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.
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Credit cards/Debit cards are a great convenience. I have serious doubt that world will ever go back to a 100% reserve gold standard ever, even if market anarchy came to bear. Even plastic will make way for electronic wallets using NFC payments.
http://news.cnet.com/8301-1023_3-20070015-93/nfc-mobile-payments-could-hit-$50-billion-by-2014/
These are generally good developments.
credit cards and gold standard are not mutually exclusive items.
May be not. However to be 100% backed by gold, every time money moves from account in bank to an account in another, gold will have to move as well. The only scenario where this will not be the case I can think of is when net transfers between banks is always zero. it will be even more difficult to handle the logistics of international transactions on credit card. Foreign exchange fees, I have found, to be lowest for credit card transactions. What will get transfered when you do an electronic fund transfer under a gold standard?
” every time money moves from account in bank to an account in another, gold will have to move as well.”
That’s not true. Clearing houses and credit (to smooth out variations) can remove much of the physical movement of metal. If the net change is a small percentage of the total volume of transactions, then shipping costs won’t play a large part.
Nate-m is right.
The idea that the use of credit cards would prevent a 100% gold standard from returning is a non sequitur argument.
Where I come from, it’s still the mark of a classy restaurant if it only accepts cash.
One wonders what would happen if the government did stop making cash? Perhaps they would open up an entreprenurial opportunity for private cash?
Looking through history it’s obvious that money started off being created by private activity. Governments had nothing to do with the creation of money.
Instead what happened was that governments took control of money and standardized it in order to (firstly) tax effectively and (secondly) to manipulate it. It was a common occurance, even with Gold currency, to devalue money.
For example: When a New King was put in office they would require all the money in the land to be reforged into the likeliness of the new king. (or some other major event that allowed the excuse of creating new money). You gave the government 4 gold coins to be re-struck and you’d get 4 gold coins back… however the gold coins you got back weighed slightly less then the ones you dropped off.
The government kept the difference and used that to strike new coins.
Of course with abandoning of the gold standard in 1970′s our government has given up all pretense of having a stable money supply. So now they can manipulate currency valuations to their hearts content with no practical restrictions on spending.
If the USA Government decided to stop threatening to kill anybody who wanted to make their own money then it would just go back to what it naturally would be: commodity money. Like Gold or Silver or maybe something else. Whatever the market is willing to accept.
Maybe we reached enough level in accounting technology that we can track the relative values of various commodities without having to need a intermediate commodity to serve as a common medium of exchange for everything. I can imagine people on the stock market trading stocks directly for bonds or commodity futures or whatever based directly on relative value rather then Gold or some other solid currency.
Looking through history it’s obvious that money started off being created by private activity. Governments had nothing to do with the creation of money.
Sure. All I’m saying is that in the rush to a cashless society, some private activity could slip through the cracks.
Well then I mistook your statement then.
In that light the answer to the second question….
No. If they you try to make your own money then the government will throw you into a concrete cage or, failing that, kill you.
Dave Ramsey pushes cash, and I like using it. When the cash is gone, the dancing stops.
OK,lets say I have an Etrade accnt. In that account I hold 1000 shares of GLD.
Ok, this accnt offers me a debit/credit card.
I go to the store, buy a frozen pizza and am charged $8.00. This is debited from my accnt. GLD is at $104.00. the next day, same thing but GLD is at $106.00. Debit is less in terms of GLD.
Have I not put myself on the gold standard? And cashless to boot????
Yes, but you have Cap Gains taxes, and the requirement to convert to USD
ok, but I’m gonna play the “externalities” card!
More or less.
Except every trade is going to cost you. 10 dollars per trade. In addition to that you have to pay taxes on any gains.
You’d win if there was hyper inflation. But if too many people do it then the government will simply break the system. Make it illegal for private individuals to own gold or just screw it up somehow. I wonder how trustworthy giving money to ‘SPD’ actually is.
It’s a lovely idea though. Worth doing more research on.
ok, well, if I liquidate my GLD in $500 – $1000 chunks, the $10 starts to look like an ATM fee.
As for the cap gains, well there’s the rub. Oh, wait, didn’t I mention my new Irish citizenship and the Cayman Islands account???
N.B. IRS snoops – I’m KIDDING!!
Bitcoins
The place I normally go to fix my bike does not take plastic.
I love it!
Cash greases the wheels of the underground economy. Once a benjamin leaves the Treasury it is much harder for weasels and creeps to monitor than are plastic, paper or bit coins. If one accumulates more than needed to meet consumption requirements, benjamins can be converted to gold eagles to avoid theft by inflation. In the past ten years or so, that has been a pretty good investment and saving strategy.
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