Thoughts on “The End of Money” by David Wolman

The End of Money by David Wolman

 

Given the first six years of my adult life, my relationship to cash and personal finance is somewhat interesting. Straight out of college, I got a job working on Dave Ramsey’s web team. For those unfamiliar, the radio host and author espouses a back-to-basics approach to finances. The cornerstones of his message are avoiding debt in all its forms, saving up for emergencies and large purchases, and utilizing cash for day-to-day expenses. As I favor myself a common-sense person, I’ve been using this system since I was twenty-two. In specific, I’ve used the “envelope system,” literally driving to an ATM each payday to withdraw the cash needed for food, entertainment, and other expenses for the next couple of weeks. I have to say, thus far it has worked great for me and kept me from a number of monetary pitfalls.

That said, I was intrigued when I first spotted The End of Money by David Wolman. I confess that as much as I love learning and being challenged, sometimes I do avoid a book if I think the author’s biases and intent seem too obvious. Why take the time if I already know what they’re going to say, right? Indeed I have my own biases against credit card companies, banks, and their influence on our culture. That said, I finally consumed this book in audio form on a recent road trip, and it has given me some things to think about.

Though the initial chapter meanders through more of a narrative style, explaining how the author came to be interested in the topic at hand (and possible ties between the Apocalypse and a cashless society), the pace soon picks up with a history of money tracing back to its earliest appearances in civilization. While interesting to a fact-collector such as myself, the truly compelling portions come thereafter. I will only hit the highlights and sections which I found of particular interest.

Wolman points out that the notion of cash is so ingrained in modern Western culture that we are often blind to its costs. It is always assumed to be the cheapest way to do business for both consumer and merchant, but this can be far from true. First, there are the vast sums of government money required to mint, distribute, and monitor currency. The exact figures escape me, but I believe them to be in the billions per year. (As a fiscal conservative, anything that can be done to shrink the federal budget is a plus in my book.) Then there is the infrastructure required to shuffle money around, from bank vaults to armored cars to guards who attend it each step of the way. Lastly, there is the real cost of time involved in transacting with cash; if time really is money, the labor involved in businesses making change and keeping denominations on-site is more than negligible. True there are card processing fees (usually three percent) for vendors to account for, but in many cases the costs of manpower are higher. Could the efficiencies of moving to more of a cashless society actually spur economic growth? I think there are too many variables to say, but it’s a thought worth entertaining.

Further, there is often a psychological comfort to having cash in hand, as if it is the safest form of money. True, having a tangible representation may be one step above digits stored on a remote server, but there is nothing intrinsically valuable about coins, and much less bills. The reality is that we already live in a cashless society, passing around tokens of little worth, and we have since leaving the gold standard. There is nothing but good faith backing the dollar sign, whether it is on a screen or a piece of paper. As one driven by logic, I admit that this fact is compelling given the potential efficiencies mentioned above. There is nothing inherently safer about hard currency, and in fact the risk of carrying it may be greater in some cases with regard to loss and personal safety.

The last section which I found compelling deals with the argument that cash is actually a system which keeps the poor impoverished. It took quite a bit of explaining, but in the end I can see where the author is coming from. To those of us in developed nations, swinging by the ATM is an inconvenience, but to those without access to transportation or infrastructure, dealing in cash bears a much higher cost. Wolman states that the average cost of a bank visit for a consumer is around one dollar, considering time, effort, and other factors. To one who earns only a few dollars a day, this is a true hardship. In economies where electronic money transfer has been put into the hands of many via cell phone banking, growth has always followed. Saving money electronically is easier than hoarding bills which are always at the risk of being stolen. People seem able to lift themselves out of poverty more easily when the efficiency of electronic payment enters the picture. From this perspective, there may even be a philanthropic element to phasing out cash.

All of these points have led me to try an experiment. For the next month, I am going to try dealing in cash as little as possible. For a technology professional like myself, this may seem a little late in coming, but my method has worked well to this point, so I saw no need to mess with it. Given new information, however, I’m willing to take a second look. (This in no way changes my decision to live below my means and avoid credit at all costs, however.) I will be utilizing Mint.com to budget, track, and categorize spending, with the end goal being that I stick to my budget as well as a cash-based system. Honestly, I’m skeptical after years of having the psychological advantage of seeing bills dwindle from envelopes as the month wore on, but should the experiment succeed, I see no reason to continue making trips to the ATM. I may even gain more insight by having financial information to dig into in digital form. Ultimately, however, I am a pragmatist, and I will stick with whatever works best, regardless of the insights provided by the book.

Overall, David Wolman delivers an interesting and thought-provoking read on the nature of cash and its role in our society. Though it is thick on history and may meander from the central topic at times, the information he presents is clear and generally without bias, even if his personal worldview does poke through in a few editorial remarks. I say it’s worth a read for anyone loosely interested in economics or cultural trends.

The End of Money is available via audio book from the Nashville Public Library and multiple formats on Amazon.com.

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Thoughts on “I.O.U.” by John Lanchester

I.O.U. by John Lanchester

This audio book, available on the Nashville library’s site, taught me that I had very little knowledge about our complex financial system.  Unfortunately, it also failed my litmus test for being a great informative book when the author spent the final twenty percent editorializing.

I marvel from time to time about how the vast majority of the money in the world isn’t “real,” in the sense that there isn’t enough physical currency to represent it all.  This book opened my eyes to exactly how absurd and scary the Western financial system can be.  After spending a good amount of time explaining terms and describing complex financial instruments, the author turns his attention toward analyzing the current financial crisis which came to a head in 2008.  Prior to reading, I was fairly familiar with stocks and bonds, the consumer-facing side of the markets.  What I didn’t know were the kind of debt-soaked tools and misdirection investment banks had created in the name of making profits.

If I could sum up what I learned from the first half of the book, it would be this:  much of the “wealth” in our current system is based on nothing but debt.  I’m still a free-market capitalist through and through, but it seems a stretch to think that much of what investment banks do provides true value to our economy.  Their essential function seems to be to encourage individuals, businesses, and even governments to go into debt, and then make casino-like bets on whether they can repay, calculating risk in order to reap profits.  One bank will bet a consumer will pay back his mortgage, another will essentially make a counter-bet by purchasing insurance against a default while selling the debt to a third party.  It really is all smoke and mirrors based on my limited understanding of it.  Banks want to leverage themselves as much as possible, having financial obligations on the books, but wagering that they won’t have to pay them.  This, to me, is the epitome of foolishness and irresponsibility, regardless of the prevailing economic system.

With regards to the crash of 2008 and the subsequent “credit crunch,” the author does to a good job of explaining how the perfect storm came to be.  By his estimation, the problem actually stemmed back to the fall of Soviet communism over twenty years ago.  With such a large counter-force gone, free-market capitalism flourished in the developed world and enjoyed ever-loosened government restriction.  With economic growth, it became easier for individuals to borrow money, including home mortgages.  Because demand for housing increased, property prices skyrocketed, especially in the author’s native Great Britain.  Everyone wanted to get into the game.  This led to banks making riskier loans at sub-prime (read: higher-than-market-rate) interest rates.  It was no bother to the banks, however.  They were able to insure against consumer default, package risky debts, and sell them in financial markets.  Investors, of course, did not realize the true risk of what they had purchased, focusing only on the tantalizing profit potential.

This is a crude overview, of course, but those were the core issues.  As home prices peaked and then fell, unemployment rose, and mortgages went into default.  The house of cards began to collapse.  This is where the author’s personal viewpoints begin to creep into the writing.  He spends quite a while talking about “laissez-faire” capitalism as promoted by Alan Greenspan.  While it is a valid technical term, his usage of it sometimes comes across as sarcastic and condescending.  His solution seems to always be more government regulation, even while acknowledging that part of the problem was lack of enforcement of existing regulations.  While I do think it absurd that a bank must only retain enough liquid capital to cover eight percent of its obligations, it also seems apparent that the government is the worst manager in any arena it enters.  Further, the author portrays the consumers of sub-prime mortgages purely as victims.  To be sure, some were targeted with predatory lending practices, but at the end of the day, is it not my personal responsibility if I over-leverage myself, taking out a loan I will likely not be able to repay?  Personal responsibility, both at the consumer and bank level, would have gone a long way toward preventing such a collapse.  The author doesn’t seem to entertain this idea, instead insisting on more control by national governments which, by all accounts, can’t balance their own budgets.

The final section of the book came across as a bit of a diatribe against laissez-faire capitalism in general, which is where I began to lose interest.  I can understand why the author feels the way he does based on his worldview, but I was reading primarily for knowledge, not opinion.  He is certainly a smart man who did a good job of explaining complex topics, though I wish he could have left it at that.  I don’t know the answers to such complicated problems as were presented short of self-restraint and common sense, but we all know those can’t be legislated.

Overall, I’m glad to have read the book and garnered a better understanding of exactly what lies in the bowels of financial markets.  In some ways it was enlightening, in other ways it was a bit scary, but it is almost always better to have knowledge than to be blissfully unaware.  I would recommend this book to anyone wanting a better understanding of the forces behind the 2008 financial meltdown or the world of finance in general.

Analyzing the Christian Duty of Work – Part 1

This post is something that has been swimming in my head for a couple of months, probably. It may even have its roots back to a period of deep questioning I had in 2007, but recent events have brought it to the forefront of my attention once again. This is much more an exploratory essay arising questions than it is some sort of definitive thesis claiming to have answers. Answers have I none on this topic, so I throw it out into the community to get some perspective, conversation, and opinion on the matter (hopefully). I think it was Rob Bell who wrote in one of his books about the isolated academic study of the Bible being completely against the grain of how Christians originally struggled with scripture. He pointed out that certainly in the first century (and for hundreds of years later), the only way anyone had access to the Word of God was to gather and hear it read aloud. Then the community in attendance would talk about what it meant and discuss together the ramifications for their lives. This isn’t to say that isolated reading has no value, but that perhaps the best understanding can come from looking at these things together. So…

Growing up as a middle-class American, the topics of work, wealth, and giving in relation to faith were clear cut and simple. A good person works hard, provides for himself, and gives to the church and other charitable organizations. Through college and now living on my own, however, the challenging questions which have arisen have made me wonder. On the one hand is the radical message of Jesus to sell all you have and give to the poor, and on the other hand the Protestant Work Ethic and writings of the apostles encouraging a model where responsibility for self is at the core. At the center of this topic (in my struggle, anyway) is the question of giving, and particularly from one Christian to another.

In a fashion typical of his radical message, Jesus tells us, “Give to everyone who asks you, and if anyone takes what belongs to you, do not demand it back.” (Luke 6:30). That sounds pretty straight-forward, if not entirely easy to live out. If someone asks me for something, I am to give it to them. But if I were a Christian in the young church in Thessalonica, I would have been told by the apostle Paul, “If a man will not work, he shall not eat” (2 Thess 3:10). So what do I do, then, if a fellow able-bodied Christian doesn’t feel compelled to actively seek employment to provide for himself and asks me for money? Surely I will have mercy on my brother if he is starving and give him something initially, as James instructs us. “Suppose a brother or sister is without clothes and daily food. If one of you says to him, ‘Go, I wish you well; keep warm and well fed,’ but does nothing about his physical needs, what good is it?” (James 2:15-16). But if this becomes an exhibited pattern, how does that speak to Paul’s harsh words to Timothy, “If anyone does not provide for his relatives, and especially for his immediate family, he has denied the faith and is worse than an unbeliever” (1 Timothy 5:8)? The sobering parable of the sheep and the goats (Matthew 25) notes precisely that when we give to the hungry, we are giving to Christ. So should I take that mindset and keep giving to my brother? Or should I point him to the same passage and note that he, too, ought to be gainfully employed and giving to others regardless of his income level? These are not easy questions.

The established pattern seems to be that Christians are to do everything in their power to provide for their own physical needs, and also those who cannot provide for themselves. “Surely you remember, brothers, our toil and hardship; we worked night and day in order not to be a burden to anyone while we preached the gospel of God to you” (1 Thess 2:9). Even what we would consider full-time missionaries engaged in labor to make a living instead of counting on the generosity of others. But this seems to contrast with Jesus sending out his disciples where he commands, “Take nothing for the journey except a staff—no bread, no bag, no money in your belts” (Mark 6:8). They did the exact opposite of Paul and his traveling companions, relying completely on handouts from those along the way. Are the commands found in scripture conditional or relative to one’s situation? Is it a larger act of faith to take nothing with you, or is it a shame to the name of Christ to expect others to take care of you (whether in a specific evangelistic endeavor or everyday life)?

Despite the advice sprinkled throughout the apostolic letters to the early church, the radical way of Jesus still tugs on my heart. Should I give generously even when it makes no sense, and I may in fact be enabling another believer to avoid his duty to work and provide for others? Is this an example of crazy love that would make the world stop and take notice of a drastically different lifestyle? I will continue this questioning and exploration in another entry, but for now I would love to hear anyone else’s perspective on the issue as it stands so far.