Wednesday, February 24, 2016

The War On Cash: A Further Look At The Dynamic

     At the 1987 California State Libertarian Party convention, legendary Austrian economist Murray Rothbard was asked for his opinion of the then-current discussions about making all paper currency digitally readable and writable. Dr. Rothbard immediately zeroed in on the underlying intention: the effective elimination of cash.

     Say what? But isn’t paper currency “cash?” It’s what we use in routine, day-to-day transactions, without the need for an intermediating financial institution to perform the transfer. How would it cease to be “cash” if it merely became possible to write a readable transaction trail onto it?

     Dr. Rothbard noted that one fundamental property of cash is its anonymity. A medium of exchange that carries a record with it is the reverse of anonymous: it can be made to testify to where it’s been and for what it was used. Once all currency was so equipped, the federal government could mandate that all new “cash registers” be equipped with the technology to write and read the embedded record. Then as now, the rationale was “to impede criminals,” especially drug dealers.

     Furthermore, such currency would have a built-in invalidation period. When the embedded record was full, such that no additional transactions could be recorded on it, the holder would be required to exchange it for a fresh note at an authorized facility. Thus, the government’s control of all financial transactions would be ironclad, impossible to escape.

     That was 1987, Gentle Reader. Before the civilian-accessible Internet. Mobile phones were analog only; cell phones were still being developed. The “PDA” was a pathetically limited item, no more than a digital notepad. And the writing was already on the wall.

     Just as governments strive to do everything in secret, they strive with equal fervor to eliminate the privacy of their subjects.

     Privacy – alternately, anonymity – is what makes it possible for Smith and Jones to transact without the State knowing about it. It makes it possible for Smith to keep all knowledge of his liquid assets to himself. Cash of the traditional, impossible-to-trace sort facilitates the export of one’s wealth to a place far from the State’s reach. That’s why the federal government has imposed export controls on American currency. God help you if you’re discovered trying to leave the U.S. with a large amount of cash; you’ll be treated more roughly than any suspected terrorist.

     Today’s First World countries are heavily festooned with monitoring devices: cameras, microphones, cell-phone-tracking systems, taps on Internet backbone traffic, and so forth. Micro-seismic detectors listen to the rumble in our streets. Satellites equipped with optics of phenomenal resolution watch us from orbit. Everywhere we go, we’re identified, traced, and followed by the all-seeing eyes of the Omnipotent State. Only in our hand-to-hand dealings in the most cloistered of locales do we enjoy any privacy at all. Is it any wonder that those who worship power are so determined to deny all possibility of financial privacy to us who want only to be left alone?

     “But criminals!” You’ve heard the cry. It’s almost as constant as “For the children,” and even more specious. Consider the current foofaurauw over the cell phone the FBI has demanded that Apple unlock. Why? Because it might provide a lead to a possible third party to the mass shooting in San Bernardino a couple of months ago. The precedental power of compliance by Apple is difficult to overstate.

     We have here another case of that most vicious of legal canards, "compelling government interest." This time, it appears not to be sufficient. Too many people are aware of the range of their activities that would subsequently be monitorable...and far too many people have a compelling interest of their own in keeping a substantial part of their affairs entirely private.

     That desire for a private space in which individuals can transact without fear of prying government eyes is strong enough to reinvent cash, should the valueless cash foisted upon us by the Federal Reserve System be shorn of its anonymity.

     The reinvention of cash will require both determination and trust. As any new cash won’t be “legal tender,” which the seller is required by law to accept “for all debts, public and private,” any new cash will be required to have some of the properties of a commodity money:

  1. Valued for their intrinsic properties;
  2. Easily recognizable;
  3. Difficult or impossible to counterfeit;
  4. Durable under use;
  5. Relatively stable in quantity;
  6. Divisible into very small quantities without degradation.

     The traditional money metals – gold, silver, and copper – possess all those qualities. For hand-to-hand transactions between strangers, all of them would be highly desirable at the very least. Should the transactors know and trust one another, qualities 1, 2, and 3 would remain absolutely required, while the others would be of less importance.

     It’s unlikely that a single “standard cash” would arise swiftly after the Fed’s destruction of the privacy of its notes. More likely, there would be many “local cashes,” perhaps a few “regional cashes,” for a long time afterward. There would also be a great deal of barter, unmediated by cash of any sort. Some items that would start out as common barter would be “promoted” to the status of a cash: ammunition in the most common calibers has frequently been mentioned in this connection.

     The one thing of which we can be sure is the dynamic: the desire of millions of Americans for a zone of privacy in which they can transact without notice by the State.

     Americans’ most important protection against the State is the State’s own nature: its predictability and the stupidity of its adherents. A slice of an underappreciated novel from one of the greatest of contemporary storytellers has much point:

     Rammaden, the safecracker, had told an amusing story about two thieves who had broken into a supermarket one Friday night when they knew a snowstorm had kept the Wells Fargo truck from arriving and taking the heavy end-of-the-week receipts to the bank. The safe was a barrel box. They tried to drill out the combination dial with no success. They had tried to peel it but had been totally unable to bend back a corner and get a start. Finally they had blown it. That was a total success. They blew that barrel wide open, so wide open in fact that all the money inside had been totally destroyed. What was left had looked like the shredded money you sometimes see in those novelty pens.

     “The point is,” Rammaden had said in his dry and wheezing voice, “those two thieves didn’t beat the safe. The whole game is beating the safe. You don’t beat the safe unless you can take away what was in it in usable condition, you get my point? They overloaded it with soup. They killed the money. They were assholes and the safe beat them.”

     [Stephen King, Firestarter]

     Should our political masters “kill the money” in the currently anticipated non-explosive way, they’ll have pitted themselves and their monolithic coercive skills against the ingenuity and determination of millions of Americans determined to preserve what remains of their privacy. One lumbering Goliath will face off against millions of small, quick, inventive Davids, each with a sling of his own choosing.

     Which way would you bet, Gentle Reader?


Tim Turner said...

Within the past 3 days, I've now read 3 articles talking about how experts want to get rid of 500 Euro notes, the $100 bill and maybe more. And yes, it's supposedly to make things "more difficult" for drug dealers and others who want to "wash" money.

As Karl Denninger has pointed out, it's amazing how often government wants to punish law abiding citizens in it efforts to stop criminals - above and beyond the laws government passes against criminality.

Six weeks ago, when I first read a couple of articles about op-ed pieces that advocated getting rid of fungible cash, I mentioned it to my wife. She thought I was crazy. She hates to talk politics with me, though she watches hours of MSNBC every night.

When my dad died, I was left a $17,000 bequest. The bank held it up for 10 days to go through a Federal program designed to catch drug dollars. I have to report on my federal tax forms the exact $ amount I have invested in gold on a Swiss exchange.

For all the man-hours the IRS and other agencies spend on my petty stuff (and others like me) is there any doubt that the real criminals are moving billions? Given human nature, is there any doubt that all those bureaucrats are thinking, "How can I track and profit off of all that money?"

At some point, the bureaucratic mind sees ALL transactions as "illegal," in the sense that they are transactions between private individuals who aren't paying their share of baksheesh (a Persian term, btw.)

We've truly not only gotten to the point that what government doesn't allow is illegal, but what government can cast suspicion upon is cause for more government.

Malatrope said...

I'll bet a case of 7.65x54R that people will carry on, with or without a government.

Dystopic said...

A cashless economy has been the wet dream of statists for as long as I've been alive. But not just for the reasons you've stated (which are nonetheless all true).

They also dream of the power to be wielded by forcing all money to be at the bank. They could institute a negative interest rate -- effectively a tax on savings -- and force spending. Keynesians greatly desire this. It would allow them to keep the welfare & debt gravy train going a lot longer.

Olddog said...

In addition to the government's negative interest and tracking there is a potential for "conscience fees" imposed by the bank/custodians and a transfer tax collected by the government. Wanna pay a tax every time you hire someone, or a neighborhood kid to do some yard work or shovel the driveway?

Olddog said...

That should have been "convenience fees."

Anonymous said...

It is being tested NOW:

Anonymous said...

When there is no cash, there is only electrons. Once there's no medium of exchange, well, just like health care exchanges, why not "make everyone empowered and equal" by demanding that banks provide ruinous services or move customers to a government-run bank?

Consider, then, the OMB and the IRS, and how security for them is an afterthought. Even if you assume the most benevolent bureaucrats at every level... all there needs to be is one slightly skilled hacker (let alone the State-sponsored teams in China, Russia, et al) and there goes all your money.