The murmur of the snarkmatrix…

August § The Common Test / 2016-02-16 21:04:46
Robin § Unforgotten / 2016-01-08 21:19:16
MsFitNZ § Towards A Theory of Secondary Literacy / 2015-11-03 21:23:21
Jon Schultz § Bless the toolmakers / 2015-05-04 18:39:56
Jon Schultz § Bless the toolmakers / 2015-05-04 16:32:50
Matt § A leaky rocketship / 2014-11-05 01:49:12
Greg Linch § A leaky rocketship / 2014-11-04 18:05:52
Robin § A leaky rocketship / 2014-11-04 05:11:02
P. Renaud § A leaky rocketship / 2014-11-04 04:13:09
Jay H § Matching cuts / 2014-10-02 02:41:13


Two links to think about together:

First, Peggy Nelson’s interview with Douglas Rushkoff over at HiLoBrow. In general I find Rushkoff pretty tendentious in this conversation, but I can’t deny that his reading of Middle Ages economics is provocative (emphasis mine):

PN: They didn’t get money from Rome to fund their cathedrals?

DR: They did not. The Vatican and central Rome did not build the cathedrals. The funds came from local currency, which was very different than money as we use it now. It was based on grain, which lost value over time. The grain would slowly rot or get eaten by rats or cost money to store, so the money needed to be spent as quickly as possible before it became devalued. And when people spend and spend and spend a lot of money, you end up with an economy that grows very quickly.

Now unlike a capitalist economy where money is hoarded, with local currency, money is moving. The same dollar can end up being the salary for three people rather than just one. There was so much money circulating that they had to figure out what to do with it, how to reinvest it. Saving money was not an option, you couldn’t just stick it in the bank and have it grow because it would not grow there, it would shrink. So they paid the workers really well and they shortened the work week to four and in some cases three days per week.

Now I have no idea if this is true, but it is true that many of our modern economic woes arise when money doesn’t move, and the vision of a marketplace full of dollars getting spent and spent and spent again—use ’em or lose ’em—especially within real communities, is pretty enticing.

Now cross-reference that with Matt Yglesias’ pitch for a cashless economy. By way of background: nowadays, when money doesn’t move, central bankers’ primary lever to get it going again is the interest rate. Lower the interest rate, and you make it cheaper for banks and companies to “buy” money, which means (you hope) more money gets spent by those companies, which means more people get paid, which means more money gets spent by those people, and so on.

But sometimes you push the interest rate all the way down, close to zero, and… nothing happens. Your lever is slammed to the bottom of the slot and you’re still not getting the effect you expected. Orthodox economics doesn’t really have a solution to this problem… but Yglesias does (again, emphasis mine):

Now we come to the miracle of the cashless society. Stop for a moment and ask yourself why the interest rate can’t be reduced much below 1 percent. The trouble is cash. At any given time, relatively little paper currency circulates in the United States. Instead, most of the American money supply consists of bank accounts and other electronic stores of value. People prefer to keep money in bank accounts because it’s convenient and because you get interest on it. If the rates were driven below zero—in effect a tax on holding cash in the bank—people would just withdraw money and store it in shoeboxes instead. But what if you couldn’t withdraw cash? What if all transactions were electronic, so the only way to avoid keeping money in a negative-rate account was to go out and buy something with the money? Well, then, we would have solved our depression problem. Too much unemployment? Lower interest rates below zero, Americans will start spending and investing again, the economic will grow, and unemployment will go back down to its “natural rate.”

There’s a lot of good detail in his piece, and he does a good job explaining all the mechanics, so it’s worth a read. The important thing is: he’s serious. Let’s keep that money moving.

Update: Or see also Louis C.K.:

I never viewed money as being “my money” I always saw it as “The money” It’s a resource. if it pools up around me then it needs to be flushed back out into the system.


Len says…

Actually, there already is an effective tax on holding cash in bank accounts. For the past year interest rates have been around zero. But inflation for the past year has been 3.4% So if you kept your money in the bank over the past year you have lost spending power.

Exactly in the same way as the rotting grain example, “hoarders” have been penalized for saving.

Matt Penniman says…

Yes, but: the dollar amount still looks the same. You had $1,000,000 at the beginning of the year, you have $1,000,000 at the end, and even if you *know* that inflation eroded away $34,000-worth of purchasing power, it’s harder to feel that as a loss when the numbers haven’t changed. A negative interest rate would make this explicit and concrete – and invoke the asymmetric power of loss aversion to keep cash flowing.

That said, because loss aversion is so strong, I imagine that this idea would be a political non-starter. “The government is destroying hard-earned money in my bank account? Not even using it to pay down the deficit? WTF?”

There’s a chapter on this in Lewis Hyde’s famous book The Gift, which I know very well because it’s mostly about [bum-bum-BUNNNNMMM!!] Ezra Pound.

Pound had an idea, well a concoction of ideas really, borrowed from some (ahem) “nontraditional” economists, that we should use stamp scrip, where you’d basically have to pay a small fee to keep your money current. Induces the same effect, everybody plays hot potato with cash so it doesn’t go bad.

In our economy, money isn’t really hoarded; it’s lent out at interest. It’s just that the entire lending economy is all screwed up.

In the UK, if you read some Econopalyptic narratives, the Germans are the good guys. They conscientiously generated trade surpluses year on year, and put money aside like the good savers they are.

Clearly, with an irrational hope savings would somehow magically retain their value, they were the pushers to the crack-fiends at Lehman.

Here’s a neat summary on the negative interest problem:

The quote:
“Currency is the only problem. Paying positive interest on currency is difficult because you don’t know the identity of the owner. The same note could be presented repeatedly to earn the interest due for a single period. To get around this problem, the instrument itself must be clearly identified as current or non-current on interest. Once interest has been paid, it is marked, traditionally by stamping it or by clipping a coupon off it.
With negative interest, the problem is not the owner turning up too often to claim his interest. It is getting him to turn up at all. Since the authorities don’t know I am the owner of the currency I own, why should I volunteer to pay the government money for the privilege?”

The rest of the piece goes into some detail on getting rid of currency.

Switzerland, right on the edge of the Eurozone, has been playing with negative interest rates this year. It seems some savers aren’t necessarily looking for return on their ‘investment’, just the security of not being totally wiped out :
More recent background here:

I have a really hard time even relating to this problem, because substantial saving has become completely impossible for me in this economy. I’m guessing that the main reason it’s a political nonstarter is that most people have a similar inability to relate.

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