Can casino chips (checks) function as money?

[Onion Eater]

I discuss how casino chips are used as money in Las Vegas in my Answer to Stephen Zarlenga:

Stephen Zarlenga wrote a paper (1994) titled A Refutation of Menger’s Theory of the “Origin of Money.”

In the section titled “The Circularity of Menger’s Reasoning,” Zarlenga writes:

So liquidity is caused by liquidity. I stress that I’m not referring to the increased liquidity which a money commodity would exhibit by virtue of its becoming money. We are considering its liquidity before it would have become money. Thus to really explain a commodity’s liquidity, [Menger] would have to explain why supply, demand, and markets develop for a commodity. If you use only liquidity to explain them, you are in a circle. We know why markets developed for cattle or wheat. But has Menger really explained why markets would have developed for “These little discs... which in themselves seem to serve no useful purpose (1984, p. 6)” except if they were already money (1994, p. 8)?

In my book (1999) I use the term “commodity money,” not “gold.” I did not want to mention any empirical facts because my work is purely theoretical. I specifically did not want to mention gold because, while I am not an historian, I did grow up on a ranch and I was always uncomfortable with the image of cattlemen attaching so much value to jewelry that they would make the material it was made of into their medium of exchange. Too girlie! Cows are money and a calf from the next roundup is the obvious monetary unit. It continues to be so today: Modern ranchers make purchases on credit by pledging a calf to be delivered the following fall. We know that gold coins have value but, except for teenage girls and dentists, nobody sees use-value in the material the coins are made of.

Let us consider the case of the dentist. If he pulls a rancher’s tooth and demands a calf in payment, what is he to do with it? Keeping a cow in town would ruin him with feed costs while any rancher can keep the animal in his herd at no cost. Thus, it makes sense for the rancher to pay the dentist with a claim on a cow from his herd, similar to the warehouse receipts that goldsmiths are known to have issued millennia later. The goldsmith’s receipts were made of paper but, since the origin of money predates Gutenberg’s invention, receipts for cows would have to be stamped into a coin. Gold is the best choice for technical reasons, though other metals were sometimes used.

Small ranchers would have neither the means to mint coins nor the trust of the community to accept them, so they would have to sell some of their cattle to a large rancher in exchange for coins to be used in case of emergencies, like toothaches. Zarlenga asks (p. 1), “Does [money] obtain its value from the material from which it is made, or from its acceptability in exchanges due to the sponsorship or even legal requirements of the government?” He clearly intends to prove that gold coins were never issued by merchants but only by governments. I agree. Wealth is power and the largest rancher in the community is the government. Or the government is the largest rancher, whichever way you want to look at it. In our example, the dentist did not issue the coin, the local cattle baron did.

The most difficult part of ranching is the cattle drive and one can only imagine what it was like before the invention of railroads. If the Mexicans of a hundred years ago had had to drive their cattle, not just to the railhead in Phoenix, but all the way to Chicago, Chicago would have been a much smaller city. The limiting factor on the size of cities was not how well organized the city government was, but how well organized the ranchers were. Besides picking up the trash, there is not much to running a city, but driving cattle hundreds of miles takes real organizational skills.

Zarlenga writes (p. 4), “That such censorship [of the Greeks by the Romans] occurred in the monetary area appears likely. For example, in the Athenian Constitution coming down to us, we can find out how the garbage was collected, but we will search in vain to learn how Athens [sic] state coinage system was run.” Actually, I suspect that our copy of the Athenian Constitution is intact. The reason that we know so much about how they collected garbage is because that was the city government’s only real job. They did not mint coins. Historians have focused on these glorified ragpickers in the city while overlooking the more interesting economic activity of minting coins that was being conducted by cattlemen in the countryside.

Corporations did not exist back then but, if all the ranchers in a community sell their cattle to one man in exchange for gold coins and agree to help him drive the herd to town, chasing strays regardless of their brand, and then settle with him after all loses have been accounted for, they have almost formed a corporation. After he trades the cattle for wheat and oil and other bulk items, he distributes it to his men by selling it to them for the coins he purchased their cattle with. But his men all have shopping lists of their own, so it is natural that the retailers in town would accept the coins of the cattle baron. They know that there will always be an inter-town demand for them because the cattlemen come to town every fall and any townsman who anticipates needing a cow to butcher before winter must, in the meantime, obtain one of the coins in trade.

Casinos in Las Vegas will accept their competitor’s chips (actually called “checks,” but I will say “chips” to avoid confusing them with demand deposits at banks) even though they are under no obligation to do so, and it is technically illegal under Federal law. Similarly, the several cattle barons who drove their cattle to the same city would come to accept each other’s coins, provided that they were all the same weight, about 130 grains as recorded by Zarlenga. A cattleman would not want to lose a sale just because a customer had someone else’s coin. The cattleman could redeem it later through the clearing house at the local saloon where the cattlemen gathered. There it is easy to locate the issuer and trade coins straight across, with the balance to be delivered in cattle the next morning at the feedlot.

So it was that 130-grain gold coins gradually came to be thought of as money, regardless of whose mark was on them, and by people who had no immediate need for a cow. This result requires only that the clearing house functioned smoothly in the sense that anyone who did not have enough cattle to meet his obligations was no longer allowed to issue coins. And, not to put too fine a point on it, by “no longer allowed to issue coins,” I mean they were executed. Participation at the clearing house was not considered optional. Merchants did not have the capability or the authority to execute a cattle baron, but his peers did. They were competitors, after all, not friends. They all sold their cattle to the same townsfolk and, where their territories overlapped, their men were actively, if surreptitiously, engaged in rustling each other’s cattle.

Thus, I will concede Zarlenga’s point that only governments and not merchants issued coins, but I would undercut his argument by observing that the cattlemen of antiquity did not divide their world into private-sector entities such as corporations and public-sector entities such as governments. Without firearms it would have taken, literally, an army to protect a cattle drive from thieves. Historians are unanimous in considering the presence of troops to be evidence of a government, so it is not surprising that Zarlenga claims that it was governments and not merchants who issued coins. But I would argue that what historians call a government was more like what we would call a corporation, but one with a military wing.

Also contrary to Zarlenga’s thesis, that coinage requires the stamp of approval from a legitimate government, observe that the chips issued by Las Vegas casinos function as money, yet nobody mistakes a casino for a government. Casinos have no authority beyond their property line and the legitimate government, the Feds, strictly prohibit accepting casino chips in trade. Yet people do so all the time. When I worked in Las Vegas (not at a casino), I was sometimes paid in chips. Small businesses, but not the national chain stores, would accept chips for groceries and such. If it were not for the Federal law, it is easy to see how private coinage could come about.

The government discourages people from accepting casino chips in trade by making it illegal but, simultaneously, they encourage such trade by insisting that gamblers must pay taxes on their winnings but cannot declare their loses as a business expense. Thus, when a gambler wins big, rather than be confronted with a W-2 form at the cashier’s cage, he simply walks the chips out the front door and then foists them on everybody to whom he owes money. People do not have to fill out W-2 forms if they redeem only small quantities of chips so, once his bucket of chips has filtered through the local economy, they will eventually all be trundled back to the cashier’s cage. How long they remain in circulation is anybody’s guess, but I doubt it is long enough to inspire a casino to keep less cash on hand than they have outstanding chips.

Anarchists should not take this example to imply that a private entity such as a casino is more “sound” than the federal government. People look for an alternative to dollars because they fear the IRS, not because they distrust the Federal Reserve. Las Vegas locals have little in common with anarchists hunkered down in northern Idaho waiting for the dollar to collapse. Nevertheless, motivation aside, the fact that casino chips are readily accepted in Las Vegas belies Zarlenga’s contention (p. 13) of “an institutional origin of money rather than a market origin.”

Zarlenga (p. 13) writes that “One of the main points... is that early gold coinage was designed to represent the ox/cow commodity money unit, already recognized in most advanced societies.” Apparently the government, in their wisdom, simply recognized that gold would work better than cows and decreed that, henceforth, 130 grains of gold would be the equal of one cow. Zarlenga concludes (p. 15), “This has deeply negative implications for the Austrian School, for the Libertarians, and for the free bankers, which they would be well advised to investigate now.” As a libertarian and a free-banking theorist who has just conceded most of the cow-certificate argument to Zarlenga, it would seem that I am in big trouble. But why? What do events that took place thousands of years ago have to do with anything today?

The only really crucial point, both for Axiomatic and Austrian Economics, is... continue.

 

[LaMidRighter]

Very interesting read. My take on a few points

In my book (1999) I use the term “commodity money,” not “gold.” I did not want to mention any empirical facts because my work is purely theoretical. I specifically did not want to mention gold because, while I am not an historian, I did grow up on a ranch and I was always uncomfortable with the image of cattlemen attaching so much value to jewelry that they would make the material it was made of into their medium of exchange. Too girlie! Cows are money and a calf from the next roundup is the obvious monetary unit.

I'm a fan of the gold standard for monetary backing, however I am ready to concede that it is too limited a resource for the scale of exchange both nationally and internationally, I think a mixed commodities standard would be better than the current indexed standard we follow today, this would include hard commodities such as precious metals and liquid commodities such as agriculture and industrial production, the hard commodities being the anchor to add long term stability to the dollar. Interestingly, in the electronic age, precious metals have found a new value other than being pretty, gold and copper are exceptional conductors, silicon, which would have been useless in the bronze age, is an essential component in electronics and makes insulating from water in housing much easier, etc.

Let us consider the case of the dentist. If he pulls a rancher’s tooth and demands a calf in payment, what is he to do with it? Keeping a cow in town would ruin him with feed costs while any rancher can keep the animal in his herd at no cost. Thus, it makes sense for the rancher to pay the dentist with a claim on a cow from his herd, similar to the warehouse receipts that goldsmiths are known to have issued millennia later. The goldsmith’s receipts were made of paper but, since the origin of money predates Gutenberg’s invention, receipts for cows would have to be stamped into a coin. Gold is the best choice for technical reasons, though other metals were sometimes used.

I love this, it really reinforces the simplifying aspects of standard currency over the bartering system, by stating that it is still bartering.

But why? What do events that took place thousands of years ago have to do with anything today?

I think it's absolutely relavent, as we are seing the evolution of the bartering system and an old throwback to it with the "checks".

 

[Onion Eater]

I'm a fan of the gold standard for monetary backing, however I am ready to concede that it is too limited a resource for the scale of exchange both nationally and internationally, I think a mixed commodities standard would be better than the current indexed standard we follow today, this would include hard commodities such as precious metals and liquid commodities such as agriculture and industrial production, the hard commodities being the anchor to add long term stability to the dollar. Interestingly, in the electronic age, precious metals have found a new value other than being pretty, gold and copper are exceptional conductors, silicon, which would have been useless in the bronze age, is an essential component in electronics and makes insulating from water in housing much easier, etc.

Regarding gold's use in industry, I wrote in a critique of Greg Allport:

In Gold Does Not Have Intrinsic Value I write, “the fundamental contribution of Hayek’s Prices and Production was that higher-order goods (farther from the consumer) are more volatile than lower-order goods. Mining, being the highest of Hayek’s five stages of production (mining, refining, manufacturing, distributing and retailing), is the most volatile of all. Mainstream economists have rejected Hayek’s five stages, preferring only two, labeled “production” and “consumption.” But they would not dispute the fact that production goods are more volatile than consumption goods. I have criticized Hayek at length, but I would not disagree with this basic observation either.”

Gold is mostly used in the manufacture of electronic devices. But, after being mined, the metal must be refined, the devices manufactured, shipped across the Pacific ocean, distributed to consumer electronics stores and finally sold to consumers. This takes considerable time, making gold one of the most volatile commodities. Its value plunges up and down as investors try to predict years into the future how many electronic devices will be needed.

So it is not in the least bit surprising that Allport has found a seven-month period in which the price of gold rose 17.9%. (Mr. Allport penned these immortal words on 22 October 2007.) It fell by 24% in the two weeks from the 10th to 24th of October of this year. With a recession looming, stores are now over-flowing with electronic gadgets, most of whose purchase is highly discretionary – nobody really needs the very latest beeping toy. Thus, electronics manufacturers are not (currently) calling for more gold. In time, they will again; demand for commodities is volatile.

Regarding a possible future commodity money standard, I write on my website:

So how might a new institutional framework for banking arise in the future? Self-important economists like Jesús Huerta de Soto would like to think that it will come about through their own grandiose pronouncements: "Okay everybody, 100% gold reserves from now on. No cheating!" And hucksters like Gary North would like to think that it will make them, with their 56-pound bags of dimes, rich men.

Instead, let us see if change can come about through the actions of independent actors and in a way that does not make Gary North rich. (Gag on that thought! I think I would rather see worldwide economic collapse than to watch that huckster buy me out with his dimes.)

Consider this easy ten-step program for establishing a free-banking regime:

1) Clueless George looks into the eyes of Vlad the Poisoner and decides that he is basically a good-hearted, honest man whom we can trust. Specifically, Bush trusts Putin to let him bomb Iran in exchange for us letting Russia control their "near abroad."

2) Through the blatant use of forgery, Bush convinces Americans that Iran is prepared to nuke east coast cities on 45-minutes notice, purchased yellowcake uranium from Niger, directed the attack on the WTC and shaved Britney Spear's head. We commence to bomb them.

3) The Iranians respond by closing the Strait of Hormuz. With Putin's help, they kick our ass – it is raining Russian-made ballistic missiles in Qatar - not at all like the cakewalk that Bush promised.

4) As Mohamed ElBaradei predicted, "a military strike on Iran will turn the Middle East to a ball of fire." Responding to this ball of fire, Middle Eastern nations desperately need weapons, but they are unable to ship oil to pay for them. Instead, they offer IOUs redeemable in oil.

5) Since everybody knows that they have the oil and that the strait will eventually re-open, international arms dealers accept the notes, though discounted to reflect the possibility that the note-issuer will not survive. The discount depends, of course, on the survivability of the country or corporation who is issuing the note.

6) Unable to pay for the war with taxes – Republicans don't raise taxes! – Bush resorts to monetizing the cost of weapons, soldiers and Halliburton contracts. Too late, the Federal Reserve discovers that the AAA-rated securities that their portfolio is packed with are about as marketable as the chocolate-covered cotton balls that Milo Minderbinder was trying to foist on people in Catch 22. As a result, the dollar collapses.

7) People all over the world – not just arms dealers – get in the habit of accepting notes redeemable in oil. Eventually the war ends and the Strait of Hormuz re-opens. The survivors make good on their notes. They have to or they won't be survivors for long.

8) We now have a free-banking system, as I describe in my 1999 book, with many independent countries and private companies issuing notes redeemable in commodity money. I never used the word "gold" in my book, you know, only the more abstract term, "commodity money." Oil can be a commodity money too. It is just as useful and important to us as cows – the original commodity money – were millennia ago.

9) Plutonium from shot-down Israeli missiles is scavenged from the battlefields – enough to run Iranian nuclear power reactors for seven years. (They always said that they were just interested in producing electrical power, you know.) This fulfils a key Biblical prophecy, causing evangelicals everywhere to rejoice: "See? Devoting our lives to studying the Book of Revelation wasn't a total waste of time!"

10) Gary North, who has spent the war years hiding in a hole in Nevada, finally runs out of pork and beans. In desperation, he opens one of his 56-pound bags of dimes and attempts to eat them. Too late, he discovers that he is actually a vampire. He dies a horrible death after ingesting silver. Nobody misses him.

 

[johnnydee]

Glad I decided to read the whole post. Good info and very interesting.

 

[128shot]

My question is what do you have against the Austrian school and Gary North in particular?

 

[Onion Eater]

My question is what do you have against the Austrian school and Gary North in particular?

Here is some background on Gary North. This was written in January 1999, before his Y2K predictions were all proven wrong. It concludes, "What will the Internet's best-known doomsayer do if Y2K results in just minor disruptions? 'A few years later he'll reappear with another apocalyptic scenario,' Berlet predicts."

Berlet was right. North reappeared a few years later calling himself an "economist" and predicting - guess what? - the complete collapse of civilization. While the causes of the predicted collapse change over the years - nukes, AIDS, Y2K, hyperinflation, etc. - the result is always the same: a Christian version of the Taliban, complete with cutting off limbs and stoning people to death.

I have also added a few paragraphs from Invitation to a Stoning if you want specific information on who North intends to stone to death in the event that one of his predictions of collapse ever comes true. (If you are an "incorrigible" teenager or an adulterer, all I can say is, "you'd better run.") Scary stuff!

There's Something About Gary North

For decades Gary North has made a living predicting modern society will end in panic and ruin. In 1980, he forecast rationing of housing and a nuclear war with the Soviet Union. He warned his followers to buy "gold, silver, a safe place outside the major cities."

Then AIDS became the threat: "In 1992, we will run out of available hospital beds.... The world will eventually panic," he wrote in 1987.

Now North has found Y2K and a skittish audience receptive to predictions of doom. A recent advertisement for his Remnant Review newsletter proclaims: "A bank run like no other will bankrupt banks all over the world in 1999."

If you fork over $225 for a 24-issue subscription, North will cheerfully equip you with "the tools you need to build untouchable wealth."

His advice is familiar, if unsurprising: Close your bank accounts, sell your stocks. Buy guns, gold, and grain. Move to a remote cabin where you can survive the collapse of Western civilization, safe from riots and hungry looters.

"The code is broken. It cannot be fixed. The panic is inevitable. It's a question of when," he wrote on garynorth.com last month. "Through his Web site he can help to fan the flames of Y2K panic to create social disorder so the social systems of the world crash. It's out of the ashes of those systems that he thinks the kingdom will rise," says Frederick Clarkson, author of the book Eternal Hostility: The Struggle Between Theocracy and Democracy.

The kingdom? Some sort of cultish year-2000 prophecy, perhaps? Nope. It's none other than the Kingdom of God and the return of Jesus Christ, events that North believes won't happen until a Draconian biblical law is imposed for a thousand years. For North, there's no better way to pull the plug on an ungodly society than fanning the flames of Y2K panic. "He wants to make sure the banking system crashes. It's a self-fulfilling prophecy," Clarkson says.

Out of this wreckage, North and many other Christian Reconstructionist men hope to build a harsh biblical order where sinners, such as adulterers and gay men, can be severely punished, even executed, preferably by stoning.

"Female homosexuality, or lesbianism, is a manifestation of the same evil as the masculine form, but the death penalty is reserved for the men," wrote R. J. Rushdoony, North's father-in-law, in The Institutes of Biblical Law. North contributed an appendix on Christian economics to the 1973 treatise, which laid the intellectual foundation for the Reconstructionist movement.

"What amazes me about Gary North is that he was such an obscure figure. Nobody ever heard of him until this came up. He's found his niche," says Skipp Porteous, a former fundamentalist minister who is now the director of the Institute for First Amendment Studies. "This mind-set believes that things are happening that we don't know about and they're going to get us. The source of it all is Satan," Porteous says. "Y2K is of great interest to these people."

North refused repeated requests for an interview. "I get daily requests for interviews. Without exception, they want to interview me about: (1) survivalism, (2) me. I turn down all such requests.... Another interview would be superfluous," he told Wired News in an email message. "At zero price, there is greater demand than supply. That's how I assess my time. Since I do not sell interviews, I do not give them."

Last year, North invited ABC News to his rural retreat, though the televised segment didn't mention his doomsaying history. Neither did a Wired News article, which merely dubbed North an economist. That's no accident. North has selected over 3,000 documents and news articles and painstakingly sorted them into 24 categories on garynorth.com. He adds about a dozen more each day to the pile, with his own comments -- often witty, always downbeat -- attached.

The site is wildly popular. In just the past few weeks, the discussion forum on relocating to the countryside received some 1,000 posts. But North doesn't highlight his incendiary views or his Institute for Christian Economics.

"He wants to present himself as a secular expert on Y2K," says Chip Berlet, editor of Eyes Right! Challenging the Right Wing Backlash. "It's much easier to take a Y2K expert seriously who doesn't promote Reconstructionism and its death penalty for adultery."

The true mark of success is, of course, imitators and detractors, and North has plenty of both. The Gary North on Y2K and Gary North is a Big Fat Idiot Web sites complain about North's "latest ruse for bringing about 'Christian Reconstruction.'" And garysouth.com, which launched this month, lampoons North's relentlessly dire warnings. Unlike some Christians, North has not said he views Y2K as a religious portent. "Pre-millennialist" Christians believe Christ will appear during the Antichrist's reign to rule for a thousand years -- and some have pointed to the Year 2000 as a likely date. But "post-millennialists" like North believe a thousand-year reign of the righteous must come first, and it doesn't matter what year it begins.

North recently wrote that Y2K "will call into question science, technology, the free market, and the welfare state. It will call into question all of modern humanism."

His plan: "Christians will be in a position to win this battle. I'll put it bluntly. Y2K is about handing out blame. The corporate judgment of God always is." This blame is to be squarely laid on the shoulders of the current technological -- and to North, corrupt -- society that produced Y2K in the first place.

What will the Internet's best-known doomsayer do if Y2K results in just minor disruptions? "A few years later he'll reappear with another apocalyptic scenario," Berlet predicts.

Invitation to a Stoning

For connoisseurs of surrealism on the American right, it's hard to beat an exchange that appeared about a decade ago in the Heritage Foundation magazine Policy Review. It started when two associates of the Rev. Jerry Falwell wrote an article which criticized Christian Reconstructionism, the influential movement led by theologian Rousas John (R.J.) Rushdoony, for advocating positions that even they as committed fundamentalists found "scary." Among Reconstructionism's highlights, the article cited support for laws "mandating the death penalty for homosexuals and drunkards." The Rev. Rushdoony fired off a letter to the editor complaining that the article had got his followers' views all wrong: They didn't intend to put drunkards to death.

Ah, yes, accuracy does count. In a world run by Rushdoony followers, sots would escape capital punishment--which would make them happy exceptions indeed. Those who would face execution include not only gays but a very long list of others: blasphemers, heretics, apostate Christians, people who cursed or struck their parents, females guilty of "unchastity before marriage," "incorrigible" juvenile delinquents, adulterers, and (probably) telephone psychics. And that's to say nothing of murderers and those guilty of raping married women or "betrothed virgins." Adulterers, among others, might meet their doom by being publicly stoned--a rather abrupt way for the Clinton presidency to end...