Cold Hard Cashless


Why do we have cash in the first place? What are the hurdles a society must overcome to go cashless? What is the future of cash? Learn more about the future of cash with Joe, Lauren and Jonathan.

Male Speaker 1: Brought to you by Toyota. Let's go places. Welcome to Forward Thinking.

Jonathan: Welcome everyone to Forward Thinking podcast, where we talk about different aspects of the future and what it means to us. I am Jonathan Strickland.

Lauren: I am Lauren Vogelbaum.

Joe: And I'm Joe McCormick.

Jonathan: And Lauren and Joe, today we are going to talk about cash. Cash money, who's making all the cash? Who's carrying the cash? Who's rolling in the cash?

Joe: Apparently you are.

Jonathan: No, I'm not nearly as much as I would like.

Joe: People who couldn't see, he was making the little fingers the rubbing the fingers together.

Lauren: The cash fingers, yeah. But so why is this important anyway? Why is there a culture about who has cash and why we don't?

Jonathan: And why do we even have cash? Well, all right, so let's think a little bit about the concept of value, all right? So in the concept of value, we're talking about things that people need or want. Really, it's want precedes need, because you may both want it and need it, or you may just want it. Either way, you consider that something has value, because you want it. Correct?

Lauren: Sure.

Jonathan: All right, so now if we go way way way way way back, human beings might be very good at doing certain things, and they're good enough so that it helps them, and maybe they are so good at it that they can help other people. So, for example, Lauren, it turns out you're really really good at hunting mammoths.

Lauren: That is actually a science fact. I am.

Jonathan: Lauren who is, how tall are you Lauren?

Lauren: 5'2.

Jonathan: 5'2, and she can take down a mammoth in no time flat, whereas I am terrible at hunting mammoths. However, it turns out, I've got a mean hand with a brush, and I make the most amazing cave paintings. They are phenomenal, and Lauren really wants to deck out her cave with some great paintings of a 5'2 pixie taking down a mammoth with nothing but a stone knife. However, she can't draw at all, so she and I work out this arrangement. I'm going to draw some stuff for her, she's going to give me some tasty mammoth meat to help me tide over those long nights where I'm starving because I can't catch anything, and we have worked out this system of trade where, for a certain amount of work, she gives me a certain amount of food, and that was kind of the way things worked. It was sort of a barter system. But now let's bring a third person in, Joe. Now Joe, what's your amazing talent in this crazy world, or do you want me to just give you one?

Joe: I'm really good at setting things on fire, and I have the secret from the gods, and I'm not going to tell anybody else what it is.

Jonathan: Right, so Joe has discovered the secret of fire, which both amazes and frightens Lauren and myself. Now, Lauren, as it turns out, she really would like to have cooked mammoth meat, but Joe, however, has somehow fallen onto a store of salmon, and it's just a huge amount of salmon. He has no need for mammoth meat. However, Joe would like some cave paintings at some time, but me, I happen to like my mammoth tar tar, so I don't really care about the fire thing, I'm okay with not having fire.

Lauren: And you're allergic to fish, so clearly you can't have any of the salmon thing.

Jonathan: Right, so we've got these three people, various people could really benefit from other folks' contributions, but there's no incentive to contribute. However, if we created some form of object that represented value, so that we would say X number of this is equal to one cave painting or one portion of mammoth meat or one magical creation of fire, then we could end up using that as a method of exchange between one another, and this would allow us to give each other the things they need without it actually being an altruistic gift. We're actually getting something back in return, and that's a representation of value, that we can then use with someone else to get something we want. That's the basis of cash, right?

Lauren: Sure, yeah, makes sense.

Joe: So you're talking about the creation of an economy, but of course an economy exists before cash does, and cash is not necessary to have an economy, right? But what exactly does cash do? It makes everything more convenient by establishing one thing that everybody wants. You cut way down on the amount of middlemen you have to go through to make all the trades you need.

Lauren: Right, especially in a large enough society because this is a very relatively simple little example that we've come up with here, but these days if I want a new car -

Jonathan: How many chickens is that?

Lauren: Yeah, and I don't really grow chickens.

Jonathan: Or mammoths.

Lauren: I edit things, and so how many editing papers is that?

Jonathan: Yeah, it definitely gets more tricky as it gets more complex.

Joe: So I've got a question here. When we think about cash, we think about usually little physical objects that you have a quantity of, and each one represents a unit of wealth. How did we end up representing things that way, and how did we pick the things that we were going to use as money, as cash?

Jonathan: It's interesting, because if you look at the early forms of currency, they tended to be things that were found in nature already but were really really nice or pretty to look at.

Joe: Like cowry shells.

Jonathan: Like cowry shells, right.

Joe: What is a cowry shell? Well, it's a little calcium nugget that grows on the back of a snail in the ocean. Why is that worth something?

Jonathan: Because they're pretty. Yeah, I mean these are the sort of things -

Lauren: Like gold or diamonds.

Jonathan: Yeah. You've seen cowry shells, like you said, in the script for the video we did, on bracelets and necklaces. They were like beads.

Joe: The hemp surfer dude.

Jonathan: Yeah. I actually did the hang 10 sign.

Joe: Oh no you didn't.

Jonathan: I did. Yeah, hey, I love Hawaii.

Joe: Be my guest. But these things, no intrinsic value. It's not like water or meat or seeds or anything that has a really practical use, is it?

Jonathan: No, it's something, again, that people wanted it, they thought it was pretty, and then it ended up being the representation for things that have direct value to us.

Joe: And of course there's kind of a, when you think about how the first currencies get started, there has to be kind of a follow the crowd thing going on, doesn't there? That only a critical mass, like a certain amount of the population, has to decide that they all want something before everybody wants it, because, I don't know what that number is, say maybe 60 or 70 percent of people can be guaranteed at all times to want cowry shells, then if you're part of that other 30 percent, you'd be stupid not to want them also because you could trade them to all those people who do want them.

Jonathan: Right, but if it's only five percent who find cowry shells to be really pretty, then there's no value to them to the larger society. So if, for example, 95 percent of the United States suddenly decided that dollars and coins really didn't have any value to them whatsoever, we would be in an economic crisis. It's kind of crazy when you think about that.

Lauren: It's a belief system almost, more than anything else.

Jonathan: It really is.

Joe: It's a popularity contest for little objects.

Jonathan: And in the United States, historically, quite a few years ago now, actually, the dollar was based off the gold standard, meaning that a dollar bill represented a certain amount of actual gold, so that the United States -

Joe: You could actually take it to the government, right? You could go to them and say, "Give me my gold."

Jonathan: Right, yes, because it was essentially a note that said, "This is worth X amount of gold," and the gold was in some reserves that were in the United States. We got off the gold standard and some people got upset about that. I think that's really funny because the only reason gold has any value is because we think it's pretty and it's hard to get to. That's the only reason. There's nothing about gold itself that makes it a valuable thing in the sense of, "If I have gold, my life will be better because," it's only because everyone else has agreed that gold is awesome.

Lauren: Chemically it's pretty cool. You can do some really interesting things with it scientifically, but -

Jonathan: If you have the wherewithal, but -

Joe: And there's a practical scarcity. I think people who advocate gold say that at least it's actually hard to get certain amounts of it. Whereas printed money, you can just print as much as you want.

Jonathan: Right, which can cause some problems, right? When you get to over inflation.

Joe: Isn't that why, I read that the first paper money showed up in China, right?

Jonathan: Seventh century.

Joe: In the Tang Dynasty, and if what I've read is correct, it got very popular, but then it went out of style because the paper money led to massive inflation.

Jonathan: Right. If your answer to, "There's not enough money," is to print more money, there's a problem, because money represents wealth, and you don't actually create more wealth when you create more currency, you devalue the currency that you have. You can't create wealth in that way, right? The way the banks create wealth is through loans. They loan out money, and then they charge interest and in that way wealth is created, but without that, you're not creating wealth. You have a certain amount of wealth that this is representing, and then you print out the currency and that devalues the currency.

Lauren: Yeah, you're not creating more things that are actually valuable like food and electricity and etc.

Joe: So, right now, I've got some U.S. federal bank notes in my pocket. Actually I don't, I have none at all, but let's say for the purpose of argument -

Jonathan: If you want some I've got some.

Joe: Why would you just offer me money? I'm a little creeped out now.

Jonathan: It's not going to be for free.

Joe: Somewhere in this building there are some bank notes. It's not just credit cards everywhere. So, why these things, and is it a good idea to keep these around? Is this good currency?

Jonathan: Well it's definitely convenient, so convenience is a big issue, right? And we've even seen people resist things that would be more convenient for one side of the equation than the other. Like in the United States we have dollar coins, but there's a big resistance to move to the dollar coin. It turns out that if your government does not remove the option to stick with the old system, people will just stay on the old system. You pretty much have to stop making and circulating dollar bills if you want people to just rely on the dollar coins, it seems.

Joe: Aren't there, like, huge basements full of dollar coins with armed guards right now, that are just sitting there because nobody wants them?

Jonathan: Why would you need an armed guard if no one wants it?

Joe: Well if it was easy to get, clearly somebody would want it.

Jonathan: It seems a pretty big waste of resources. "Here's this stuff nobody wants, guard it with your life."

Joe: Well, there are different ways of saying how it's wanted though, right? Because clearly people would want dollar coins if they could get them easily and if they had no other choice. You can still always take them to a bank and get them redeemed for the paper cash that you do want. Doesn't want seem to mean people don't want to carry them around in their pockets.

Lauren: Right, coins are heavy, they're cumbersome, they make little jingly noises when you walk.

Jonathan: Dude, I like to jingle jangle when I walk. That's why I wear spurs and carry pocketfuls of coins.

Lauren: More science facts that we are dropping on you guys today.

Jonathan: Well, to answer your question about why should we not want cash or physical money, so it's convenient because we can easily hand this stuff over to someone else. There are also some tax reasons I could get into, but the downsides are things like, currency is something that since it's physical it can actually be damaged and even destroyed.

Lauren: Or stolen.

Jonathan: Or stolen.

Joe: Most people don't know this but the federal mint, the U.S. Mint, they spend a lot more money, or actually I don't know if it's the Mint, whatever produces dollars and coins, they spend more money producing paper money than coins, and that seems counter intuitive because coins, those are made of metal, you'd think that's got to be more expensive than paper, but the coins stick around much longer.

Lauren: Also, they don't need all that fancy digital ink and watermarks and crazy little electronic strips and all that other stuff that goes into the paper.

Joe: Yeah, exactly.

Jonathan: Well, it's a lot harder to counterfeit a coin than it is to counterfeit paper money, so there are a lot of reasons why it's easier to make them.

Joe: The paper money is also just flimsier. It just dies sooner. It's your pet sea monkey instead of your pet dog.

Jonathan: Yeah, it only lasts a short while and then it needs to be replaced, and in fact that happens all the time, and that's one of those things. If it's going to cost you money to produce and circulate the currency, if it's going to cost wealth to do that, then that's not an incredibly efficient system, and in fact in your research you found that in 2012 it costs two cents to mint a penny and more than ten cents to mint a nickel, which means you're losing money making the currency. And so that's a big drawback, and then counterfeiting, of course, huge drawback. If the money you make, the currency you make, if it's replicable, then people can make counterfeit versions of it and then that either ends up devaluing the currency overall or someone is just defrauding everybody until someone gets caught.

Joe: If you think about it, all the hoops we jump through just to make bank notes, it's hard to copy. We're putting holograms on things, well, maybe not us, but some countries - not the United States, but some countries put holograms on their money. Holograms. This is not a star wars action figure packaging material.

Jonathan: Right, something that has real value, come on.

Joe: Exactly. Why is there a hologram on this? And it's because they are always desperately searching for a way to make these things harder to fake.

Jonathan: Right, yeah. You have to stay ahead of the counterfeiters who turn out to be pretty crafty people, so things like watermarks and the micro printing, stuff that's really difficult to replicate at least on a small scale. You usually have to have a pretty sophisticated operation to be able to replicate currency in a way that will actually fool people.

Lauren: Right, and also to make it affordable. If you're spending way more money than you would just going out and buying a dollar from a bank.

Jonathan: Spending more money than you would or you're spending more time and effort than you would if you just went out and got a job, then you'd be like, "Why am I doing this thing where," it's like the super villains where you're like, "You know your plan is so inefficient."

Joe: Yeah, you could make more money investing in coffee beans.

Jonathan: Just get a franchise of a fast food restaurant or something; you're going to be doing way better.

Lauren: But that would have been a really boring episode of Pinky and the Brain.

Jonathan: Yeah, well, I'd still watch it. Better than most stuff. Anyway, so yeah, so we've got the counterfeiting problem. We've got the fact that it costs money to create and circulate.

Joe: How about this, have you all ever seen an armored car?

Jonathan: Yeah, those are big.

Lauren: They're big. They're intimidating on the road.

Joe: You've got to think that these things are not cheap to operate.

Jonathan: They're not cheap to build, they're not cheap to operate, they're not cheap to maintain.

Joe: So somebody figures that they're going to lose less money paying these armored car operators than they would if they didn't go through all these precautions, so what would we say, physical currency is easy to steal.

Jonathan: Yeah, It's easy to steal and it costs money to move it around, in bulk, anyway. If you're talking about a few dollars, then obviously that's not an issue, but if you're talking about lots and lots of dollars, like the amount of dollars that a business gets within a week or two weeks or whatever, whenever the armored car comes around, not that I'm paying attention, don't put me on a list -

Joe: Wouldn't it be great if that scene in Heat where they bust open the armored car and all these cowry shells pour out, or knife money?

Jonathan: That would be pretty cool. So yeah, there are reason why cash is problematic. It's not an ideal means of exchange in the sense that it's actually costing you money to keep it going, to keep this system going. So, that kind of leads us into the discussion about the cashless transactions, and there are a lot of cashless transactions that take place all of the time. In fact, there are a lot of huge cashless transactions that take place at the corporate level, where you're talking about wiring money, essentially you're wiring the promise of money, between companies. But on the smaller level, like on the personal level, we're getting into a lot of cashless payments, whether that's with a credit card or debit card, or with something like an e wallet that you might have as part of your smartphone, if it has an NFC chip, which stands for near field communication.

Joe: I think even a check technically counts as cashless.

Jonathan: There you go too, yeah. Not as convenient because you're still carrying around a whole bunch of them. But near field communication stuff, that's kind of interesting. It's this little radio transmitter that's inside your smartphone, if you have a smartphone with NFC enabled device in it, and it only works at very very short ranges, so it's not like you are broadcasting out your payment plan or whatever as soon as you walk in the door to buy Cheetos.

Joe: Well, you wouldn't accidentally pay for something, right? You wouldn't just by walking through a store be like, "Oh, why did I buy 500 copies of Time Magazine?

Jonathan: Right, you wouldn't have to worry about that. What would happen is you would get rung up at the cash register, just like you would if you were using any other form of payment, and there would be a little pad there for you to tap a phone or whatever. You could have a tablet that has these too. I have both, I've got a tablet and a phone that both have NFC in them, and normally there's some form of verification that you have to enter before you can actually make a payment, so it's usually a pin that you have to enter as well, because people worry. What if someone just came up to you and what if your phone accidentally tapped against something, would you accidentally pay for something? No, you have to actually actively say, "I'm going to pay for this with this method."

Lauren: Some kind of digital signature, right?

Jonathan: Yeah, yeah. So once you put that in then the transaction is complete, the money is deducted from your account, and the nice thing about a lot of these programs, the Google Wallet is a great example just because it's one of those that has a lot of the features built into it. It has things like coupons built into it, it has loyalty program stuff built into it, so that if the vendor uses Google Wallet, if they accept this form of payment, then you can automatically not just pay for whatever it is you're getting, you can get those extra rewards that way too. Like you can get the coupon discount automatically applied, you can get the loyalty visit automatically applied, and it means that you don't have to manage that stuff on your own as much. There are people who worry about it. There's worries that you might be able to hack a system.

It's a little challenging because, again, it's near field communication, but the security is always an issue, and then there's just the fact that not that many vendors offer this right now, especially in the United States, and some vendors are reluctant to enter into it, one because there's not a standard version of this that's out there that everyone is using yet, right? So the vendor is then like, "Well, then, which one do I go with? If I support one, is it going to support the other versions? And if it doesn't, then what percentage of my customers are actually going to be able to use this, versus the ones that are like, "Well, I would use that except I have a totally different wallet account."

Lauren: Right, sure, and it's not as clearly pretty and desirable as a cowry shell, for example, so you know.

Jonathan: Yeah, it's a little more complex, so and also it just costs money to put those systems into place, so vendors have to believe that it's more valuable to offer the service than the cost it would require them to install it. So if they're like, "Yeah, I could install this, the number of customers I'd get who would use it would not even justify the cost of installing it," Then they're not going to do it.

Joe: One thing to consider is, I don't know if there's been any research in this area or not, but surely there will be. Certainly market research, to find out if the pain of paying thing affects digital payments, right? Because that seems to me like that could motivate vendors to adopt the system that if they think your buyer doesn't feel the pain of paying by tapping the phone in the same way he or she does by removing the money from the wallet.

Jonathan: Right, where you would get that spontaneous purchase would happen more frequently if people weren't thinking, "Oh, I have to take some of my dollars from my wallet to do this and now I have fewer dollars in my wallet than I did when I walked in here." There is something psychological to that.

Lauren: There is, but according to an extremely small and unscientific study of a few of my friends talking about it -

Jonathan: So, not scientific study, this is anecdotal, but that's my favorite kind of evidence.

Lauren: completely anecdotal, but some people I think find giving up the money a lot more weighty, and some people check their bank accounts every day all the time every few hours even, and make up crazy spreadsheets for that kind of thing and therefor have a bigger problem giving up money digitally because they're like, "No, every time I swipe a credit card, I get a notification on my phone and I'm aware of it. If have $20.00 in my pocket and I spend it, then I just get cool stuff."

Jonathan: Well, and again, that brings us to the tax thing as well. That's one of those other things. I even hesitate to bring it up, but I know people who like to do a lot of their transactions in cash because there's not race of it.

Joe: Like your mafia friends.

Lauren: It's not trackable.

Joe: The Renaissance Fair Mafia.

Joe: I will say they're in a family business. Joe, don't go digging where you don't want to find stuff, okay?

Lauren: Well, you don't want to tick off the Renaissance Fair Mafia, I can tell you that. They have quarterstaffs, they are serious.

Jonathan: Yeah, they may wear tights, but they are tough people. I can say that. Actually no, but there are plenty of vendors out there who, I have run into vendors who will tell you that the price for something is one thing for cash but another thing for a card because, again, the card leaves, they're like, "Well, there's no way to cook the books if there's a record of the transaction, but if it's cash, then who knows what happened."

Lauren: And also, for small independent businesses, I'm sure that people have noticed that a lot of coffee shops and etc. will have a "No cards under $5.00" kind of, because of the fees that they're charged by the credit card companies, which is another problem with the entire digital cash thing is that most of these things are just getting more and more complicated and involving more and more third parties, fourth, fifth, seventeenth, parties.

Jonathan: Right, you have transaction fees that either one part of the - One of the two, or maybe both, parties has to pay and thus you have just complicated matters even more. So we could come to a point, it's feasible, or at least it's something we can imagine, getting to a future where physical currency no longer exists, but there seems to be a psychological barrier to that as well. People like the idea of, I say people, some people like the idea of being able to hold a physical representation of their wealth in their hands.

Joe: Right. There's some people who don't even use banks, they put all their money under the mattress, right?

Jonathan: Sure, and there's the example I gave, which is that we all secretly, deep down, would love to be able to convert all of our wealth into coins so that we could swim in them a la Scrooge McDuck. By the way, don't actually try to do that, because if you dive from 20 feet into a pile of coins, really you're just going to go splat.

Joe: Even if you managed to get under the coins, I would think that the weight of them would crush you.

Jonathan: Well I can tell you from personal experience that it is not nearly as much fun as Scrooge McDuck made it look like in Duck Tails, or any other cartoon that he showed up in. Another sad sad fantasy of mine dashed by reality. But one of the other things we were going to mention just very briefly, to kind of wrap this up is the idea of what if we moved into a future where, because we have solved problems like where do we get our energy from and where do we get our food and water from, let's assume we've entered into this world where 3D printers can make anything that we need and that essentially all of our needs and wants are catered to because we have technologically solved the problems, in that world, does money even make sense?

Joe: well, it seems to me that wealth is a product of scarcity.

Jonathan: Right, so there's no scarcity.

Joe: Right. So if you just imagine what are the core ideas behind economics, it's supply and demand. If you're living in a world that is infinite supply, what role does wealth even play?

Lauren: It's hard to imagine, because even in Star Trek there are still wealthy people. Hypothetically, that society has done away with money and clothes that aren't jumpsuits, but there's still people who intrinsically are running around with fancier space ships.

Joe: Right, well, it seems to me that even if everybody has everything they could ever need and there's plentiful resources, lots of people are still going to want to maintain their status, so they'll seek, I think, symbols, that wealth will become a thing about ways of buying things that show your wealth, essentially. It's a circular -

Jonathan: A circular feedback loop? Well, the example I gave before we started talking on the podcast was, we're still going to have artistic expression. We're still going to have people who can create things artistically that other folks will find value in and that it brings them some sort of emotional response, whether it's joy or sadness or whatever, and if you're living in a world where the artist doesn't need anything, we don't have the poor starving artist anymore. That trope is gone, because all resources are plentiful, then first of all is there incentive to create art? I would argue yes, because as someone who considers themselves an artist with a lower case A, that what drives me to create art is not the hope for monetary gain, but if you remove the incentive, will people still create art, and if they do, then is there any form of exchange?

And I say, well maybe it will come down to Lauren ends up making a beautiful sculpture and I make a gorgeous painting, and I really like her sculpture and she really likes my painting and we decide to trade the sculpture for the painting because there's no other thing that we can really do anymore because money really doesn't matter, other resources don't matter, which means that we get back to bartering. All the way back to what we started with.

Lauren: Yeah, because I would hope I would think that everyone would, in that kind of situation, create art or invent gorgeous new things of one value or another.

Joe: The currency of the future is clearly the most beautifully embroidered jumpsuits, right?

Jonathan: I was thinking that Lauren would make a statue of a 5'2 tall woman killing a mammoth and I would make a painting of a guy painting a cave wall, and we would exchange.

Joe: And the gods would tell me the secret of creating space fire.

Lauren: I want all of this embroidered on a jumpsuit, in fact. Can we work that out?

Jonathan: It's going to be like the Star Wars crawl; it's going to be in really small text. Well anyway, that's kind of, it brings us full circle, but it also brings us to a close on this discussion about the cashless world and what cash represents and what we can expect from the future. I'm curious to see how many countries start to move more and more toward a cashless world, and whether or not the various peoples will accept that. I'm genuinely curious. I can see us going, just from my own personal behavior, I can see us going more and more cashless, but I definitely see resistance among certain members of the population. Anyway, if you guys have anything you want to chime in on with this discussion or even other discussions, if you guys have discussions for things that we should talk about in future episodes of Forward Thinking, I highly recommend you get in touch with us.

You can go to fwthinking.com for the main website, and there you're going to find links to everything. We have links to the video series, to this podcast, we have links to our blogs, we've got links to all of our social media, so you can get in touch with us via Twitter or Facebook or Google Plus. Lots of different ways of getting in touch with us. Let us know what you think. Thank you so much for listening and we will talk to you again really soon.

Male Speaker 1: For more on this topic and the future of technology, visit fwthinking.com. Brought to you by Toyota. Let's go places.

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Duration: 31 minutes

Topics in this Podcast: currency, Money