Why was Heinlein obsessed with "hard" currency?

Cafe Society
61

I consider this sort of arrangement a swindle. They round up your purchases and place it in a savings account. Seems fine, but if you are like many folks who don’t have a lot of money in the checking account to begin with, a few of these transactions can bring your balance down below the point where the fees are waved. (Or, alternately, it can continually eat away at your balance and keep it below the “free checking” point.) Remember, if your balance falls below a certain figure, even by a couple of cents, you’ll get hit with a monthly fee. And given the interest most savings accounts earn, the fee will more than eat up whatever you earn in interest off the savings.

Remember also that banks use their savings holdings as loan capital; the more people have in the bank’s savings accounts, the more money they can loan out, thus the more money they can earn in loan interest. So there’s another way the bank is earning money off this.

And what is the account holder earning? A meager 1.25% annual interest on that little amount in the savings account–which, again, is more than offset by the $10 per month fee for the checking account (if the balance falls that low).

These types off accounts are really just window dressing. It’s all about serving the bank, not the customer. Remember, banks are not your friend. I’ll stick with taking my change.

(And I do understand that you can simply make sure that your balance never falls below the limit; that’s what I do in taking money out to pay for things with cash. But there are a lot of people in this world who are not very savvy about financial stuff, and who wouldn’t think it through. Just look at all the people who pay the minimum due on their credit cards. Having a monthly finance charge on the credit account, and paying monthly fees on the checking account, is just about the worst of all possible personal financial worlds.)

62

I always read the explanations of the woe associated with the jar of pennies, etc. I read about the unfair charges for cashing in large amounts of coins. I am repeatedly dumbfounded.

Am I the only person who uses the change I am handed on one transaction to pay the odd cents for the next? I never have significantly more than a dollar in loose change. Usually it is much less. The pennies in particular almost never go above five cents. The only place my change accumulates is the table top where I dump out my pockets, if I fail to reload them the next time I get dressed. (Well, there is the pile of wheat pennies, liberty dimes, and such that I don’t recirculate.) The quarters sometimes gang up on me, since I still have habits from the days when I bought sodas from the machine at work, and I often fail to use them in a fossil habit from that time.

But mostly, pennies are no more, or no less useful to me than any other coin, and I don’t have a lot of them to deal with. I am very surprised to find that this is a matter that fails of easy remedy to anyone literate enough to answer this message board. Don’t save them, use them. The arithmetic works out so that you will never have more than ninety nine cents in changes, and generally, less than fifty. That’s about enough to give you a pleasant jingle to your pocket. If that bothers you, get a tight leather folder style change purse.

Tris

63

If you put gold bullion into a safe deposit box in a bank, you do not and never have got interest on that gold bullion.

If the bank is merely keeping gold in secure storage for you, why would they pay you interest? That has never happened. You don’t get paid interest when you give the bank a bunch of gold coins to store.

You get paid interest when you give the bank some money (which might have been gold coins in some places and times) and they write your name in a ledger and promise to pay you back that same amount of money in the future, plus interest. But you don’t have GOLD in deposit. You’ve got a ledger entry. They don’t keep your gold, they HAVE your gold and can do whatever they want with it, as long as they pay you back in the future according to the agreement you made.

So already banking divorces the equation of money and gold. Sure, you still have money BACKED by gold…but if you allow banking, or buying on credit, then you’ve created money that isn’t gold but rather ledger entries. Sure, the bank will have some gold bullion in the vaults…but it doesn’t have everyone’s gold bullion neatly sorted into individual piles. You gave the bank a certain amount of gold, and you expect a certain amount back, but you don’t get back the same gold you put in. The bank takes the gold you deposited and gives it to someone else, and writes in a ledger that it owes you X amount of gold and person Y owes them Z amount of gold.

And where paper money comes from is if the bank doesn’t write that entry in a ledger when you deposit gold, but rather gives you a cunningly printed certificate that it will exchange for gold at a later date. And since that certificate is freely exchangable for gold, you don’t have to keep the certificate, you could exchange the certificate for goods and services, and the other guy could go to the bank and get that amount of gold. And thus the banks created money out of thin air.

And now we realize that there’s no need for the bank to actually have any gold anywhere, or to ever promise to exchange that note for a certain weight of gold, as long as everyone is convinced that those notes will be exchangeable for goods and services in the future they will be happy to take notes in payment for goods and services secure in the knowledge that they will be able to exchange those notes for goods and services. And so we have paper money, first backed by gold, then fiat. But usually the bank needs to be backed by the government to get the level of confidence needed for fiat money.

And now we realize there’s no need for actual notes, you just tell people your bank will pay them later, and they hand over the goods and services based merely on the perception that your bank or credit company will pay them. And your employer doesn’t give you notes, they just tell the bank to subtract a certain amount from their account and add it to your account. And so we have electronic money. I remember back in the 1987 stock market crash people telling me they were going to the bank and withdrawing all their money into cash. It kind of made me laugh…how is one piece of paper saying you were owed $X worth of goods and services more secure than another piece of paper? If the economy was tanking such that the banks failed and your little checking account was wiped out, how much value would those Federal Reserve Notes have?

64

Nope. Coinstar is not a tax, except in the way that it is a stupid tax. Charges on bank debits cards are not a tax, except in the way that it is a stupid tax. Yes, we should all try to make money off the stupid. It’s the best possible business scheme, since there are so many of them. :wink:

65

I still find it somewhat amusing you refuse to acknowledge that gold was once deposited and lent at interest. Why is this so difficult to understand? Where your confusion may lie is the nature of money prior to the advent of Federal Reserve Notes, which don’t represent anything.

Gold Certificates, on the other hand, were nominally paper money, but most critically the equivalent of a warehouse receipt. They entitled the bearer to redeem the note on demand for a specific quantity and fineness of gold coin. They were used because it was much more convenient than hauling around bags of very heavy coins. Silver Certificates performed a similar function, until the government repudiated those in 1968.

Thank you. Finally!

66

If the discussion was about safe deposit boxes and faceless gold bullion, it might be relevant, I guess.

Here’s a link to a gold bond (the name predates medicated anti-rash powder)

What do you suppose a gold bond was for?

http://www.scripophily.net/folilobo1gob.html

67

A promise that the issuer of the bond would pay the equivalent of $50 in gold (plus interest) to the bearer of the bond.
Oddly enough, there is, in fact, a Supreme Court decision related to much of this issue, to wit:

  1. Guy buys a bond with gold dollars of a certain weight and purity.
  2. By the time the bond is due, gold dollars are of a lower weight and purity.
  3. Guy demands either dollars of the original purity or more dollars of the lower purity.
  4. Supreme Court rules…

Well, honestly, only having time to scan the decision, I’m not sure. I do know that they state very clearly that he is not entitled to more dollars at the lower purity.

68

I have to applaud your seven-paragraph history of the development of the modern banking and money system. When I was an undergrad we had to sit through several hours of miserably tedious lectures to cover that. Bravo!

69

Sigh, both Lemur866 and I have explained it- Lemur866 with an great recounting and I with a pretty damn good cite.

Once you deposit- or *had deposited * in the past- anything (gold, silver, greenbacks, cowrie shells, Yap stone money, whatever) with a bank in an interest bearing or “unallocated” account, it then becomes- and became- simply numbers on paper. If you in the past- took a 12oz gold bar Assay Number #123456 to an American Bank in 1850, and deposited said gold bar in an interest bearing account- you’d get a Bank note. That Bank note would be worth so many US dollars. You might be able to come back later and get 12 troy ounces of gold- but it wouldn’t be “gold bar Assay Number #123456”. It might be 12 double eagles, or 12 oz of gold dust or whatever you and the bank had worked out. But- and this is important- even if you brought in paper greenbacks not backed by anything other than the Trust and Security of that bank or the US Treasury- you’d also be able to get back 12 double eagles, 12 oz of gold dust, or perhaps even by chance- gold bar Assay Number #123456. It made no difference at all to the bank what you brought in.

Whatever they accepted for deposit- gold, silver, greenbacks, cowrie shells, Yap stone money- would be redeemable for anything they had on hand to pay you with.

Thus, your statement “Banks then paid interest on *gold, * when it was considered “lawful money”” is specious, as the word “gold” is not nessesary. Banks then- as now- paid interest on anything accepted for deposit. Once you deposited it, you no longer owned that particular piece of currency, all you had was a banknote. Then, as now.

Read my cite, read Lemur866’s post, and perhaps you’ll understand what “money” is. It’s not gold, nor has it ever been. Gold has been money (except for some 40 years sure), but so have Greenbacks.

70

Yes indeed. It was a succinctly withering expose of the mindset that falls for the hard currency delusion. All it lacked was a coda on electronic funds transfers and how even paper is no longer money as the ultimate entry in a ledger has taken over.

Wealth is not based on money, but on wealth creation. How this happens is of some theoretical interest but has the same practical implications. Wealth may come from the multiplier effect at a bank; it may come from increased stock prices; it may come by increased land value; it may come by the change in value from raw materials to finished goods; it may come wholly out of thin air as “services.” (It can’t stop there, though. All wealth eventually has to multiply or else it is money rather than wealth. Investment and reinvestment is the basis for wealth.) Wealth should not be confused with mere money, a medium of exchange. A mere extrinsically valuable object, as gold or salt or cigarettes have claimed to be in various situations - doesn’t create societal wealth, and probably actively hinders it in many ways.

To be sure, it has taken most of the twentieth century for this to become clear to most people. That Heinlein didn’t see it with his background is one of the least of his faults. That people still talk approvingly about fiat currency in the 21st century is far more peculiar.

71

You can bet they ruled against him, since the government reneged on both gold clauses and gold notes, certificates, bonds, everything. After confiscation was complete or nearly so, the government revalued gold upward to $35/oz, giving them a tidy profit.

Interestingly, since gold was decriminalized, gold clauses are technically legal again. An insurance company at Des Moines, Iowa prevailed in court on a 99 year lease that specified gold. Basically, the renters were getting a hell of a sweetheart deal - while the insurance company didn’t actually want gold as payment, they wanted the actual purchasing power that it represents today.

72

You could have wrote “money is fungible” and saved numerous electrons from a wasteful death!

Thanks, but no thanks. You’re just flailing now… Thanks for playing, though…

73

Common Tater, I still don’t understand what you’re getting at. You CAN’T get interest on gold, any more than you can get interest on Federal Reserve Notes. You stuff gold or dollar bills into a vault and you get no interest from it.

The only possible way you can get interest is by LENDING money. You have an amount of money, and since money today is worth more than money tomorrow, you lend it to an entity, it could be a person, it could be a bank, it could be a corporation, it could be a government. They agree to pay you more money in the future than they borrowed today. But they won’t pay you extra money if they have to stick that gold or banknote under the mattress. They won’t borrow the money unless they have a plan to use that money today to create goods and services that will be worth more money tomorrow.

If I take a gold coin and ask the goldsmith to keep it in his vault for me, does he pay me interest for the privilege of keeping my gold coin? Why would he? What’s in it for him? But he might pay me interest if he can take that gold coin and use it to purchase raw materials that he can convert into finished products and sell those products for more than the cost of the raw materials. Or perhaps the goldsmith won’t produce those products, but rather loan the gold coin to someone else who will, who’ll pay HIM interest, which will be higher than the interest he’s paying me. But just keeping that gold in a vault doesn’t help him make any money, and therefore no interest.

And note that “gold standard” money is literally created out of thin air, just like fiat money, the only difference is that under a precious metal standard there’s one particular good that has a fixed price. Gold, or perhaps silver. But gold or silver or copper or platinum ingots aren’t money, they are goods. Why do we need one good with a fixed price?

Countries on a gold standard saw their money dribble through their fingers in mysterious ways. Spain brought back galleonloads of gold and silver, and yet somehow that “money” vanished into the hands of foreigners. Why did the money leave Spain? It’s simple, the law of supply and demand, the increase in supply of a good (in this case gold, what they thought was “money”) decreased its value. They traded their gold bullion for luxury goods and that gold and silver made its way from the Americas to Spain to the Ottoman empire and on to China and India. They thought that by increasing the amount of “money” they had, they increased the wealth of their country. Except that doesn’t work any more than running the printing presses to create more fiat banknotes.

And a piece of paper entitling you to get a certain weight of gold is not any “harder” than a grocery store coupon entitling you to 50% off a frozen pizza. Fiat money is exactly equivalent to a coupon issued by the government…not for a lump of gold, but for payment of your taxes. And if the government’s word that it will accept that coupon for payment of taxes isn’t good enough, why would their word that they will exchange that coupon for a pretty rock good?

And note how the fiat currencies of first world countries are called “hard currencies”, in contrast to the worthless government coupons of third world dictatorships and communist hellholes. No international bank or corporation will take North Korean banknotes in exchange for goods and services, yet around the world there are companies that will eagerly take US dollars, Canadian dollars, Yen, Euros, and British Pounds. All backed by nothing more than a government’s assurance that yes, these electronic signals are exchangable for pieces of paper that other people will exchange goods and services for. A fixed price for one particular good (gold bullion) adds nothing to the value of that electronic money.

74

Thus revealing how bogus the gold standard was. The government can promise to pay you gold ingots one day, and the next day they change their mind and your piece of paper that you thought represented a piece of gold is worth as much as a coupon for a free pizza at a restaurant that went out of business.

75

Tater actually has a point. It is possible that some banks might create specific gold accounts. A person would deposit say 100 grams of gold and receive 1 gram interest per month. The amount of the deposit would be measured in grams, the monetary value of which would vary from month to month. The bank itself, obviously, would be using the gold as it would any other asset like currency or real estate and would be making loans to other customers. That said, I don’t know if any bank has ever actually offered such an account.

76

I suppose so.

But if the point is that gold is real money, and anything else is just pretty pieces of paper, then the minute you hand over your gold to the bank and get back a pretty piece of paper you’re no longer using gold as money.

It doesn’t matter whether that peice of paper is a gold futures contract, a promise to return your gold next Thursday, or a ledger entry, or a banknote. You’re still using pretend money, not gold. You don’t have gold anymore, you have a promise to pay gold in the future. And if the bank closes up shop in the middle of the night, it doesn’t matter what kind of paper you’ve got, you’re not going to get any gold back. Or if the bank is a really a government, they can just tell you to screw, you’re not getting gold, you’re getting a Liberty Bond. And by the way, we just passed a 90% wealth tax on gold deposits, so you don’t even get the face value of the Liberty Bonds. And by the way, you’re a class enemy, so your entire estate is forfeit to the People’s Government, not that you’ll be needed any money in the Re-education Center.

The whole mystical point of gold-as-money is that gold coins buried in the back yard can’t be stolen with the stroke of a pen, the bad guys have to actually break down your door and dig them up. But banknotes, even banknotes “backed” by gold can still be rendered worthless at the stroke of a pen. So a “gold standard” currency doesn’t protect you any more than a fiat currency, unless you’re far-sighted enough to convert your banknotes to gold before the crisis. And there’s no reason you can’t do the same with a fiat currency, just take a stack of federal reserve notes down to the coin shop and he’ll be happy to sell you all the gold you can carry, and then you’ll be safe from the goverment’s dastardly manipulation of fiat money.

Except that gold bullion “money” doesn’t get any interest, to get interest you have to give somebody those gold coins for nothing more than their promise to give them back plus a little more sometime in the future. And then you’re back in the land of winds and ghosts and money created by fiat.

77

I can see your point, but I disagree with you on a lot of it. For one, the account I linked to doesn’t have a minimum balance. It has a maintenance fee if you don’t have direct deposit. So rounding purchases wouldn’t make you any more likely to have to pay a maintenance fee. They might make you more likely to pay an overdraft fee, if your account balance gets close to 0. For two, the difference between the bank rounding the transaction up in the computer and your plan of rounding it up in metal cylinders does not effect a difference in the likelihood that one will overspend an account. The same money is going the same places.

Yes, the bank is making money, but so are you. And you’re using weighted language to make an emotional argument rather than a logical one. The money the bank makes off of combined deposits is massive, but the money you make is piddly, because the amount is so small. Do you really begrudge the bank their loan revenue to the extent that you don’t deposit money at the bank at all, but keep it sitting in cash somewhere so the bank can’t profit off of it? If you don’t do that with all your money, why would you do it with this money?

I have no illusions about banks being my friend. I have a business relationship with my banks and I seek to maximize my gain from it. So do they, but I think it’s more likely that this promotion is designed to increase revenues by giving out a small bonus to new customers rather than confusing their customers into extra fees.

You may well be right. It would be really interesting to see the numbers on this kind of thing. You’re right that even one $5 fee will wipe out any other gains from this program, but I’m not convinced that the average increased fees from this are going to outweigh the average gains.

78

To hijack this thread back to Heinlein for a moment, he touched upon this in a scene in I Will Fear No Evil. His character (Johann Sebastain Bach Smith with brain transferred into his former secretary Eunice, as I recall) goes to a store to purchase some clothing, and attempts to pay for it in cash. The store is only set up to handle credit and wishes to refuse the character’s money. The character points to the phrase “Legal Tender for all debts” (or something to that effect; it’s been a while) and demands that the cash be accepted. The situation is resolved by the shop clerk, who accepts the cash as payment personally and pays the store via credit. While it is not stated outright that I recall, I got the impression that Heinlein disliked the concept of a solely credit based economy even more than that of a cash economy in which the cash was not tied to a commodity.

IIRC, in Time Enough for Love he makes it clear that the commodity need not be gold, but still indicates that he believes cash should be tied to something tangible.

While I have been and continue to be a serious Heinlein fan, I think that a number of his economic and political beliefs were somewhat naive. While I don’t know a lot about this particular issue, I have no trouble in believing, as has been stated above, that his preference for a commodity based monetary system has more to do with the era in which he was born than with an educated and realistic assessment.

79

Of course, our banknotes say “Legal tender for all DEBTS, public and private”. So if Joan Eunice owed the shop money they’d be obligated to take payment in banknotes. But they aren’t obligated to SELL anything for banknotes, they can sell whatever they like for whatever payment scheme they like.

80

Heinlein uses the same set-up in “Have Space Suit, Will Travel,” only with a tax collector rather than a merchant.