Day 25: Cash
Let’s talk about MONEY
The first evidence of the use of numbers by humans is believed to have been for the purposes of accounting. Counting grain, wine, sheep…things that have value.
The first evidence of “money” varies around the world, from cowry shells to precious stones and metal. And of course alongside money and or valued goods, comes systems of economic exchange, such as barter, gift-based economies and other ways to redistribute wealth, such as the potlatch.
Some systems have been symbolic. Cowry shells would fall into this category. One cannot eat a cowry shell nor do much else with it, besides, collect it or exchange it for goods. Other systems, such as coinage have actually been based on the value given precious metals. Although one cannot eat gold, humans do value the jewelry and or other luxury goods that can be forged with gold.
For as long as people have been counting and participating in economic systems, money has essentially retained value in a physical form. When the United States government first started printing paper money, it was linked to the gold standard. The Federal Reserve was supposed to maintain a reserve of gold equivalent to the value of money printed. However, in the last 100 years, we have seen two significant changes to our monetary systems. In much of the world, the cash-based economy is no longer linked to an actual gold standard. And, the amount of “money” in circulation is not actually the same as the amount of money that has been printed. Banks in the US for example, only need to actually have $10 in their coffers to loan out $100. So instead of having a gold standard, you could argue that we now have a debt standard.
Credit aka Debt
The system of credit essentially creates both debt and money at the same time. Despite politicians’ perpetual campaign to “reduce our debt” the growth of American and European economies is in fact based on the creation of debt. Banks make money by indebting their customers. Countries make money by exchanging their debt. Franc, for example, is not allowed to borrow from itself or it’s on federal reserve. If France wants money, it must borrow it on an international exchange. And pay interest.
You and I are told to make money by investing in businesses, buying property or playing the stock market. All risks that if done right, will theoretically allow us to pay back the banks and grow our assets. This, of course, works when we are both careful and risk takers. What?
As we have seen over the last century our economic system is built on risk and trust. We must have faith in our financial systems and our financial system must have faith in us. The risk is, of course, scarier to an individual than to a bank. Banks don’t have to feed their kids (although the people that work for them do). To alleviate this risk, individuals are advised to diversify their investments. Retirement accounts, buying property, personal savings. Emergency cash kept somewhere accessible (shoebox, mattress, personal safe).
Personal Freedom & Independence
Gold, actual cash (aka liquid money) is often preferred by those who have lived through some sort of financial crisis. I have several friends who always carry gold coins on them, a habit taught to them by their parents, because of their personal experiences as children during WWII. My mother’s family was for many years relatively conservative with their usage of banks because my grandfather’s family lost their farm and all their money in the 1920s crash.
Sometimes we study economic systems in school. Sometimes we talk about them amongst friends or family, but mostly we just pay attention to the state of our personal bank accounts. We like the convenience of credit cards and online banking. We personally use cash less and less. When politicians suggest that it would be easier for everyone to move to a purely electronic banking system, we think that might be kind of cool.
But what does this look like in reality? What would the world without cash be like? One argument in favor of electronic funds is that it is traceable, so it is harder for criminals to launder money or for people to hide income and evade taxes. Although, international companies seem pretty adept at the moving and hiding of income and funds, in a manner that would be inconceivable to an ordinary citizen.
In France, if you buy something valued at more than 300 Euros it is illegal to pay in cash (it was previously limited to 3000 Euros). And, in France, if you have a job or if you participate in any aspect of the economy, you must have a bank account. Nothing official is done by cash. Nothing. The argument against cash is that law abiding citizens have nothing to worry about; however, what happens when the banking system is hacked? What happens when your bank servers go down? What happens when a malicious president is elected?
In addition, in France, if you keep cash in your house, by law you must declare how much liquid cash you have in your possession. If you are found to keep cash that is not declared to the government, you can be arrested and your cash can be confiscated. The French used this rule a few years ago to reign in the comedian Dieudonne. They couldn’t get him on Freedom of Speech, so they confiscated his money and arrested him for having it in his home. Arrested for possession of liquid cash. Not drugs. Not prostitutes. His own money.
Implications of Electronic Money and the end of Liquid Funds
What are the consequences of our dependence on the convenience of electronic funds? And whom does it really benefit? Are individual citizens actually coming out ahead?
Banks make money every time an electronic transaction takes place. Banks don’t make money when individuals exchange cash.
Banks make money when individuals deposit their money in a bank. Banks don’t make money when we keep our money in a safe at home.
Banks (and investment advisors) argue that if you keep your money in a bank it will grow, whereas keeping it in your mattress it just loses value.
This last statement was true for many years, but have you watched interest rates for the last decade? In the United States for the last 10 years, interest rates have hovered at under 1%. At the same time, inflation in the USA has consistently been over 1.6% and up to 4%, so frankly, after you pay bank fees, it is quite possible that for the time being, your money is better kept under your mattress or in a shoebox at the back of your closet.
I am out of time for the day, so I’ll just leave this last fact here for you to ponder.
If you bought $836.50 of gold in 2007, it is now worth $1060.00 in 2017.