Saturday, February 6, 2016

"The War on Cash" in View of Mises

Short article on Mises Institute blog concerning the "war on cash" which is a real phenomenon in certain western countries, supposedly to clamp down on tax evasion and drug trafficking.

The real nugget from the article though is Mises' view that the literal physical gold coins of a gold standard currency were important for more than mere symbolism or tradition.  This is a distinction from some gold standard proponents who might say that so long as there is proper reserves/backing, banknotes or digital gold are just as good for circulation medium. 

"The weakness of a gold standard without effectual circulation of gold coins consists precisely in the fact that it makes it extremely difficult for the average citizen to discern inflation in its early stages. An effectual gold coin circulation makes the voter the guardian of the gold standard. This is its main function."

Thus the elimination of cash benefits the central banks and politicians in the sense that it makes inflation much harder for the general public to perceive, giving the "powers that be" more flexibility in creation of currency units (in the short term at least).  In Weimar Germany and Zimbabwe - two classic examples of extreme inflation - the inflation was obvious because of the abundance of high-denomination physical banknotes.  In a world without cash, the average citizen has no way to detect the amount of digits flowing in and out of major financial institutions and governments until it shows up in cost increases of their staple consumer goods.

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