“A case of organised loot and legalised plunder.”
– Manmohan Singh, referring the rapacious and extremely damaging ‘War against Cash’ in India.
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Samizdata quote of the dayNovember 25th, 2016 |
 26 comments to Samizdata quote of the day |
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Ah, the war on cash. It’s not just India. The EU banned – if I recall correctly – the €500 note. Not that us Brits have much to crow about – our highest denomination note is the £50 and has been for a very long time.
I am not quite sure whether this drive is about control or whether it is about raising more money. If it is the latter then they are deluded. We hit the top of the Laffer curve 40 years ago in Britain. Any increase in taxes now leads to a decrease in production and hence a decrease in tax revenues.
It is about control, tax evasion is just an excuse (at least as any of this applies to India in particular, and more generally to places with similar cultural characteristics) – as this article shows by pointedly remarking at the end:
There is also another detail that should not be overlooked in the larger scheme of those things.
Cash = freedom. Economic freedom, physical freedom, psychological freedom.
Dearie me. Can’t have that, can we?
It has nothing (really) to do with tax avoidance or tax evasion or raising more tax revenues. As we see in this case in India, people who are avoiding or evading taxes by using cash can easily find other ways to continue their activity. Until the cost of these other ways exceeds the tax liabilities being avoided, they always will. It is simply about control, nothing else.
llater,
llamas
The purpose of central government is to find out what you are doing and put a stop to it. By eliminating cash and turning all money electronic, everything you pay for can be discovered and scrutinized.
Prediction: Some countries will recognize this stupidity and like Switzerland of old, will see an economic boom. Probably somewhere in the Far East, Africa and/or South America. All 200 countries are unlikely to be equally self destructive at the same time, one can hope.
Japan and South Korea (dunno about elsewhere) have very large cash economies, even though fully developed, and this contributes significantly to economic freedom in those places.
The Indian experiment also shows the foolishness of an (at least overly) restrictive monetary policy.
We don’t have much to crow about in the US, either. The largest current bill is $100, and there is pressure to get rid of that and the $50, with “War on Drugs” being the main excuse. What’s needed is the opposite:
“In my opinion it is a mistake for the government not to issue the larger denominations ($500, $1,000, $5,000, $10,000) that are authorized by law.”
– Milton Friedman.
Go Bitcoin Go!
@ Dan –
No, No, No! The time it can/will take for states to start tracking Bitcoin (or any other cryptocurrency) can be measured with an eggtimer. These web-based currencies are uniquely-adapted to state control and oversight.
I don’t think that currency notes should even have trackable serial numbers.
llater,
llamas
Well, If you make cash illegal then it will just be used for illegal things. You can see that in “Neuromancer” by William Gibson where New Yen has become the de facto currency of the underworld.
Perhaps more interesting is Margaret Attwood’s “The Handmaid’s Tale”. In that a key moment is when cash is suddenly declined for a purchase of (I think) a packet of cigarettes. The nascent totalitarian Republic of Gilead had banned cash overnight. It is made very clear this is entirely due to their agenda of complete social and economic control. It is a very clever move. I don’t think they even make an excuse though it is a while since I read it but it is terrifying that such a simple thing can be so profound. I mean I very rarely have more than 20 quid on me in cash so in a practical sense I wouldn’t really notice. It would be remarkably easy to do. That is what is scary.
I don’t think many in the west are even aware that India has banned “large” bills. (“Large” being entirely subjective: as I recall, the largest legal bill is now <$20.) The havoc and hardship it is creating is extreme, and I think they will be forced to back off from it soon. (And of course Indian culture has always been enamored of physical gold, so its use as a medium of exchange, and not merely for jewelry, should increase substantially as a consequence of this policy.)
But from our (the west's) perspective this might be a good thing. It’s an object lesson in the dangers of suppressing cash, provided by a large economy rather than some irrelevant (and therefore ignorable) African kleptocracy. It just might serve to mute the calls for similar actions by western governments and their toadies in the central banks and academia. Alisa is correct: whatever the official rationale, this is about control, and nothing else. And llamas is also correct: cash = freedom. We must fight to preserve whatever little of that remains.
@llamas
True, at the moment bitcoin can be tracked without too much fuss. Indeed, right now it’s pretty much the opposite of anonymity. But there are already anonymous crypto-currencies around (Monero comes to mind, which has already achieved some dark market adoption), and also second layer features to the bitcoin protocol could become available in the not too distant future which would make tracking impossible.
Was actually there when this happened – it was a popular move (albeit not with me as it wiped out my cash reserve), because it was generally agreed it was aimed at corruption rather than at government control, and would also help the economy by putting money into banks that could be invested (one reason India’s economy is so slow is lack of capital to invest – Modi is Thatcherite in his views that this system needs liberalising). I am inclined to believe this was primarily a rule of law measure, rather than an attempt to impose government control, albeit it will do that. But considering that graft and corruption are as much the enemies of freedom as overreaching government, it is hard to condemn this act outright. After all, the largest complaints came from Congress, a party that is pretty much the epitome of big-state socialism, low development and creation of client groups (as well as basically run by one family, and their surprisingly rich circle of advisors).
I personally think the real evidence of Indian state control through currency is actually the fact the rupee is still a closed currency, so transactions in and out are controlled. It is an interesting question whether the abolition of part of a closed currency is less interventionist than in an open economy…
“our highest denomination note is the £50”
I beg to differ. Quite a lot, actually.
Not to disagree, but graft and corruption are first and foremost the result of overreaching government.
Alisa,
I’d argue that whilst graft and corruption are the result of overreaching government, this is not their exclusive origin. They are a function of any system that defeats transparency and allows vested interests, so are also a natural condition of minimal (as opposed to minimalist) government, monarchical government (not normally noted for overreach so much as selective overreaction) or colonial government.
And regardless of the origin, the fact is that graft and corruption allow for people to limit the freedom of others in ways which are involuntary and unaccountable, in a balance that is different to that of government, but which can be equally pernicious. So where graft and corruption is the bigger problem (even if that is due to government) it might be (to refer to another recent thread on here) our natural alliance is with the government to defeat that. At its most extreme, would you deny that the Afghan government, corrupt and illiberal as it is, is preferable to the alliance of gangsters who make up the Taliban?
Also, when did Manmohan Singh, the former Congress Prime Minister, become likely to be right about anything? Just twigged who the quote was by, and it seems very odd that someone from a interventionalist-socialist party in the normal post-colonial model can be used to support an assertion that this is state intervention gone too far. His rhetoric is normal Indian politics rather than a serious critique.
Has anyone seen a useful Indian commentator criticise this measure?
Watchman, my argument was qualitative, while yours seems to be quantitative – which is fine, but I don’t understand what are you arguing against? IOW, where did you disprove my argument?
The point about control here is spurious, with fiat money the government already has complete control, it is it their whim to decide what it is worth and whether it is valid for certain things, this story exposes this nasty little open secret further. Perhaps this may be a good thing, encouraging rich people to move money into other non-government fungible forms might actually spur the counter-revolution on fiat currency and get us back to something similar to a gold standard or some other commodity.
To think that, one must not have lived in a non-Western society – or if he did, he must have learned very little 🙂
I have quoted people far more vile than Manmohan Singh on samizdata in the past, when I have observed them accidentally trip and fall face first into a steaming pile of truth 😉 Stopped clocks and all that…
It is worse. It is Tyranny.
Bitcoin is somewhat trackable. But it is not hard to make it untrackable, including conversion to other cryptos. Importantly though, it’s not subject to capital controls or fun like negative interest rates without reverting to $5 wrench tactics which makes it interesting.
Bitcoin *is* having governance issues right now which is both problematic and annoying but I still recommend anyone to keep their eyes open because crypto-currencies are going to be increasingly important as we go down the road.
NickM (November 25, 2016 at 2:16 pm), your memory of “The Handmaid’s Tale” is slightly off. The author’s point is that money had already become wholly electronic in her hypothetical future, so when the “republic of gilead” takes over (via a faked terrorist atrocity killing the president and congress), they can easily block the bank account of the heroine / all women / whoever they dislike.
Sam Duncan (November 25, 2016 at 4:10 pm) is right: one of his links is to notes of various Scottish banknotes.
NickM
I’d forgotten that detail of Neuromancer so it must be time for a reread. Thanks for reminding me. I completely agree with the point, though. I’d always assumed that if the UK banned cash people would just conduct their retail narcotics transactions etc. in dollars, just like in the old USSR. It would probably make things easier for the drug lords to use fewer currencies too.
If you get rid of cash, though you have to get rid of a lot of stand ins as well. Store gift cards, prepaid phone cards, loaded Oyster cards and I’m sure there are others.
It is part of an international war-on-cash which is being pushed by the establishment elite. Sweden (the home of “soft totalitarianism”) is a more subtle example of the move to a “cashless society” – to end the “Black Economy” and “protect the children”.
Yes the international establishment elite really are totalitarians (or are becoming totalitarians) – so it turns out. They have decided that the only way to maintain their existing power, as people are not putting their savings in the banks – as interest rates are so artificially low (due to Central Bank antics to bailout the establishment) – is to massively INCREASE their power.
They faced a choice – give up power or massively extend their power. Sadly they seem to have chosen option 2.
The next step will be a war on the buying and owning physical gold – actually being able to put one’s hand on physical gold apart from a bit of jewelry.
“It is a barbarous relic – outmoded in the modern world” will be the lie.
And “it is much safer in a bank anyway” will be another lie, certainly a lie in the age of “bail ins” (yes bail ins – not just bail outs).
Good comment thread – at least mostly good.
Lots of good points made.