Mises Institute | 16 May 2016
On April 20, 2016 US Secretary of the Treasury Jack Lew penned an announcement on Medium:
[T]oday I am excited to announce that for the first time in more than a century, the front of our currency will feature the portrait of a woman — Harriet Tubman on the $20 note.
The Tubman change dominated headlines, but the Jackson-Tubman swap is a part of a larger, longer-term strategy:
We anticipate that final concept designs for the new $20, $10, and $5 notes will all be unveiled in 2020 in conjunction with the 100th anniversary of the 19th Amendment, which granted women the right to vote. [Emphasis added.]
However, the full roll-out of the re-branded currency will take time — lots of it. Wired writer Margaret Rhodes and NYT Politically Correct, Ubiquitously-Oppressed, Pro-Women writer Cokie Roberts both speculate that regular folks may not see the new currency in circulation until 2030.
Why will it take so long? The answer was suggested by Lydia Washington, “lead public affairs specialist” for the Bureau of Engraving and Printing, in a statement quoted by Inverse on April 22, 2016:
The primary purpose of redesigning currency is for security purposes. The Bureau of Engraving and Printing is working with Treasury, the Federal Reserve and Secret Service to develop robust, unique, denomination specific security features. [Emphasis added.]
It turns out that security features on money take time. The $100 Federal Reserve Note (FRN), for example, took 15 years to develop.
In fact, the resources required to engage in paper currency maintenance and new production are vast. The public relations effort to manipulate the American public into fawning over the currency requires some expenditure of political capital. That state agents would double-back and scrap something they already devoted so much to — during the last redesign of the money — doesn’t seem to pass the smell test. Don’t get me wrong, government is inefficient, but only for those things that matter to you; if it’s in the state’s benefit, you can expect strategic thinking par excellence from our rulers.
Jealous Monopoly: Justifying Expenditure to Maintain Publicly-Counterfeit Currency
It’s important to note that fiat paper money must suffer from problems like unauthorized, concentrated attempts to reproduce it. Monetary officials call this a counterfeit problem, neglecting their own mass-counterfeiting, euphemistically referred to by such PC, sterile terms as Quantitative Easing. This is a problem inherent to non-market, paper money. State agents wish to have infinitely reproducible currency units so that they may expand their own purchasing power on-demand as it were, without having to forego consumption at present in order to save for the future, like the rest of us do. Understandably, state agents guard their legally sanctioned ability to infinitely amplify their purchasing power with vigor. Private criminals are not to engage in fraudulent counterfeiting; that’s a public crime racket.
Market money-goods like gold and silver don’t suffer from this problem. Both producers and consumers of money-goods face the same technical and legal obstacles to reproduction. In short, you can’t print gold. These obstacles impose a natural cap on the growth of the currency, which itself acts as an effective ceiling on inflation of the money supply. This is why market money-goods are inherently anti-inflationary, whereas fiat paper money is inherently inflationary (again, due to the relative ease of reproduction).
This should help put these “security updates” in context. As innovation advances, fiat money becomes even easier for unauthorized, private criminals to reproduce. This means that innovation poses an ever-increasing cost to the maintenance of the fiat money racket. That is, with enough innovation, private criminals could potentially engage in their own counterfeiting.
States Only Benefit from Paper-Money Creation if They’re the Only Ones Doing It
The problem is that counterfeiting is a zero-sum game. Suppose there is some given stock of money in an economy at time T1, call it $100. We can imagine a 10% increase in the money supply at time T2, ceteris paribus (econ talk for “everything else held constant”). Now there are $110 in the economy. Because of the non-neutrality of money, we know that in the time period immediately after the inflation of the money supply T3, that whoever gets the new $10 first will benefit most. This is because prices in the economy before the new money creation at time T2 reflect, in part, the amount of money in circulation at that time: $100. However, at time T3 somebody gets an extra $10. This lucky (or more accurately: legally privileged) individual or entity now has extra cash on hand, yet they face the same prices as they did in time T2.
The first recipient of the new $10 will eventually use that money to bid on goods offered for sale, i.e., he’ll eventually spend the money. At every stage that the new money is spent, prices are bid up higher than they otherwise would have been had no new money been created in the first place. Intuitively this makes sense, the more money in circulation given some fixed amount of goods to spend it on, the higher the prices for those goods will be. Our point here, though, is that prices don’t rise uniformly after new money creation, but sequentially. From here, it isn’t difficult to see that whoever spends the new money first, benefits most. After all, what good is receiving new money if by the time you get it, all prices have risen proportionately?
One might object here that much of the monetary activities by the USFG concern digital currency, not actual paper currency. Duly noted; however, first recipients of new money may loan that money out in order to reap an interest return. To the extent that new money is lent and then circulates in some non-digital manner once spent by the lender, there will be at least some increased demand for paper currency.
In any case, consider what happens in the example described above if now there are two counterfeiters, instead of one. All information is the same, except now the new money creation is split between two parties. It’s obvious that given the same level of new money creation, the greater the number of counterfeiters, the lower will be each counterfeiter’s new purchasing power, relative to what it would have been had there only been one counterfeiter. Thus, public counterfeiters like the USFG face an incentive to jealously protect their monopoly power to produce new currency, and thereby grant themselves increased purchasing power.
The fact that beneficiaries of (public or private) counterfeiting are necessarily the first spenders of the counterfeit money, and the fact that paper money is relatively easy to reproduce are the two central reasons why the USFG must engage in periodic security updates, currency removal, and new currency creation, if only to protect the current stock of currency — not to mention to meet potential increases in demand to hold paper currency. In addition, state agents must diligently protect the integrity of their currency units, lest they lose future purchasing power to competing private counterfeiters.
The War on Anonymity and the Rise of Techno-Cash
All of this attention being given to physical cash is happening against the backdrop of what some are calling a “War on Cash.” Several economists, including Joseph Salerno at the Mises Institute, have pointed out numerous efforts both domestically and internationally to curtail or totally eliminate the use of cash.
This view, however, does not offer a complete picture of what is going on right now with physical cash. I argue that something else is also underway: the rise of state techno-cash.
You don’t have to be Ray Kurzweil to know that the cost of production of anything related to information technology is plummeting, thanks in no small part to the ignorance of politicians and bureaucrats, who if they could decipher the complexity of these industries, would likely scramble to crush them. So what’s to say that new currency released in the next 20 years won’t be laced with low-cost, tracker-friendly tech? It doesn’t seem like much of a science-fiction stretch to conceive of very small, very cheap, very functional tech residing in each of the (perhaps only high-denomination) Federal Reserve Notes.
You can imagine the future public relations campaign. Traceable currency units will allow Official Authorities to prevent any number of terrorist attacks, drug sales, and sex traffickers, so the propaganda will read. Imagine a digital, global heat-map at the NSA with colored pins for the location of various units of currency of interest.
Now which sounds more likely from the point of view of state agents? Option 1: Combat fierce public outcry (fueled by the haunting cash-strapped, bank-run-imminent mindset) at incremental interventions toward the elimination of paper currency in circulation. Or Option 2: Co-opt the American fixation with paper currency by re-branding it with images and concepts that generate mass public approval, and re-design it with traceable tech so as to effectively rip the cloak of anonymity offered by transacting in cash while preserving it’s mass use.
In this light, it should be clear that state agents are not interested in a War on Cash per se, but rather: a War on Anonymity. The question becomes how best to win this war against privacy and freedom: purposely provoke active opposition to the elimination of a central fixture of American history, and for many, of Americans’ daily lives; or, acquiesce to public outcry and simply swap out the old, politically incorrect currency units, for new, socially just, generally popular, globally traceable ones?