Keeping your hard-earned wealth is hard. The state wants most of it in taxes. A couple of weeks ago I explained how socialists use randomness to steal your wealth. Now economists want to use a cashless society to take it.
The real issues involve the ability to use monetary policy to (1) stabilize the economy, (2) issue credit in response to financial crises (act as lender of last resort), and (3) be able to inflate the price level in an emergency where it is necessary to engage in partial default (in real terms) on government debt. To achieve these ends effectively, it is extremely helpful for the government to control the unit of account and the currency to which most private contracts are indexed.
If the world ends up on a private-sector currency standard, and there is a run on banks, who is going to bail out the banks?
It is critical that the government be able to draw on large pools of liquidity in the event of a war, pandemic, or other crisis that creates large unexpected short-term funding needs.,,On top of dealing with outright catastrophes, a country that does not control its own currency is unable to use modern monetary stabilization policy.
It his summary at the end of the book Rogoff doesn’t mention fighting crime, but he devotes “Chapter 5: Currency demand in the underground economy,” to the problem. He assumes that drug cartels and other criminals finance their operations with $100 bills, so getting rid of the currency would make life easier for the army of drug enforcement officers.
To the likes of Rogoff there are almost no negative side effects to a cashless society. He mentions the loss of income to the state from printing money, but considers that a minor issue. In his introduction he allows one objection that most liberty-loving people will find important:
After a lecture I gave at Munich University in 2014, former European Central Bank board member and chief economist Ottmar Issing strongly took issue with my views and commented that paper currency is “coined liberty” (a nod to Dostoyevsky’s House of the Dead) that must never in any way be compromised. My aim in this book is to take these objections seriously, seeking where possible to ask how one might mitigate them.Of course, those who love freedom said that the gold standard was coined liberty, which is why politicians hated it. Rogoff promised to respond to Issing’s objection on the basis of freedom, but I never found it in his book. Rogoff’s attitude should frighten all Americans. He seems to think the people exist to provide for the state and not the other way around. And the state’s wishes are all important; nothing else matters.
While reading Rogoff’s book, I couldn’t help hearing the voice of FDR who cheated citizens that bought bonds to finance the US entry in the war in 1918 by annulling the gold clause and forcing them to accept paper money that was worth much less, and then made criminals of all decent citizens who dared to own gold if they didn’t sell it to him at a ridiculously low price.
With a similar attitude, Rogoff deflates enthusiasm for Bitcoin and gold by asserting that the state will eventually control Bitcoin and has already passed regulations that negate some of its benefits. The state already forces gold dealers to tattle on every sale greater than $600.
As for the claim that central banks stabilize financial markets, mainstream economists would rather stick a hot poker in their eyeballs than see the historical facts that central banks destabilize economies. In the US alone, the two worst financial and economic crises in the nation’s history happened after the birth of the Fed – the Great Depression and the Great Recession. Nothing similar happened under the quasi-gold standard. The Bank of England has an excellent paper on the history of monetary systems and gives the gold standard to, well, the gold standard.
One of the reasons for the intense hatred of cash on the part of mainstream economists is the failure of negative interest rate policies in Europe and Japan since the Great Recession. Instead of encouraging spending, those policies have pushed people to save more.
At least Rogoff admits in number three above that inflation is the preferred means of default on debt by governments. It has been since WWII because most people are oblivious to inflation’s effects on their wealth unless it reaches double digits. Here are some other things Rogoff should consider:
Most poor people in the world use the $100 bill to protect their savings from their own corrupt governments who destroy the value of their domestic currencies, as Venezuela has done. Eliminating that bill would devastate poor people around the world.
Financial repression rarely hurts criminal organizations. The Feds have tried it since the Great Depression with almost no effect. They have deputized banks and forced them at gun point to spend billions of dollars tracking cash movements in the hopes of stopping money laundering, but the cartels are more successful than ever. There are rumors that cartels are using Levi’s blue jeans as money, buying them in the US with proceeds from drug sales then selling them in their home country for an additional profit on the jeans. Organized crime has always outsmarted bureaucrats and always will. After 40 years of the “war on drugs,” the trade is larger and more lucrative than ever. The only way to reduce the crime involved in the drug trade is to legalize most of the drugs.
The financial repression that Rogoff campaigns for will greatly benefit the free (what Rogoff calls the underground) market. Being an economist, Rogoff should know that there is a direct and positive correlation between financial repression and the size of the free market. Out of no motive but self-defense, people will buy gold and silver on the free market in alleys and on country roads and exchange it for goods in a similar way.
The cashless society is coming, eventually, because politicians lust for that power and mainstream economists want to please their bosses. We can let them steal our wealth or protect it by buying gold and silver in small amounts from legal dealers. However, if the politicians discover that you have made a series of purchases just under the reporting limit, they can (and have) charge you with the criminal activity of trying to avoid the law.
Ultimately, the free (underground or black) market will be our only salvation, as it was in communist countries for decades.