When asked what he thought the future might look like, George Orwell said “imagine a boot stamping on a human face—forever.”
Not exactly a cheery thought, and one I don’t agree with.
While the forces pushing for centralization of power have been prevailing for decades, they haven’t won a total victory yet. Technologies that empower the individual and that tend toward decentralization—including the Internet, encryption, 3D printing, and cryptocurrencies—offer a powerful ray of hope, reasons to be optimistic about the future.
So the tug of war between the collectivists and the rest of us continues.
One thing that would tip the scales heavily in favor of the collectivists would be victory in the War on Cash. Their goal is to eliminate the use of hand-to-hand currency, so that governments can document, control, and tax everything.
It’s exactly like what Ron Paul said: “The cashless society is the IRS’s dream: total knowledge of, and control over, the finances of every single American.”
One way they are waging the War on Cash is to lower the threshold at which reporting a cash transaction is mandatory or at which paying in cash is simply illegal. In just the last few years…
- Italy made cash transactions over €1,000 illegal;
- Switzerland has proposed banning cash payments in excess of 100,000 francs;
- Mexico made cash payments of more than 200,000 pesos illegal;
- Uruguay banned cash transactions over $5,000; and
I recently spoke about this with Dr. Joe Salerno, an Austrian economist with the Mises Institute. Joe is the best chronicler of the global War on Cash and is here to offer an Austrian rebuttal to the economic nonsense peddled by advocates of this war.
I am happy to bring you his informed insight.
Until next time,
Questions or comments? Send them to firstname.lastname@example.org.
Nick Giambruno: What is the War on Cash?
Joe Salerno: The War on Cash is the attempt by governments to phase cash out of their economies. Governments hate cash because they hate the financial privacy cash makes possible. And they prefer that you keep your money in a bank to help prop up an unsound fractional reserve banking system.
Nick: How did you get interested in this topic?
Joe: I noticed that every time there was a war on something—a war on crime, a war on drugs, a war on terror and so forth—the more the government encroached on financial privacy. The US government has long been waging a hidden war on cash.
One symptom of the war is that the largest denomination of US currency is the $100 note. US currency used to be issued in denominations running up to $10,000 (including also $500; $1,000; $5,000 notes). The US government stopped printing large denomination notes in 1945 and officially discontinued their issuance in 1969, when the Fed began removing them from circulation.
Since then, the largest currency note available has a face value of $100. But since 1969, the inflationary monetary policy of the Fed has caused the US dollar to depreciate by over 80%, so that a $100 note today has less purchasing power than a $20 bill in 1969.
So in addition to lowering the nominal size of the largest bill, they also reduced the bill’s purchasing power through inflation.
Despite this enormous depreciation, the Federal Reserve has steadfastly refused to issue notes of larger denomination. This has made large cash transactions extremely inconvenient and has forced the American public to make much greater use than is optimal of electronic-payment methods. Of course, this is precisely the intent of the US government.
Nick: Looking around, what are the latest examples of the War on Cash?
Joe: One right here in the United States occurred in 2011. It flew under the radar for a while. The State of Louisiana banned “secondhand dealers” from making more than one cash transaction per week. The term has a broad definition and includes Goodwill stores, specialty stores that sell collectibles like baseball cards, flea markets, garage sales and so on. Anyone deemed a “secondhand dealer” is forbidden to accept cash as payment. They are allowed to take only electronic means of payment or a check, and they must collect the name and other information about each customer and send it to the local police department electronically every day.
Nick: What about Europe?
Joe: In France recently, the limit on cash transactions was lowered from €3,000 to €1,000. The reason given was the attacks on Charlie Hebdo. It turns out that those attacks were financed in part by cash. Well, what a big shock that criminals use cash to finance their operations. They also use, of course, public sidewalks and automobiles, they buy clothing and so on. So this whole thing is ridiculous. It’s just a way of obscuring the government’s true goal, which is to get rid of financial privacy. Governments don’t really think that by lowering the limit of legally allowable cash payments that it’s somehow going to cut down on terrorist attacks. That’s just the narrative we’re given.
Nick: What is the mindset of someone who would advocate the elimination of cash?
Joe: Let me give you an example. Recently Willem Buiter—a prominent economist for Citibank—came out with a proposal to abolish cash. The reason is to enable the Fed to push interest rates into negative territory. He suggested that we could have avoided a lot of the problems with the financial crisis if the Fed could have set the interest rate at negative 6%.
But of course the availability of hand-to-hand currency would get in the way of that plan. People would say “I’m not going to put my money in the bank and have them take 6% every year.” They would avoid the bite of negative interest rates simply by holding hundred-dollar bills.
This really shocked me, that a prominent economist would make a case for abolishing cash, so that the central bank could set interest rates at a negative level. This is really crazy thinking, but it’s their mindset. It’s nuts.
Nick: Harvard economist Kenneth Rogoff made a similar argument. Did you hear about that?
Joe: Yes, I did. In fact, Buiter took his cue from Rogoff. But there are a number of hyper-Keynesian economists who want to remove all barriers to negative interest rates, so that you’ll hurry up and spend whatever cash you have. But the only way they can do that is to corral everyone’s money in to the banking system.
It’s absurd, and they’ve gone way beyond Keynes with this craziness.
Nick: It reminds me of how Paul Krugman advocated for faking a space alien invasion as an excuse for the government to waste money on countering it. Or how he later supported minting a trillion-dollar coin. The real scary part is that he—and his juvenile solutions—are taken seriously by many people. Krugman, Buiter, Rogoff and their ilk have the government’s ear, they are presented respectfully by the mainstream media and are given Nobel prizes in economics. How do people not see what they are advocating, like eliminating cash, as transparently totalitarian?
Joe: I think that harkens back to the progressive era, from 1900 or so to the end of World War I. Government-employed experts supposedly were disinterested and dispassionate and would apply their knowledge and skills to do what was best for society. They would be the technocrats.
That’s how they pulled the wool over the American people’s eyes, by saying, well, you know, we are fixing the economy’s problems. This has nothing to do with politics. This has nothing to do with totalitarianism. We are trying to make the economy better for you and for everyone else.
That was just a bunch of nonsense, and it still is. People who believe it are still living in the 1930s, always worried about deflation, rather than worrying about thereal problem, which is, of course, the Fed’s monopoly control of money and the inflation the Fed promotes.
Nick: What is the response of Austrian economists to this way of thinking?
Joe: Fortunately, the free market provides the prospect of an escape from the fiscal police state that seeks to stamp out the use of cash through either depreciation of central-bank-issued currency combined with unchanged currency denominations or direct legal limitation on the size of cash transactions. As Carl Menger, the founder of the Austrian School of economics, explained over 140 years ago, money emerges not by government decree but through a market process driven by the actions of individuals who are continually seeking a means to accomplish their goals through exchange most efficiently.
Every so often history offers up another example that illustrates Menger’s point. The use of sheep, bottled water, and cigarettes as media of exchange in Iraqi rural villages after the US invasion and collapse of the dinar is one recent example. Another example was Argentina after the collapse of the peso, when grain contracts priced in dollars were regularly exchanged for big-ticket items like automobiles, trucks, and farm equipment. In fact, Argentine farmers began hoarding grain in silos to substitute for holding cash balances in the form of depreciating pesos.
Austrian economists would think that the War on Cash is really absurd and unscientific. We would say, allow people to choose the form of payment they want to use, whether that be cash, gold, debit card, or something else. We want to remove all barriers to people using different kinds of currency, take all excise taxes, sales taxes, capital gains taxes off gold and silver and off foreign currencies. And also get rid of all legal tender laws. You can keep the dollar in existence, but allow people to use currencies that compete with the dollar.
So we want to move in the exact opposite direction from abolishing cash. In fact, we want to encourage people to withdraw money from banks they don’t trust. Fractional reserve banking, apart from the ethical question, is unsound economically.
Nick: We recently published an article from Doug Casey on sound and unsound banking.
If you look at all the skirmishes in the War on Cash in recent years in so many different countries and map it all out, it looks like there is coordination among those governments. Is that right?
Joe: Formation of the Better than Cash Alliance in 2012 is one piece of evidence. The partners in the Better than Cash Alliance include the Ford Foundation, USAid, Citibank, MasterCard, Visa, and a number of UN agencies. They want to abolish the use of cash and force all payments to be made electronically, especially in emerging nations. These are international organizations that influence almost every government in the world. They could be the basis of coordinated efforts to discourage the use of cash.
They are promoting the idea that the use of cash excludes poor people from the economy. But that’s nonsense. Poor people don’t have checking accounts or credit cards; they depend on cash.
Also, so deeply ingrained is cash in the Italian culture that over 7.5 million Italians do not even have checking accounts. The Italian government will continue to attempt to dragoon these “bankless” Italians into the banking system. That way the notoriously corrupt Italian government can more easily spy on them and invade their financial privacy.
Nick: What happens next?
Joe: I don’t see any end in sight. What keeps this movement going are wars—made-up wars—like the war on terror, the war on organized crime, the war on poverty, war on drugs. That’s what allows governments to ratchet up the intrusiveness into our financial affairs. So I don’t see an end in sight to that. I see the US right now with its Russia policy, for example, goading Russia and inviting more hostility. This feeds a warlike atmosphere in the US so that people just give in, time after time, as the laws become more despotic and intrusive.
What might save us is that we’re due for another crash, we’re due for another financial crisis. In the aftermath, politicians might be forced to move to more free-market-oriented policies. I don’t think that’s a done deal, but I’m hopeful.
Nick: What can International Man readers do to protect themselves from the sociopaths waging the War on Cash?
Joe: I think keeping a good part of your assets outside the banking system is extremely smart. Keeping some cash in a safe is also smart, especially in an era when financial crises are likely. I wouldn’t encourage that as a strategy for earning income, but as a way of protecting yourself and your family.
Nick: One solution I like is the 1,000 Swiss franc note (picture below). It’s the most purchasing power you can pack into a single bill of a relatively sound currency. So if you want to hold cash outside the banking system, having a stash of these might make sense. Any last thoughts?
Joe: The War on Cash reflects the desperation of governments. They want to squeeze every last penny out of their citizens. And they are at wits’ end on how to cure the stagnation of the global economy that began in the 2008 financial crisis. So it really says that they are bankrupt, both literally, in the sense that they can’t pay what they’ve promised, and intellectually.
Nick: I completely agree. Joe, thank you for your time.
Joe: My pleasure.
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