I seem to remember in that era they were useful for some people. My mother worked for a bank in Manhattan and on paydays she would take her check downstairs and cash it, come home with the money in her bra, and then deposit it in our local bank.
Why she didn't just deposit her check, I can't say. Maybe she didn't trust the bank she worked for. Or maybe cash cleared faster than a deposited check.
These days we have reliable, trusted deposit insurance, but that didn't exist until the 1930s. People didn't really trust it until a few decades later.
I used to cash my paychecks at a check cashing store for the same reason. Even though they took a small fee the convenience of having money for the weekend was worth it.
While I agree with your premise that inflation makes $500-1,000 notes practical from the standpoint of modern expenses, businesses I interact with tend to prefer a third party to verify payment (CC merchant, cashiers check, etc.).
Cash is dying and although I love convenience, I'm not entirely sure that's a good thing.
I'm usually pretty hesitant to accept anything over a $20 or even deal in cash for small exchanges. I wouldn't even consider $500 unless I had a way to strongly guarentee the bill I'm looking at isn't fake.
It would take a bit of time and research before I felt confident enough at identifying these bills to accept them in a trade. I'd have to do a lot of those sort of peer transactions to warrant the overhead of that time.
If such bills were in common use, nearly everybody would know and be aware of the usual security features. So, this is only a problem because such large bills are so rare.
Landlords, for one. I'm in the process of leasing a new apartment and I am required to pay some of the fees with a debit card, and some with a cashier's check. It would be easier to just hand them a few large bills and be done with it.
Cash is dying and although I love convenience, I'm not entirely sure that's a good thing.
I try to use cash as much as I can. I also have active checking and savings accounts simply because I don't want to have a single point of failure.
I estimate the building I'm renting from right now would have anywhere between $650-750k or more revenue per month, most of which probably arrives in a one week or less window. That makes them a target for all sorts of potential thefts: employees, residents, burglars.
I've rented at many places and I've never once encountered a landlord that accepted or wanted to accept cash over secure electronic transfer methods, even for minor expenses like a consumer credit report check.
I was working as a cashier and a Japanese tourist came in and asked if could split it up for him. It would have emptied my register, so I politely declined.
Only time I ever saw one in person.