Without Cash, We Could Cure Recessions

A blog about business and economics.
Dec. 12 2011 5:20 PM

Less Than Zero

25 years ago, Cobra Commander threatened to bring the American economy to its knees by destroying physical currency and creating a shortage of the medium of exchange. Today, however, we have a fairly robust electronic payments system and could probably get by if the country had no physical currency whatsoever. And as I note in my latest column, one virtue of a cashless economy is that we could always cure recessions with "old fashioned" monetary policy. The so-called zero lower bound is a pure artifact of the existence of physical cash.

The larger point here isn't that we need to scrap cash but that you ought to understand recessions as a product of hiccups in the system of monetary exchange. There are other kinds of economic problems in the world, but a recession is a particular kind of problem. We invented money, because it's very useful -- without it we'd all be much poorer. But money creates problems -- in particular, it makes recessions possible -- and to cure them you need to monkey around with money.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.