Cash is an Anachronistic King

The phrase "cash is king" first appeared with McLean in 1890 under the maxim: ""Avoid credit, remembering that cash is king, credit is a slave" [1]. More recently, the maxim has been repurposed to a propaganda slogan for the most recent culture war with, as is often the case, a notable generational divide. In Australia for example, the Facebook group "Cash Is King" is a wild collection of anecdotal stories, conspiracy theories, plain ignorance, and even the occasional genuine concern. Right-wing populist parties, ever hopeful of public funding in elections and competing over the sizeable witless vote, are earnest in promoting their credentials. For example, Katter's Australia Party states: "Moves towards a fully cashless society must be immediately stopped, and the right to use cash must be safeguarded" [2].

The trajectory of history does not favour such opinions. With increased electronic network density, speed of transactions, increased security, and lower economic transaction costs, electronic transactions are increasingly simply more convenient. Of course, electronic transactions have existed since the early 1900s in some form, but it has been in the 21st century that both the quantity and aggregate value of electronic transactions reached majority status in advanced economies; as early as 2016, only 20% of retail transactions were conducted by cash in Sweden, and only 2% of the value [3]. Even in Australia, in the three years to 2022, cash payments declined from 32% to 16% in number and 8% of value [4]. It is notable that high-cash transaction economies are invariably among the poorest in the world, whereas the higher number of cashless transactions is correlated with advanced technological and economic development.

Nor should this be surprising with the long view of history. Money is technologically mediated, and those technologies change. In early societies, as anthropological evidence illustrates [5], gift economies were a persistent norm whereby reciprocity and relationships were established between communities through inalienable objects. In the Statist transition to commodity exchange, transactions would become dominated between the direct exchange of goods and services, i.e., barter, which required a double coincidence of wants, and physical cash, typically in the form of precious metals or marked by the State authority that provided the legal endorsement and backing of the commercial activity and property rights. As an additional development in convenience, promissory notes were established in the Carthaginian and Roman Republics and the Han dynasty over 2000 years ago, and then banknotes in the Tang and Song dynasties in the 7th century CE, and with so-called "fiat currency" first introduced by the Yuan dynasty in China in the 13th century [6] and would eventually become the norm internationally in contemporary times with the removal of the gold standard in the United States in 1971.

In the development of commodity exchange, each step along the way has been marked by increasing convenience and security and reduced transaction costs. Coinage is more convenient than barter, promissory and banknotes are more convenient and secure than large numbers of coins, and chartered currency allows for greater control over monetary policy rather than being subject to an arbitrary supply of metal. Of course, as can be expected, there have been attempts to introduce institutions and processes that have been less secure; in the modern era, private currencies and company scrip would often exist alongside the currency issued by government central banks. These exploited workers through a truck system, often leading to debt slavery, provided little security for consumers, and would eventually be abolished [7].

This historical experience indicates a genuine concern that is often poorly raised by the "Cash is King" advocates; that is, with the accumulation of capital the banking system increasingly leads toward an oligarchical situation. In these increasingly monopolistic markets, private enterprise has greater economic power in seeking profits through economic rents rather than technological and efficiency improvements. Of course, the latter does exist as well. There can be no doubt that cashless transactions are an improvement to cash transactions across the vectors previously mentioned. However, the electronic transaction fees charged by banks in such a position are greater than what is economically optimal.

At the same time, it is notable that banks are increasingly moving toward fee-for-service and reducing the number of branches. Of course, when consumer electronic transactions were minimal, these labour and building costs were bundled into the general cost of banking. Now they are increasingly differentiated. The customer-assisted transaction charge that banks increasingly apply are of the same character to the introduction of self-serve checkouts at supermarkets and it is thoroughly plausible that they too will introduce a fee for service. In both cases there is also the planning advantages that come from stock control and consumer trends; it is not surprising that, even with strict privacy legislation for individuals, cash advocates often raise the matter of privacy as a cover for petty crime transactions and avoidance of goods and services taxes in the "shadow economy" [8]. A particularly comic approach was the behaviour of the Greek government attempting to raise funds in the early 2000s by increasing their VAT in an economy where nearly all retail transactions were conducted by cash. It is, of course, a bit of a running joke in Australia that many tradespeople, restaurants, and small retail stores prefer or even offer a discount for cash payments - as if those payments ever see the light of day in income tax or GST declarations.

It is also worth mentioning, towards a conclusion, that private cryptographic banking is hardly an alternative either [9]. Peer-to-peer electronic cash transactions are, unsurprisingly, a field day for scams, scammers, and theft, and are notable for a lack both financial security, security of the collectible "coins", lack of legal tender enforcement, and are subject to extreme fluctuations in value. Cryptocurrencies lack the ability to reverse transactions made in error and are incapable of scaling to the necessary performance to match global electronic transactions. It is unsurprising that, apart from buying and selling cryptographic complementary currencies (curiously, in accord with the value of government-back currency), the overwhelming majority of transactions are criminal activities, especially ransomware. For those who value cryptocurrency for trade in recreational pharmaceuticals, may be surprised how having a distributed ledger of transactions is not the sort of anonymity desired. Cash is hardly a systemic solution either. Instead, decriminalisation and legalisation are the better choices.

Rather than the retrograde step of preventing a cashless society, or the ill-considered step of promoting cryptocurrency, a progressive point of view would be to encourage the transition to both a cashless economy and a move to regulate the banking sector under democratic control. "Cash is King" has the historical recognition that Kings are indeed anachronistic and we can eventually do without monarchs; like cash, they will be around for a while yet, but their time and power is fading for good reason (and not because of some bizarre conspiracy of the liberal elite). Encouraging greater network redundancy and reliability is, of course, of primary and developing importance; for consumers, the ability to perform a transaction is dependent on such infrastructure. One can easily point out, however, that existing network infrastructure is certainly preferential to the requirement that a bank is actually open and nearby in order to acquire extra funds. Natural disasters and other forms of network outages are the exception rather than the rule whilst bank closures occur every evening.

Nevertheless replacing the monarch of cash, with the monarch of an oligopoly of private for-profit banks is hardly an optimal solution. The right-wing populists, with their conservatism and their pretend opposition to monopoly capitalism, have chosen physical cash as their culture-war identity marker, and apart from moral appeals ("greedy bankers"), they provide no solutions to the effects of the private oligopoly that is banking. Moral appeals of course don't work in any system of political economy; what morality exists is inbuilt into the system's rules with the only chance of reflexive consideration coming from actual people themselves, to the extent that they are accorded the power of decision-makers. In these circumstances, making use of increasing the power of customer-owned and member-owned banks (e.g., Bank Australia, credit unions), encouraging such banks to act in a coordinated fashion to counter the private oligopolies, and subject the banking sector to increasingly regulatory and democratic control. That is, banking institutions run by workers' cooperatives and customer ownership with socialisation of the public interest of the banking sector with money, as a creation of government, controlled by the people.

References

[1] George N. McLean, "How to do Business, or the Secret of Success in Retail Merchandizing", Jefferson Jackson. 1890, p120
[2] Cash is King! Proclaims KAP. March 20, 2024 https://kap.org.au/cash-is-king-proclaims-kap/
[3] Jon Henley. "Sweden leads the race to become cashless society". The Guardian. 4 June 2016
https://www.theguardian.com/business/2016/jun/04/sweden-cashless-society...
[4] Cash Use and Attitudes in Australia, Reserve Bank of Australia, 15 June, 2023
https://www.rba.gov.au/publications/bulletin/2023/jun/cash-use-and-attit...
[5] For example; Bronislaw Malinowski. Argonauts of the Western Pacific, 1922., Marcel Mauss. Essai sur le don: forme et raison de l'échange dans les sociétés archaïques, 1925., Chris Gregory. Gifts and Commodities, 1982. Jonathan Parry. "The Gift, the Indian Gift and the 'Indian Gift'". 1986. Man. 21 (3): 466–469. 6. Mauries Godelier. The Enigma of the Gift. Polity Press 1999.
[6] Peter Bernholz, Monetary Regimes and Inflation: History, Economic and Political Relationships, 2003.
[7] Brotherton et al., Report of the Truck Committee: Volume I: report and appendices, 1908
https://web.archive.org/web/20070929090614/http://www.bopcris.ac.uk/bopa...
[8] The cash and shadow economy, Australian Taxation Office, 1 July 2019
https://www.ato.gov.au/about-ato/tax-avoidance/the-fight-against-tax-cri...
[9] David Gerard, Attack of the Fifty Foot Blockchain, CreateSpace, 2017