The dream of Keynesians like the late Paul Samuelson is slowly taking place. The use of cash has declined to the point that the government has slowed its printing presses. The New York Times reports ,
The number of dollar bills rolling off the great government presses here and in Fort Worth fell to a modern low last year. Production of $5 bills also dropped to the lowest level in 30 years. And for the first time in that period, the Treasury Departmentdid not print any $10 bills.
Come to think of it, I’ve noticed that $10s seem scarce.
Most airlines will not take cash for drinks onboard, online purchases require plastic, and even New York cabbies are taking debit and credit cards more than a third of the time, according to the Times piece.
But part of the reason that less new cash needs to be printed is that the government’s cash is now sturdier than before according to the Times’s Benyamin Applebaum.”Thanks to technological advances, the average dollar bill now circulates for 40 months, up from 18 months two decades ago, according to Federal Reserve estimates.”
Of course 40 months doesn’t sound all that hot considering how long Morgan silver dollars made the rounds.
Pictures of Benjamin Franklin are an important export good for America. Applebaum makes the point that producing $100s for a dime is big business as 2/3rds of the Benjamins are hoarded overseas. The Fed paid $20 billion in seigniorage to the Treasury last year.
“Last year Treasury printed more $100 bills than dollar bills for the first time,” writes Applebaum. “There are now more than seven billion pictures of Benjamin Franklin in circulation…”
But for how much longer will foreigners stash $100s “like gold in unstable places?”
In 1970 the value of United States currency in domestic circulation came to 5 percent of the nation’s economic activity. However, by last year, the value of currency in domestic circulation had fallen to only half that percentage.
Murray Rothbard made the point that bank runs slow the inflation process when worried depositors remove cash from the banking system, keeping the money from being loaned out and multiplied through the fractional reserve process.
At the same time Keynesians are kept awake at night believing that excessive cash hoarding will send the economy into a death spiral. So if everyone pays with plastic, money stays in the banking system to be lent, fixing the output gap. Whatever that is.
Government would also love cash to go the way of the dodo bird so that every move we make can be traced and taxed. ”Cash transactions are notoriously hard to track, in part because people use cash when they do not want to be tracked,” writes Applebaum. ”And criminals prefer cash.”
Bankers see cash the way government does. “There’s always going to be some people, for good or nefarious reasons, who want to use cash,” Doug Johnson, vice president for risk management policy at the American Bankers Association, tells the Times.
So while Keynesians see cash hoarding as evil, government and bankers believe those using cash are up to no good.