Why Do We Need Cash at All?

The end of money
Feb. 24 2012 12:04 AM

The End of Money

A new book asks: Why do we need cash at all?

Also in Slate, Seth Stevenson embarks on a quest to survive without cash.

Pile of American 100 dollar bills.
In a world without cash, we'll probably all be a lot better off.

Alexander Kalina/Thinkstock Images.

Cash is ridiculous. Like hugging or shaking hands, money is one of those social constructs that you’re better off never thinking about too deeply, lest you begin to wonder how someone decided that this should be how things work. Imagine the first guy broaching the idea: Hey there, brother Jebediah! Instead of growing my own sorghum—sorghum being what I imagine we all ate in olden times—I was wondering if you’d like to toil a few hours longer to grow some extra for me, and in exchange, I’ll give you … some of these pieces of metal! Deal?

It sounds like a prank, right? Money is a confidence game, a mass delusion that only works because we’ve all been had together. That’s why it’s best not to think too much about it. As when Wile E. Coyote runs off a cliff, the moment we realize what’s really going on with money is usually the moment the whole system comes crashing down.

The psychic gymnastics necessary to accommodate money are the central theme of journalist David Wolman’s provocative new book, The End of Money: Counterfeiters, Preachers, Techies, Dreamers—and the Coming Cashless Society. Even Wolman’s title contains a trick—note how it conflates money and cash, two concepts that, to economists, are very different things. Money is any tradable store of value; it can exist in your pocket or on a bank statement, in dollars or Euros or, if you’re in prison, in cigarettes. Cash is only the physical instantiation of money, and, as Wolman points out and as everyone in the Western world knows, it is on its way out. Thanks to technology, trustworthy banking (well, mostly), and our insatiable appetite for convenience, we’re all carrying less and less cash, and soon we’ll probably quit it altogether.

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In addition to being a tidy history of money and its discontents, Wolman’s book is also a travel story. It chronicles his trip around the world to meet many of the people who are working to bring about a cash-free civilization, as well as a few who are working to stop it. Each of these warring sides is basically hung up on the same issue: the degree to which the reliability of our currency depends on its physicality. Even though we long ago abandoned cash as the only way we trade—it’s not even the primary way we trade anymore—it seems impossible to understand money without thinking about cash.

The End Of Money

“When the word money reaches the ears, even Wall Streeters who hawk collateralized debt obligations will, at some level, picture a pile of Benjamins,” Wolman writes. “Our adult brains may get hung up on money’s poor distribution, tendency to inflate, and penchant for catalyzing strife, but that childhood longing for cash in hand still lingers in corners of the mind reserved for simpler thoughts.” If we get rid of cash, would money still work? Would the mass delusion continue?

Wolman picks a side in this fight: He hates cash, and he talks to several smart people who aggressively make the case against paper. Cash is inconvenient. It can’t be traced or insured; if you lose your cash or if it’s stolen, that’s that. It’s expensive—think about all the costs involved in producing, moving, protecting, scrutinizing, and reissuing bills and coins. Wolman cites a study that estimates that by switching from paper-based currencies to electronic ones, countries could save about 1 percent of their gross domestic product annually. That’s about $150 billion a year in the United States. Cash is also dirty, both literally—all your bills are contaminated with germs and drugs—and legally, a key enabler of the criminal underworld and mass tax evasion. If we didn’t have paper money, we’d probably have less crime and better-funded governments.

I’m right there with these arguments. As part of his research, Wolman tries to live without cash for a year, and for the most part, he’s able to do so without major problems. That’s the story of my life; I keep almost nothing in my wallet, and I resent the few local businesses that insist on cash transactions. But then, I would: As a tech-obsessed, bank-trusting, essentially lazy fellow who doesn’t spend much time worrying about a Mad Max-type post-apocalyptic future, I’m in the demographic sweet spot for abandoning cash.

To me, a lot of the people in Wolman’s book who argue for cash sound like cranks. There’s a religious zealot who says that the end of cash is a sign of the end times. There are Ron Paul-esque gold bugs who insist that any money not based on precious metals is somehow suspect.

The only slightly convincing pro-cash argument concerns paper money’s power to keep your spending in check. “Walk into a casino with three C-notes and you know you could lose, at most, $300,” Wolman writes. “Walk into a casino with a credit card and you could lose your house.” Wolman cites a raft of psychological research that shows that people treat physical money more reverently than they do virtual money. College students will steal their roommates’ Coke from the fridge, but they won’t steal dollar bills. When offered a reward for answering quiz questions correctly, people tend to cheat more when they’re offered noncash prizes than when they’re given greenbacks. People don’t remember credit card purchases as well as they do cash purchases, a form of amnesia that makes budgeting more difficult.

Wolman argues—convincingly—that none of these problems is necessarily permanent. Part of the reason we feel reverence toward cash is because it’s been stitched into the culture. We hand out cash in church, at weddings, at Hanukah, and as a way to make our children feel better about losing their teeth (or something like that). But as we update each of these rituals for the digital age, we may begin to feel just as emotionally bonded with virtual cash as we do paper.

What’s more, like everything else digital, noncash forms of payment—everything from credit and debit cards to bank accounts tied to your online wallet to even outré currencies like Facebook Credits and Bitcoins—can be constantly refined and upgraded to address some of their shortcomings. Perhaps you start out spending too much money on your debit card than you do with cash, but your card can be tied to a service like Mint.com, which will let you monitor whether you’re living by your budget. Cash doesn’t tell you when you’re overdoing it.

In the end the only real argument that proponents of cash can muster is the apocalypse. What happens when the electrical grid goes down? What happens in nuclear war?

Wolman dismisses these questions a bit too quickly for my taste, which means that pro-cash folks will be really unsatisfied with his response. On the electricity question, he cites Dave Birch, an ardent anti-casher, who says that when Irish banks went on strike in the 1960s, people began circulating IOUs like currency. “Today, it would be the same,” Birch says. In other words, if we abandon cash and then need it in a pinch, we’ll invent IOU-based money on the spot. Really? I find that hard to believe. And what if there’s a bigger calamity, something that knocks out everything digital? Wolman says not to worry about that: If we suffer something big enough to destroy all the computers, “we’ll have more substantial things to worry about than the fate of our digital money accounts,” Wolman writes.

He’s probably right about that. But that’s not really much reassurance. And when it comes to money, reassurance is the only thing that matters: If you don’t believe your money’s going to be useful when you need it most, it’s worthless. That’s why it seems likely that we’ll never completely get rid of cash. Even if we hardly ever use paper money, there’s some simple part of you that needs it to exist, just in case, so that all of your digital transactions feel “real.” It sounds silly. It is silly. But then, what part of money isn’t?

Farhad Manjoo is a technology columnist for the New York Times and the author of True Enough.

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