by Thomas Allen
Some people recognize the absurdity of the current monetary system based on the concept of backing bank notes and the electronic equivalent with promissory notes that promise to pay with bank notes that promise to pay nothing. They have been taught that gold is the worst sort of money — even worse than the current monetary system. So, some suggest backing the currency with land. Unfortunately for them, land makes low quality money.
For any commodity, including land, to serve adequately as money, it needs to be portable (relatively high value per unit of weight), homogeneous or uniform, durable, divisible, recognizable, highly marketable (highly liquid, universally acceptable), and stable in value. Also, the commodity used for money should be fairly scarce, but not too scarce. Furthermore, it should have a high stock-to-flow ratio, that is, the quantity of the commodity readily available for use as money is high compared with the newly added supply.
Portability. Land scores extremely low in portability. How does one transport a square kilometer of land from Iceland to New Zealand? Presumably, the land could be dug up and transported by ship. Then, how deep does one dig? Moreover, the cost of transporting the land probably would far exceed the value of the land.
Homogeneity. Land scores extremely low in homogeneity. In valuing land, location is vitally important. Land in the City of London has much more value than an equal area of land in central Greenland.
Durability. Land scores high in durability, especially if its use is ignored.
Divisibility. Land scores high in divisibility. It can be subdivided to where a magnifying glass is needed to see it.
Recognizability. Land also scores high in recognizability. Everyone can recognize land.
Marketability. Land scores low in marketability. It cannot be transferred in seconds from one owner to another without a significant, often a great, loss in value. Moreover, days may be needed to transfer land ownership legally. Thus, land is not highly liquid. Also, land is not universally acceptable as payment for goods, services, and debt.
Stability. Land scores low in stability of value. In 1991, the aggregate value of all the land in Japan was almost four times that of the United States. By 2005, land in Japan had lost half its value while land in the United States had more than tripled in value.
Scarcity. Land scores extremely low in scarcity. Next to salt water, it is earth’s most abundant commodity. It is the most abundant commodity if the land beneath the oceans is counted.
Stock to Flow: Land has an excellent stock-to-flow ratio. The amount of new land being formed is insignificant compared to existing land. Also, land being destroyed is insignificant.
Land scores high in durability, divisibility, recognizability, and stock to flow. However, it scores low in portability, homogeneity, marketability, stability, and scarcity. The negative attributes of land as money far outweigh its positive attributes. They make land an extremely poor quality money. (On the other hand, gold scores very high in all the aforementioned attributes that high quality money should have. Thus, gold makes an exceptionally high quality money.)
In spite of being a poor quality money, land has been used to back currencies that were redeemable in land. An example of a land-backed currency is the assignat.
Soon after the revolutionists came to power in France, they established a land-backed paper currency called the assignat. Land that the revolutionary government had confiscated from the Catholic Church, the Crown, and Royalist refugees backed the assignat. Buying land from the government redeemed the assignats, i.e., the government convert assignats into land. When the assignat became legal tender in 1790, it traded at par with specie. By 1796, its value had dropped to zero. Even the death penalty and the Reign of Terror could not maintain its value. In 1796, the government replaced assignats with mandates, another land-backed currency that could be converted into land. Mandates circulated only a few months before they, along with assignats, lost their legal-tender status and became worthless.
In conclusion, unlike gold, which is high quality money, land is low quality money. Any monetary system based on land or backed by land results in low quality money.