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The Extinction of Paper Money, But Not Fiat Money

By Walter Donway

March 24, 2015

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Sometimes I still feel like a free man.

Today, a carpenter, Steve, finished work renovating one of my bathrooms.  His bill was modest, as these go in the upscale Hamptons, and I offered to pay him $2,600 in cash. By the end of this year, an offer of that kind, in France, will be a crime.

 

Beginning in September, 2015, it will be illegal for a Frenchman to pay any bill larger than 1,000 Euros in cash.

Beginning in September, 2015, it will be illegal for a Frenchman to pay any bill larger than 1,000 Euros in cash. France’s Finance Minister, Michel Sapin, gravely explains that it is necessary to “fight against the use of cash and anonymity in the French economy.”

 

I enjoyed the commentary on this by the Mises Institute. The timing, of course, is evident in the wake of Islamist massacre in Paris of staff of Charlie Hebdo and the attack the same day in a Jewish deli. Let me quote the comment by Joseph Salerno of the Mises Institute at some length:

 

“What a shockeroo! The terrorists used CASH to purchase some of the stuff they needed—no doubt these murderers were also shod and clothed and used cell phones, cars, and public sidewalks during the planning and execution of their mayhem. Why not restrict their use? A naked, barefoot terrorist without communications is surely less effective than a fully clothed and equipped one…”

 

At least, as governments dream up rationalizations for their relentless extension of power, we occasionally get a good laugh.

 

What we purchase, where, when, from whom, and on what terms is indispensable to our privacy.

Unfortunately, we then must get serious. What we purchase, where, when, from whom, and on what terms is indispensable to our privacy. If I have this information about you every day, and know that at 2:30 p.m. you were at lunch (not at work?), and, an hour later, in Greenwich Village, bought an item in a sex shop, and, at 5:30 p.m., a bottle of champagne, and, at 7:00 p.m., checked into the Washington Square Hotel, and, at 8:30 p.m., had a liaison with an escort costing $250, how private is your life?

 

Of course, for starters, any expenditure below 1000 Euros can be in cash, (but this is a drop from 3000 Euros, at present). That leaves room for day-to-day privacy, but the limit being imposed in France is a precedent. Once the principle of requiring a record (via, for example, credit card or check not made out to cash) of transactions is established, the lowering of the permissible cash limit is a technicality. E.g., the U.S. income tax, bitterly opposed in principle when enacted by Constitutional Amendment in 1913 (a brief income tax to support the Civil War had expired after just ten years), began at what we would view today as a negligible rate. A next comparable drop (by two-thirds) in the limit for French payments in cash would be to about 300 Euros; the next comparable drop would be to l00 Euros, even as inflation erodes the value of fiat money.

 

I am projecting, but I have every possible precedent on my side, here. Once government imposes a tax or other charge, that levee keeps increasing. When government permits a deduction or an unregulated percentage of something, steady decreases are in the future.

 

The French law, of course, has everything to do with tax collections. Travelers in Europe, during the present economic troubles, report that in Greece and Italy, for example, the request for payments in cash is ubiquitous; even many hotels request payment of the bill in cash. Meanwhile, the Greek government, desperate for revenue, faces a culture where citizens plead for government expenditures, payments, and services, but notoriously consider evading taxes as only sensible. I mean, won’t big businesses, or the rich, or someone who is not me, pay the taxes to support the services? In France, in particular, government is struggling to keep its borrowing below a certain threshold, which requires collecting taxes that the French citizen, ever demanding government services and support, sees no reason to pay.

 

Michael Shedlock, whose column called this issue to my attention, argues that digital currencies soon will be mandatory. After all, the great instrument of government control (a.k.a., tracking, regulation, information gathering, monitoring) is the computer and the modern computer is digital. He argues, though with no timeline, that government will “go digital,” including in currencies, and that cash will be extinct. He writes: ‘Want to buy a candy bar? The government will want to know where the purchase was made, how much you paid, and where you got the money to buy the candy bar.’

 

That line of argument can be criticized as the “slippery slope” argument. And Shedlock makes no claim to predict the future. But consider that there was a period, in America, when different banks issued different notes, when payments often were in silver or gold, when there was no single, government money—no legal monopoly—and no legal tender laws, which now require that government money be accepted in payment “of all debts public and private.” (As it states in fine print on every U.S. bill in your wallet.)

 

If Americans could be persuaded that government must have a monopoly on creating and issuing money, and must have the legal power to require sole use of that currency, why should they oppose the enhancement of government power and control—perhaps first in the name of combating terrorism—by outlawing “cash” altogether in favor of a medium of payment 100 percent in government’s control?

 

It is strange, in a way. Those of us who worry about loss of our freedom, and know that freedom can be lost only to government, probably do not look first to manning the barricades to defend our right to pay in cash. But a dozen times a day, wherever I wish to be, and whatever I wish to do, I reach for my wallet. With the ease and assurance we attach to all freedoms taken for granted, I enter into a transaction with someone else who has no interest in who I am. No interest in where I might have gotten my money. No interest in where I go when I leave the store to make my next purchase. I am a free man, an anonymous man.

 

But if I am a Frenchman in Paris or Lyon or some tiny town in Provence, then my freedom raises many perplexing problems for my government. If I just pay in a way that always leaves a record for government, things will be so much easier. And safer from terrorists.

“Je suis un Francais!”
When one government introduces a policy violating the essence of privacy, we are all under attack. Sell me that T-shirt. I’ll pay cash.

 

 

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John Christmas
John Christmas
9 years ago

Cash transactions are not only for tax evasion (so that law-abiding people need to pay more taxes while others ride for free) but also can be for employee embezzlement (the hotel receptionist could stick the cash in his pocket instead of forwarding it to the hotel owner).

Arny.Plumb
Arny.Plumb
9 years ago
Reply to  John Christmas

Again it can be a choice. If I travel on business I will always need a record of the transactions. If I travel for pleasure not so much. And there really is ZERO justification for government to control currency. THAT is the root of the problem, government abuse.

John Christmas
John Christmas
9 years ago

While I think it’s great that cash exists so that people can do things that shouldn’t be prohibited (like buy marijuana), I see that there are negatives as well (easier for government employees to take bribes).

Arny.Plumb
Arny.Plumb
9 years ago
Reply to  John Christmas

Preventing government officials from taking bribes can be accomplished by tracking THEIR financial records, assets, and charities, without any such requirement for law abiding citizens.

Vinay Kolhatkar
9 years ago

The hotel owner should have the freedom to not accept cash. But it should be up to the transacting parties to agree to a mode of payment—-local cash, FX, gold coins, barter etc.. The problem with tax is that it is levied on income, and cash receivers can hide it easier. Having tax levied only on wholesale financial transactions, or contracts (high-value stamp paper), and/or on business value added may minimize that problem.

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