friedman.   

The back of this Fostoria, Ohio, scrip has a simple bank endoresement

The notes had a natural tendency to accumulate in the shops of retail merchants. Therefore, they were sold to businesses, school boards, etc., at a 5% discount. Citizens Insurance of Howell was one of many businesses to pay wages in Howell Trade Dollars.

Some of the details of how the scrip was actually used are no longer clear. Some issues show some kind of tally. It is not likely that these are final evaluations, since about half the places are still open. Many of the stamps have double zeroes written across them. The tallies could represent the whole dollar value of the purchase which necessitated the stamp. If so, the 00 would indicate that the stamp was bought as a penalty for holding the note without spending it.

Also, according to the legends on the back of the note, stamps were required every 10 days. The notes seem to have been intended to circulate from July 25, 1933 to December 6, 1934, a total of 509 days, 519 allowing for a 10-day period before the first stamp was due.

During economic depressions, people invent new forms of money to fill the gaps. Two from the 1990s were Time Dollars and Bone Money.

Ithaca, New York, has developed a local currency called "Time Dollars." People there trade services in units of an hour with an hour being worth about $10 more or less. The idea of Time Dollars has been copied by other communities in both the United States and England. As of this moment, Ithaca Hours are alive and well, celebrating over 20 years of continuous use. (See their website here.)

During the Autumn of 1993, people in Berlin saw the arrival of so-called Bone Money, "Knochengeld". The paper notes originated in the Prenzlauer Berg district. This neighborhood is popular with young artists and writers, similar to New York City's Greenwich Village or the Left Bank of Paris.

They called it "bone money" because the numbers were designed in the form of bones. Neighborhood retailers and restaurants accepted these notes. The experiment ran for three months. Then, the remaining notes were sold at an auction to raise money for charity.

Time dollars and bone money may not take the place of the coins and bills you carry, but they have certainly earned their place in history along with wooden nickels, prosperity scrip and Hard Times tokens which were invented during other economic recessions.

This work was taken from these previously published articles.
"The Howell Trade Dollar" by Michael E. Marotta,  Michigan Token and Medal Society Junkbox, Winter 1995
"Homegrown Currency has a Rich Past" from The Northern Express.
"Passing the Bay Bucks" from The Northern Express.
"Creating a Local Currency" the MSNS Mich-Matist, Summer 2004

PREVIOUSLY ON NECESSARY FACTS

The Art of Finance

Numismatics: History as Market

Forgery and Fraud in Numismatics

William Sheldon: Psychologist, Numismatist, and Thief

Scripophily

The Pretense of Sociology

The Pretence of Knowledge: Of What Use is Sociology?

On the OrgTheory blog Jennifer Lena (bio here) replied with some numbers to Fabio Rojas’s continued complaint that people who do not major in STEM (science technology engineering mathematics) are wasting their tuition dollars because liberal arts majors have no job prospects.  But, of what use are sociology and economics?

True, large organizations hire some kinds of economists, but if economics really were useful, then you could get an associate’s degree in it and find a $40,000 a year job with a local employer.  After all, engineering, science, and technology work that way:  get a master’s in civil engineering or a doctorate in electrical engineering and you are only in a different place than your colleague with an associate’s in civil technology or industrial controls.  But you all have jobs at your level.  With sociology and economics that is not true.  No one (except colleges and universities) hires people with sociology degrees to work as sociologists.  By that standard, it is a useless field.

Moreover, Prof. Lena provides survey numbers to indicate that some to many fine arts majors – painting, sculpture, theater, dance – do at least nearly as well as STEM majors, and better than humanities majors at finding work in their fields after graduation.  The close ties between universities and museums, for instance, provides one path.To me, however, the most telling part of Jenn Lena’s work is reflected in the individual comments that show the lack of correlation between how the person feels about their fine arts education and where they are working today.  Whether a lawyer benefited from drama class depends on the lawyer, not the class. 

"Those most likely to work as professional artists at some point were majors in design, dance, music performance, and theater. The largest gaps (between those who intended to become artists and have never worked in this capacity) are among creative and other writing majors (28% gap) and architecture (14% gap). Of course, the higher a student’s degree, the more likely they are to work as a professional artist: 86% of those with an arts-related master’s degree do so, compared with 71% of those with an arts bachelor’s degree." ("Paid in Full" by Jenn Lena here.)

Perhaps the bottom line of whether and to what extent arts (and humanities) “pay off” by whatever measure can be derived from the biography of Steve Ditko on Wikipedia here:

Stephen J. "Steve" Ditko (born November 2, 1927) is an American comic book artist and writer best known as the artist and co-creator, with Stan Lee, of the Marvel Comics heroes Spider-Man and Doctor Strange.

Following his discharge [from the US Army], Ditko learned that his idol, Batman artist Jerry Robinson, was teaching at the Cartoonists and Illustrators School (later the School of Visual Arts) in New York City. Moving there in 1950, he enrolled in the art school under the G.I. Bill.

The ultimate question may be what science fiction author L. Neil Smith calls “Asimov’s Fallacy.”  In his Foundation trilogy, Isaac Asimov posited a science of psycho-history whereby the huge numbers of humans in the Galaxy allowed statistical predictions of future events.  The fallacy is that all such numbers depend on the actions of individuals with free will.  It may well be true that 47% of fine arts majors earn 61% less than 79% of business majors, but that says nothing about the success of any single artist … or of those who do not complete their college education at all, such as Bill Gates and Steve Jobs, though granted that the founder of Cypress Semiconductor, T. J. Rodgers earned his doctorate in electrical engineering by inventing MOSFET chips.

No sociologist or economist in 1950 predicted that there would be good jobs in comic books.  Moreover, the modern curricula in computer graphics and web design definitely raise serious questions about the predictive value of sociology and economics.

On this same subject here on Necessary Facts, is The Value of a Liberal Education.

Numismatics informs Economics

If economists actually collected and studied the media of commerce, they would avoid errors common even to advocates of capitalism.  Milton Friedman and the monetists were not much smarter than Keynesians.  In fact, even von Mises and Marx made the same claims about the evolution of gold as the highest form of commodity money.  A numismatist knows better, and knows more.

"Bad money drives good money off the market" is a cliche.  More clarity comes from adding that both moneys must be declared equal by law.  In that case, the markets will operate. People will break (avoid, evade, ignore) the law. The undervalued money will go into other channels (savings, export) and the cheaper overvalued money will circulate.  

Social sciences attempt to mimic physical sciences with concise and precise laws about complicated phenomena.  But, even astronomy is theoretically limited to a two-body universe.  Add more bodies and the nice algebra of theory must give way to laborious numerical approximations.  So, too, with economics.  Gresham's Law applies to two currencies - say the silver dollar and the gold dollar; or to silver dollars of one standard versus minor coinage of another fineness.  Reality is more complicated than that.  As Hayek pointed out, a plethora of moneys circulate.  Economists just focus on one or two issues of the government.


Unfortunately, lacking knowledge of numismatics, Hayek could not state his case empirically.  The Austrian school is rationalist, deriving universal laws from a priori assumptions.  

Spanish 8-reales "dollar" a world trade coin
of the 18th and 19th centuries, this one
chopnarked by Chinese merchants

Many conservatives across the spectrum know that the US Silver Dollar was modeled on the Spanish 8 Reales of the 1780s.   Fewer know that until 1857, Spanish money was one of about a dozen foreign currencies in silver and gold that were legal tender in America, alongside issues of the Federal government.  Many banks of the time issued paper money that promised U.S. federal silver coin in redemption but showed pictures of Spanish and Mexican coins.  (See Spanish Coins on American Notes here.) 


From the beginning of the Federal Mint, there was always a push for alternate currencies to make daily commerce easier.  The US ten-cent dime and 25-cent quarter dollar were not commonly convenient.  Many people relied on worn Spanish pistareens or "fips."  These were approximately half-reales (about 12-1/2 cents when full and new) but circulated at different values depending on circumstances.   That is a basic lesson for economists: to see what people actually do, not to prescribe how they should conduct business. 

In apparent violation of Gresham's Law, presenting a test case for hard money conservatives, the US Mint 3-cent silver and 3-cent nickel circulated side-by-side. The base metal coin did not drive the precious metal competitor from the market.  The same was true of the US Mint 5-cent nickel versus the silver half-dime.  The US Treasury also issued Fractional Paper, an emergency scrip from the Civil War that circulated alongside coinage, even after the apparent necessity was gone.  People could have demanded hard money (as small silver coins), but they did not.  The paper was good enough.  Moreover, fractional coinage - and of course the paper - was a limited legal tender, typically good only for a dollar or two, maybe five, depending on the coins and the laws of the moment. 

Like Europe of the Middle Ages, America also knew apparent "bullion famines" during which times coins were scarce.  They left the country to buy goods from abroad.  That is what money is for.  At other times, with Americans goods being exported and business at home being brisk, merchants sold off their small change at a discount to get rid of the excess.  

Eric P. Newman was president of the American Numismatic Society.  With Kenneth Bressett, former president of the American Numismatic Association, Newman wrote The Fantastic 1804 Dollar.  He is less famous generally but perhaps more highly honored among serious numismatists for his many explorations of Colonial and Early US paper money and his many monographs on other topics.  According to one presentation, delivered at a Coinage of the Americas Conference, December 2, 1984, counterfeit copper coins of the colonial era circulated for over fifty years, into at least the late 1830s in the Appalachian villages of western Virginia.  In Canada, these small copper conveniences are known as "blacksmith tokens."  

Earlier this year, Bernard von Nothaus was convicted on federal charges for issuing his own Liberty Dollars.  Any active American coin collector with a Red Book knows that private issues in gold and copper claim a long and proud history independent of the faltering efforts of the U.S. Mint.  Private silver was unnecessary because of the masses of Spanish (and English, etc.) coins circulating at the time.  We know from old records that into the 1830s many merchants in Boston, New York, etc., kept their books in Pounds-Shillings-Pence.  Business with English partners was brisk; and traditions have strength. 

The Pounds-Shillings-Pence system itself was a radical innovation, a conceptual leap, an epistemological creation that remains unappreciated by those who are ignorant of the history of trade and commerce.  In the broad centuries we call the Middle Ages, any local authority with bullion could strike his (sometimes her) own coins. Much of it came from "plate" household goods of silver; much came from new mines. Easily a hundred different kinds of coins, struck to different standards, often of lower debased finenesses circulated.  Broadly, the old Roman pound continued, while the new German mark ascended.  To rationalize the chaos, bankers invented pounds-shillings-pence.  It did not matter how you built up the quantities, when the books were balanced, you needed 240 pence or 20 shillings (12 pence each) to make a pound (or 12 "Troyez" ounces) of fine silver.  Bankers in the Middle Ages invented abstract money of account to meet the demands of competing currencies. 

Silver penny of Hughes of Champagne,
about 1 gram: dameter of a dime.

This was spontaneous order.  No Dumbarton Oaks Agreement was needed.  No theoretical papers were published.  And no general law was enforced on all.  The Big Problem of Small Change by Thomas J. Sargent and Francoise Velde is a chronicle of monetary media in the Middle Ages.  As a time when Europe had perhaps a thousand independent polities, the stories carry meaning for anyone who wants to understand international monetary systems today.  The work has been criticized by economics professors of the Austrian school for its larger (and largely questionable) theoretical framework, but as a compendium, it is unexcelled.  

As I said in the previous post, there is no standard textbook in numismatics.  No one-volume Samuelson makes life easy for freshmen.  Nothing from any Foundation for Numismatic Education delivers "Numismatics in One Lesson" or the "The Cliches of Monetism."  You can start with the Red Book, the Breen Encyclopedia, the Garrett Collection.  But you will soon discover the new works from Whitman and Krause and Stanton.  Numismatics is active and aware, curious about new facts, fascinated by new discoveries, open to new explanations of accepted evidence... and always being tested in the largest unregulated money market on Earth.

Quinarius of Cato the Younger struck at Utica.
"Pro Per: for himself."  His own silver
financed republican resistance to
Julius Caesar.

ALSO ON NECESSARY FACTS

Gresham's Conjecture

Supplies and Demands
Numismatics: the Standard of Proof in Economics

Scripophily: the Study of Stocks and Bonds

Numismatics: the Standard of Proof in Economics

Hayek, Mises, and Rothbard, and of course Friedman,  for all their passion, lacked any understanding of numismatics.  As a result, their theories wanted facts; ultimately, their predictions and prescriptions were weak.  Sometimes, they failed. 

Hayek's Denationalisation of Money relied on Murray Rothbard's flawed monograph, What has Government Done to our Money? which delivered one anemic academic citation on tokens.  Any active coin collector could deliver hundreds of examples of competing currencies, weak and strong, successful and disastrous. 

Most people call it “coin collecting” but numismatics is the art and science that studies the forms and uses of money. This includes stock certificates, bank drafts, military decorations and fine art medals as well as coins.  Numismatics is one of the last unregulated markets. In the USA, there are no government licenses or special regulation. There are few college courses on American campuses. Validation, such as it is, is by ad hoc standards of conduct set within the hobby by private organizations: the American Numismatic Society, the American Numismatic Association, the International Association of Professional Numismatists, and the Professional Numismatists Guild. These groups set standards far above any government laws. For instance an ANA dealer can be banned from membership for selling a single counterfeit item, and ignorance is not an excuse. Two complaints - complaints alone - are enough to cost a dealer his membership.  The ANA offers seminars on its Colorado Springs campus. They also provide a range of self-study materials and grant a master’s certificate in numismatics. 

Of the perhaps six million Americans who claim to "collect coins" only a couple dozen attend ANA seminars each year.  Numismatists are autodidacts. 

That is why academic economists overlooked the very study which tests, proves, or discards their theories.  As a hobby, the engagement is personal, direct, participatory.  There is no standard textbook.  As hobbyists, we allow ourselves whimsy which academics apparently misunderstand.  One of the foundation books about early American copper cents is called Penny Whimsy. The author, psychologist William Sheldon, was a charlatan and thief.  The leading research organization is a club called the Numismatic Bibilomania Society.  Their "journal" is the Asylum.  Their weekly email list is the E-Sylum.  The Paper Money Collectors of Michigan know more about the actual history, forms, uses, successes and failures of circulating notes than any coterie of bankers.  They call their 8-page newsletter The Ragpicker. Their current president, William Brandimore, is also an editor of one of the most authoritative compendiums of United States Paper Money.  

All is not lost.  academic economist George Selgin's work, Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775-1821, came out in 2008.  He provided a thrilling, yet accurate narrative, backed by citations. His research explains the catalog of facts long known from Dalton & Hamer's The Provincial Token-Coinage of the 18th Century (1910).  The standard compendium for American tokens was Lyman Lowe's Hard Times Tokens (1899), which has been continuously updated by new research by Russell Rulau.  Rulau also edits a more general book on American merchant tokens through the 19th century.  

Other specialists have devoted their passions to stock certificates, wildcat banknotes of Ohio, Indiana, Wisconsin, etc., ancient Greek, Roman, Jewish, Turkoman, and Celtic coins, as well as American and Canadian emergency scrip of the 1930s,  and, of course, the full array of U.S. government coins and notes.  From the copper crosses of Katanga to Chinese cash and Siamese gambling tokens, and the rich array of Arab-Islamic issues across 1000 years on three continents, even the monetary uses of woodpecker scalps and cacao beans have been studied and reported in print and at conventions by "coin collectors."  (Conventions feature judged, museum-quality exhibits touting arcane and abstruse subdisciplines.)

Hayek's Denationalisation of Money could have used some evidence.  He relied on Murray Rothbard's monograph, What has Government Done to our Money? which delivered one anemic academic citation on tokens.  Any active coin collector could deliver hundreds of examples of competing currencies, weak and strong, successful and disastrous.  

To be fair, numismatists could benefit from an infusion of free market economics.  It is true that our convention bourse floors put Wall Street to shame.  However, I stopped visiting one collecting discussion board when we had a disagreement first over Morgan-Stanley's naked shorts on silver futures, then over coal mine tokens. Some writers found general support for their declamations against greed, profiteering, and the exploitation of workers.  I was left the odd man out for defending speculators and industrialists.  I found that ironic in a hobby that buys and sells money.

New research continues.  Whitman Publishing and Krause Publications release new titles every month.  Their smaller competitors such as Stanton and Money Tree are active as well.  Some of these standard references, known now for 100 years, are sirens - at once lures and warnings - for the limitations of academic economics.  

Also on Necessary Facts:

Mere Gold is Not Enough: Hayek's "Denationalisation"

Numismatics Informs Economics

Debt: the Seed of Civilization

Electronic Money: Coins without Realms

Innovation and Discovery

The merchants of Sumeria invented fiduciary instruments on clay tablets 3000 years before the first coin was struck.  Coins, philosophy, and democracy were invented all at the same time in the Hellenic hinterland of Middle Eastern civilization.  It is often the case that new ideas and the new cultural activities that spring from them come from the frontiers, not the centers.  Those centers are vital, analogous to the heart and brain of a person.  But we explore with our fingertips ...

The Chronicle of Higher Education online for July 24 featured news about a robotic retrieval system for archive storage installed at the University of Chicago.  The University of Chicago is an important school.  Like Harvard, MIT, the University of Michigan, Ohio State University, UNC Chapel Hill, Berkeley, Stanford, and a dozen others, it has instant name recognition.  However, the first automated retrieval system was installed at Cal State Northridge in 1991.  I benefited from ours at Eastern Michigan University. 

“The ARC was built as part of the new Bruce T. Halle Library in 1998 at a cost of $1.6 million...Eastern was the second university in the U.S. to install an industrial strength inventory control system adapted for library use ... ” (ARC Handout; courtesy of Keith Stanger, Information Services Librarian.)

Like Cal State Northridge (36,000 students), EMU (24,000 students) is a midrange school, not special, not famous for scientific research or football.   Yet, at least in my case, EMU did deliver world class education.  

I made the mistake of blowing through criminology with a lot of community college credits.  We have an “articulation agreement” between Washtenaw Community College and Eastern Michigan University. As a grad student, one summer, I met an undergrad whose feet never touched the ground running through two short summer terms toward a bachelor’s.  He missed a lot.  I would have, too, but as a graduate, I had Gregg Barak for crim theory and then for global crime.  An expert dialectician, he can argue any side of any topic; and we did that.  He loves facts and has no patience for unfounded opinions.  Long having enjoyed tenure, he has had the freedom to write textbooks which influence the next generation of criminologists.

I also profited from having Young S. Kim for the undergrad class in social science research.  Dr. Kim assigned two peer-reviewed articles each class and he encouraged us to read them carefully, even to check the arithmetic.  Kim and Barak are co-authors with Judge Donald Shelton on the only statistically rigorous studies of the so-called “CSI Effect.”

Majoring in criminology, I had a lot of sociology classes.  As an undergraduate and graduate, I benefited from Prof. Ronald Mark Westrum, a pioneer in complex organizations, along with Charles Perrow of Yale.  Ron Westrum was my prof for complex orgs, undergrad seminar, technology in society, and social problems.  For him, I wrote papers on the FBI as a complex organization, the history of coinage as a technology of commerce, and the benefits of healthy aging, among five or six others.  

I first enrolled as a freshman in 1967.  I never stopped going to school.  I enjoy learning, of course, but working in information systems since 1977, I had to ride the leading edge in computer programming with repeated classes in languages and applications, from BASIC to Java, and accounting to robotics.  When I came to EMU, I transferred in 180 credits from the College of Charleston, Case-Western Reserve, Cleveland State, Lansing Community College, New Mexico State, and Washtenaw.  Big and small, I’ve seen them all.  I feel sorry for kids who forego the opportunity to profit from small classes, and close interaction with the actual professor whose name appears in the catalog for that class, rather than being tutored by a grad student who lacks not just lifetime experience, but deep academic experience.  

When I enrolled at the College of Charleston, I was assigned Mark van Doren’s Liberal Education. Back then, C of C was a small four-year school with 450 enrolled.  One of our professors for European history was György Heltai who worked in the government of Hungary after WWII and was arrested, imprisoned and tortured in a Stalinist purge.  The professor of classics, Alexander Lenard, published his Latin translation of Winnie-the-Pooh.  My professor for chemistry, Carl Lykes, spent his summers at the Savannah River Nuclear Power Plant.  It was just a little old college, nothing special, but a place where world class intellectuals shared their working lives with any interested student.  

Over the years, I have had the “coasters” and “dodgers” excoriated in the recent report to the University of Texas by consultant Rick O’Donnell.  But I also benefited from “stars” and “pioneers.”  Like the invention of coinage, philosophy, and democracy, or the lightbulb, airplane, and computer, excellent education is drawn to the cultural centers, but it may not begin there.  

As Plato is famous for his Cave and Republic, F. A. Hayek’s stamp is “spontaneous order.”  Ludwig von Mises warned of “planned chaos.”  Certainly, I plan to be on a bus by 3:30 PM and be picked up by a taxicab at a transit center at 4:30 PM.  I have some control over those events only because the providers have known intentions of their own  which bring me at least one unplanned order of events.  It certainly works better than going to a government office, filling out some forms, and requesting two modes of transport for a personal motive.  When the Washington planners talk of high-speed rail, they do not think of Mike Marotta’s transient desires... or yours...  

Discovery, invention, and innovation cannot be planned.  Some schools have been successful with their robotic library retrieval systems.  But I know that the system does have failures - Perrow calls them “normal accidents” - and when the robot goes down, no one gets any books until a service technician shows up.  You can plan your actions; you cannot plan their consequences.

I usually blow off Chronicle articles.  I read this one.  And it worked out in an unplanned way.  As soon as I saw the headline, I planned to write this post.  The serendipity came toward the conclusion.   

The case for keeping print within reach is more complex than fuzzy rhetoric about the joy of serendipitous browsing. The research habits of Adrian Johns, a history professor at Chicago, give you a sense of why.Mr. Johns specializes in the history of the book; his recent work, Piracy, traces the intellectual-property wars from Gutenberg to Bill Gates. When a reporter visited his bright, fifth-floor office re­cently, the bespectacled British historian had just returned from a trip to Glasgow. He was interested in Robert Andrew Macfie, a 19th-century sugar magnate and member of Parliament who ran the first big campaign to abolish intellectual-property rights. A lot of Macfie material hasn't been digitized: pamphlets, election manifestos, correspondence. Much probably never will be, because there's little economic incentive.

Now I know about Robert Andrew Macfie.  

ALSO ON NECESSARY FACTS

Objective Intellectual Property Law
Copy Rights and Wrongs
Open Secrets

Mere Gold is Not Enough: Hayek's "Denationalisation"

F. A. Hayek's Denationalisation of Money (1978) made a case for an open market in money, without legal tender laws, and without a government monopoly in currency.  

Hayek's thesis is two-fold.  First, that a competitive market in money will create currencies that are desirable for their enduring value.  Good money drives bad money from an open market.  Second, more broadly, until we have that happy day, we really cannot say what forms and formats will be acceptable or popular.

Breaking with tradition, Hayek stated that being limited to gold ("the wobbly anchor") is contrary to a truly free market.  Liberated from state control, there is no limit to the forms that money can take.  Hayek even suggested that a truly free market might see stable paper money backed by nothing but the credit of the issuer.  Paper money from one bank might promise payment in the paper of other banks.  Still other possibilities exist. 

It is easy see that if a bank issued too many notes then it would soon be redeeming them as a result of financial reporting. That is history.  For Hayek the more interesting problem was what to do when the market value of a bank's paper exceeds its issue price.

 "... but it could preserve this business only if it did in fact promptly buy at the current rate any of its notes offered to it.  So long as it succeeded in maintaining the real value of its notes, it would never be called upon to buy back more than a fraction of the outstanding circulation.  Probably no would doubt that an art dealer who owns the plates of the engravings of a famous artist could, so long as his works remained in fashion, maintain the market value of these engravings by judiciously selling and buying, even though he could never buy up all the existing prints." (Page 49)

This little book is dense with worthy ideas such as that. Most economists express three uses for money. Hayek defined four: cash purchases; reserves for future purchases; standard of deferred payment; unit of account.

F. A. Hayek apparently had little or no experience with numismatics.  Many of his theoretical claims are supported by facts known to those of us who study the art and science of the forms and uses of money. Other of his theoretical assertions are denied by the facts of history. And to be fair, numismatists, schooled in economics by publicly-funded (or aristocratic) institutions, also err when narrating the history of money.  The idea that coins were invented by merchants to make bullion more convenient for retail trade is the best example of such error.  Charles Seltman, the British numismatist who promoted that silly idea via the Encyclopedia Britannica, never worked behind a retail sales counter.   Similarly,  for all their theoretical knowledge Hayek and the other Austrians had no experience as merchants.

 Hayek says that it is unfortunate that there existed no complete history of the experience of government monopoly on money.  However, he does cite Murray N. Rothbard's monograph, What Has Government Done to Our Money (1963, 1974).  That work is little more than a sketch.  Like Hayek, Rothbard had little involvement with the artifacts.  Rothbard relied on "The Use of Private Tokens for Money in the United States," by B. W. Barnard from The Quarterly Journal of Economics, Vol. 31, No. 4 (Aug., 1917).  That academic paper reported all known issues without regard to their actual use.  Today, Bar Cents and Immune Columbia are regarded as rare and likely saw little use in their time.  Nova Constellatio tokens really did circulate.  In short, Rothbard's data was flawed because he gave weight to an academic paper instead of going to numismatists.  Any active collector of American money could have shown him (and Hayek), the material evidence they sought to support their theories.

"The early Middle Ages may have been a period of deflation that contributed to the economic decline of the whole of Europe. ... But where, as in Northern Italy, trade revived early, we find at once all the little princes vying with one another in diminishing the coin - a process which in spite of some unsuccessful attempts of private merchants to provide a better medium of exchange, lasted throughout the following centuries until Italy came to be described as the worst money and the best writers on money." (page 34)

Yet this complaint - common among historians and cited by gold bugs - ignores one of the arguments for gold-based money: with the quantity fixed by nature, each new invention, import, or innovation caused the existing money to increase in value: hard money is worth ever more over time.  That was the case in the Middle Ages as expanding trade brought more products to market.  It is also true that warlords and generals debased their coins, a common cheat in both Roman and modern times, as well.  But that negative motivation was only part of the story.  Absent new discoveries such as the mines of Joachimstal and the looting of the Americas, deflation is a beneficial consequence of hard money.   Moreover, some strong currencies, such as the English sterling penny and the Venetian gold ducat, enjoyed international reputations.  That meant, however, that they left one place and went to another.  For a local ruler to keep his coins in his realm, the issues had to be useful only locally, otherwise the locale would quickly enjoy an influx of imported goods and a loss of currency.

One solution to that is a token currency. The strength of a monetary medium, itself durable and cheap, but also a token for precious metals that do not pass hand to hand was explored by Neil Carothers in Fractional Money (New York, J. Wiley & Sons, 1930), a book that grew out of his doctoral dissertation some years earlier.  Again this data is a century old.  We know these facts; and they support Hayek's theories.

We can see an analogy to Hayek's laissez faire banking via the stock market.  Common stock certificates are a form of money; and historically their format resembled  bank drafts, being only much larger in size.  Stock certificates were issued, endorsed, transferred, and cancelled.  With or without a declared par value their worth fluctuated on the open market.

Knowing Hayek's theory you are perfectly free to use whatever moneys you prefer.  If you live in the USA, you will find Federal Reserve Notes most liquid.  But all manner of moneys are in circulation here and now, if you only know where to look for them.

ALSO ON NECESSARY FACTS

Numismatics Informs Economics

Debt: the Seed of Civilization

Numismatics: the Standard of Proof in Economics
Objectivism and the Gold Standard
Money as a Crusoe Concept
Electronic Money: Coins without Realms