Cash is Only for Criminals
We always try to keep an eye on the pronouncements of establishment-approved intellectuals, especially economists and pundits connected with the welfare and warfare rackets. The ruling elite regularly employs them to launch trial balloons concerning its plans. Today's intellectuals are mainly concerned with promoting establishment propaganda, often engaging in fake 'pro and con' debates, with the 'compromise solutions' that are then offered revealing what the real goal was in the first place. As Hans-Hermann Hoppe points out:
“[…] insofar as today's intellectual output is at all relevant and comprehensible, it is viciously statist. There are exceptions, but if practically all intellectuals are employed in the multiple branches of the State, then it should hardly come as a surprise that most of their ever-more voluminous output will, either by commission or omission, be statist propaganda.”
For instance, there is now a movement underway to decriminalize drugs. As the Daily Bell recently noted, the effort has recently been expanding to include all 'entertainment drugs', even 'hard' ones. While this is as it should be (what people want to ingest should be none of the State's business), there has to be an ulterior motive driving this promotion. One guess we have come up with is that the goal is to disempower the currently active criminal drug cartels and transform their illicit and untaxed profits into taxed profits that are earned by large pharmaceutical companies and/or other licensed enterprises. Very likely obtaining a license will eventually become so onerous that only big business can afford to actually pursue this opportunity, in keeping with the current state-capitalistic system. This is only one of the possibilities though. There are other goals that may be pursued, such as the 'panem et circenses' aspect. According to the definition of the term at wikipedia:
“In the case of politics, the phrase is used to describe the creation of public approval, not through exemplary or excellent public service or public policy, but through diversion; distraction; or the mere satisfaction of the immediate, shallow requirements of a populace, as an offered 'palliative'.”
Or putting it into context with modern times: grant the serfs a little bit of liberty in one area, while concurrently taking away a number of liberties in others. One of the liberties that has been under heavy attack in recent years is financial privacy. We encourage readers to check out this article at Casey's about FATCA's ugly step-child GATCA. After reading this, remember the IMF's proposal for a giant wealth grab in developed nations to 'fix' the insolvency of governments. It all fits very neatly.
And here comes Harvard economist Kenneth Rogoff, promoting the idea that cash currency needs to be made illegal, in, where else, the Financial Times. Readers may recall that we have previously discussed this topic in the context of Sweden (see: “Sweden Discusses Cash Ban”), where cash has almost disappeared by now and politicians and banks are actively promoting its complete abolition.
As we have argued at the time, it is an erosion of liberty under the cover of increasing 'safety' – a well-worn étatiste tactic. Not surprisingly, Rogoff is inter alia making the argument that 'mainly criminals' use cash, especially drug barons. This fits neatly with everything else discussed above: there is quite a drive underway to destroy all vestiges of financial privacy, and numerous promotions have been launched to make the idea palatable to the hoi-polloi. The 'inequality' debate belongs with these promotions just as this latest attempt to implant the meme that cash is somehow inherently evil.
A pile of cash confiscated from a Mexican drug kingpin. See? What more proof do you need? Only criminals use cash!
(Photo via dict.mil / Author unknown)
We Need to Abolish Cash to Enable Better Central Planning
However, this is not the only argument Rogoff drags up. Similar to many other Chicago School monetarists, he is actually a “left-fringe” (Hoppe) statist, who is merely occasionally masquerading as a supporter of the free market. Monetarists are all for central banking, the very cancer that lies at the heart of the current state-capitalistic, anti-free market system. Rogoff wants to “kill two birds with one stone”. He writes:
“Has the time come to consider phasing out anonymous paper currency, starting with large-denomination notes? Getting rid of physical currency and replacing it with electronic money would kill two birds with one stone.
First, it would eliminate the zero bound on policy interest rates that has handcuffed central banks since the financial crisis. At present, if central banks try setting rates too far below zero, people will start bailing out into cash. Second, phasing out currency would address the concern that a significant fraction, particularly of large-denomination notes, appears to be used to facilitate tax evasion and illegal activity.
In other words, when central planners decide to expand their war on savers further, and outright theft in nominal as well as merely in real terms is to be implemented, the average citizen must not have any opportunity to save his hard-earned money from the insane designs of these 'wise men'.
And evidently, the best way to persuade J6P to agree is by pointing out that cash currency is the sole preserve of 'tax evaders and other criminals'. So are there any arguments against the idea? Why, yes, chiefly among them the fact that the State may lose its 'seignorage' income!
“Yes, there are some important arguments in favour of the status quo. These include a likely loss of seigniorage revenue – the profit central banks make by printing money – even if anonymous paper currency is replaced with purportedly anonymous electronic government currency. Even though central bank “profits” are turned over to national treasuries, the ability to skim off expenses without having to beg can help insulate central banks from political pressures. But the real costs to governments would be much less than the loss of seigniorage revenues might indicate, because they would gain revenue by making tax evasion more difficult. There would also be savings from crime reduction.”
The great advantage would of course be – even though Rogoff doesn't mention it – that just about any onerous tax rates could then be imposed. Currently governments that impose too high tax rates are faced with the fact that a lot of economic activity promptly disappears into the 'shadow economy', as this is often the only way people can maintain a reasonable living standard. Thus cash is actually a natural brake against government greed. Rogoff has no problem with removing it. But wait, it gets even better – he even mentions marijuana outright, confirming once again that pot legalization is indeed an elite promotion:
“Another issue is that society may want to preserve the right for individuals to make anonymous payments in certain activities, even if it is desirable to strip away the cloak of anonymity from those engaged in tax evasion and crime. Anonymity, for example, facilitates experimentation at the fringes of society with activities that might ultimately become legal (buying marijuana, for instance).”
Does anyone believe even for a second he would have said this five or ten years ago? But he soon returns to his major point: namely, how without cash, central bankers can better implement their kooky theories and enable theft on a grand scale. He approvingly cites Willem Buiter in this context. Readers may remember that Buiter in turn became conspicuous during the crisis by promoting the ideas of complete monetary cranks like Silvio Gesell:
“The idea of finding creative ways to get around the zero bound on interest rates has been championed for more than a decade by Willem Buiter, a former UK Monetary Policy Committee member. Phasing out paper currency is by far the simplest. With electronic payments mechanisms becoming increasingly prevalent even in small transactions, and with the supply of paper currency overwhelmingly top-heavy with large-denomination notes, the case for keeping the currency status quo has weakened.”
“Getting around the zero bound” of course means the imposition of penalty rates on all cash and savings deposits in order to force people to spend. This idea is based on extremely bad economic theory. It is held that economic growth is the result of 'spending' and consumption. This is patently not the case, in fact, it is the functional equivalent of trying to keep warm by burning the furniture.
Moreover, there can be no such thing as a 'negative interest rate' in real life. The originary interest rate must always be positive, lest people would never consume. There is no such thing as 'negative time preference'. What these Gesellian ideas promoted by Buiter (and now Rogoff) ultimately amount to is expropriation.
Silvio Gesell, a veritable monetary crank. Keynes approved of his loopy ideas (natch), and so do Willem Buiter and now evidently also Kenneth Rogoff.
(Photo via Wikimedia Commons)
“True, it is likely that a significant share – perhaps half – of dollars and euros circulates internationally. Some portion of this is surely abetting illegal activity and tax evasion. (In arresting Joaquín “El Chapo” Guzmán, the Mexican drug lord, two months ago, authorities found a room containing more than $200m, and this was not a first.) Then again, dollars and euros, including large-denomination notes, are also used for legal purposes. Even so, there still appears to be a very large share circulating in domestic underground economies, estimated to be at least 7-8 per cent of gross domestic product for the US and considerably higher for Europe.”
After skilfully reminding us that mainly criminals use cash (while grudgingly admitting that 'some' cash may actually be employed in perfectly legal ways), Rogoff comes back to the crux of his jeremiad: the State must be enabled not only to engage in more effective central panning but also to more effectively tax the citizenry into oblivion, by cutting off all routes to escape (not to mention that at some point in the future, this may make it even possible to simply 'erase' the finances of undesirables at the push of a button).
So what about Europe's large 'shadow economy' (we happen to believe that Rogoff underestimates the size of the US shadow economy and that the official estimates of the size and importance of Europe's shadow economies are probably also far too low). Europe's economy would very likely implode without cash. Living standards would definitely plummet, as being able to afford handymen, cleaning personnel, etc. at 'official' rates that include the onerous tax burden would become the exclusive preserve of a small moneyed elite.
But an even more pernicious effect is precisely that people could no longer get their money out of the banking system. There could no longer be any bank runs – people would be forced to entrust their money to fractionally reserved banks whether they want to or not. One would no longer be able to remove oneself from what is an inherently insolvent system. After all, only a small proportion of the demand deposit liabilities of fractionally reserved banks is actually backed with standard money. The vast majority consists of fiduciary media, which are money in the broader sense, but are at the same time only imaginary numbers in accounts. The banks could not possibly pay out but a fraction of the sight deposits on their books, in spite of the contractual promise that all of this money is available on demand.
A Possible Consolation
The economy always finds ways to circumvent dictatorial edicts. In that sense there may be a silver lining to all of this. Abolishing cash may well hasten the demise of the current monetary system, as the shadow economy would quickly adopt alternative media of exchange. Very likely precious metals, bit coins and other non-state forms of money would be increasingly employed. If government scrip were abolished, we may well see gold and silver coins begin to circulate again.
The money the free market would likely adopt in the absence of government coercion, and which the 'shadow economy' may well adopt if cash currency were to be abolished.
(Photo source unknown)
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8 Responses to “Meet Kenneth Rogoff, Unreconstructed Statist”
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