Platt Perspective on Business and Technology

Considering the nature and qualities of money 2: standard nationally-based and virtual money 2

Posted in macroeconomics by Timothy Platt on January 12, 2014

This is my second posting to a series on money and on what monetary value functionally means (see Part 1.) And as I noted in Part 1, my proximal reason for writing this and adding it to this blog is the ongoing news story that has developed around new private venture backed currencies, as exemplified by bitcoin.

I offered a very brief and an even more selective history of money in Part 1, as part of a start to this discussion, and then ended it by stating that my goals for this installment are to:

• At least briefly and selectively consider electronic funds transfers and other mechanisms where monetary value has become digital and virtual, and even for the most solidly backed nationally based currencies – making them substantially electronic currencies too.

And I went on to state that after that I will discuss how bitcoin and its peers are and are not like more conventional money and what those differences mean, and how the very concept of what money means is changing. In anticipation of that, I noted that the peer-to-peer nature of these new currencies is the crucial determining factor there. And I stated that I will also discuss money in more abstract terms and as information per se. I will do this, but before I do, and in keeping with the at least semi-historical approach that I began this series with, I begin this posting with scrip currency, and more particularly with a clam shell held as an historical artifact by the National Museum of American History.

During the Great Depression with its bank failures, hard currency – money issued by the government became scarce in many parts of the United States. So a great many local governments and even private businesses began issuing scrip as debt obligation alternatives, that were used in transactions in lieu of officially issued currency. Most of this was printed on paper but businesses and even local governments also used other available materials when necessary. The scrip example I cite here, as referenced in the November 2013 issue of the Smithsonian Magazine is a sample of the type of scrip issued by the chamber of commerce of Pismo Beach, California and 11 of its local businesses. They used clam shells for this, writing out their assigned scrip values on them, and single clamshells could hold a scrip value as high as $20. The clam shell scrip illustrated in this magazine article was issued by a local business called Restwell Cabins and bears the motto “in God we trust” just like the federal government currency it is supposed to serve as substitute for. And it holds a designated value of 50 cents. It has been estimated that as much as one billion dollars of scrip was issued and used in the United States during the Great Depression, where officially issued currency was not available in sufficient supply to meet consumer, business or marketplace needs.

• All of this scrip was issued as specific debt obligation in lieu of legally minted US currency as issued by the US Treasury Department.

Scrip is never seen any more in general circulation in the United States; the majority of all financial transactions taking place every day, and in the United States and in a great many other countries and most certainly in international monetary transactions take place via what amount to the electronic and cyber equivalent of scrip through electronic funds transfers and electronic payments.

What is the difference between scrip and its electronic counterparts, and forged currency? Scrip and modern electronic funds transfers and payments specifically represent and are intended to represent equivalent units of legally issued government-backed currency while forged currency does not. It is simply intended to look like legitimately backed currency and is effectively decoupled from it.

• The key distinction here is that legally allowed and supported alternatives to the direct transfer of government issued legal tender preserves the rivalrous nature of that currency per se.

I will return to this point when discussing money as information, later in this series.

I am going to continue this discussion in a next series installment where I will return to consider bitcoin and its peer currency alternatives, and regulatory oversight as it would be applied to them and their valuation. Meanwhile, you can find this and related postings at Macroeconomics and Business.

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