A recent post I wrote about Scott Sumner and his urging Keynesians to not discuss GDP but only NGDP-the argument is that the need for more aggregate demand is about raising aggregate spending in the economy not necessarily more GDP-led to some interesting responses by a couple of Diary of a Republican readers.
Actually one such interesting response came from someone who prefers to leave themselves anonymous. However, Anon had a thought provoking response. He actually left three comments, all provocative. However, this one got me thinking about just how important physical cash really is in our turbo economy with 24 hour a day ATM transactions.
"Also, on a slightly different subject, I know Nick Rowe, Scott Sumner, and Paul Krugman went after Keen and his MMT defenders regarding "Banking Mysticism" ... but it seems to me the real mystics are what I'll call the believers in "physical cash mysticism." I know I've read some pretty straight forward Krugman articles on this, but I think both Sumner and Rowe have engaged in this as well (though it's harder to tell if those two are serious). The idea seems to be that they assign some sort of special significance to physical cash (bills and coins). I don't get that at all. Do you? If I get paid in $100 bills the only "hot potato" effect will be me getting to the bank ASAP and converting that back into electronic money."
A regular commentator, Greg had this answer:
"I think the banks have a concern with physical cash because THEY dont control it once its in our hands. They see large conversions into cash as assaults on them, which really should be an aha moment for the rest of us. Banks NEED us, more than we need them. Banks want to make loans, if we just go to cash and decide to live simply, why on earth would we borrow $10,000 so we can pay back $15,000? We've been fed for years that banks are the drivers of wealth creation. No they are not they are simple facilitators. They dont bring wealth anywhere, they go where there is wealth and make a profit off it.
They are no different than govt in this respect. Govt is a facilitator that charges a fee called taxes, banks charge interest. The interest goes to very few people and is pretty expensive, taxes get recirculated into public goods for all in exchange for their expense.
I don't know that I agree with this. It seems to me that Greg-while I agree with often, may be falling pretty to physical cash mysticism. I don't mean to pick on Greg, and hope he doesn't take it that way. I just find this issue very interesting and crucial to properly understanding the monetary system.
Actually there is a wide literature that in teh future cash may more or less die out as a medium-though not necessarily too soon. Already we do a large amount of our transactions in cash. I don't agree we'd be better off if we did all or most in physical cash. I agree with Anon-it doesn' matter too much.
I'm not sure that this is what Greg thinks. My point though is not personal just that I think physical cash mysticism is a mistake-not necessarily saying Greg has it. I notice that many of the extreme Rothbardians seem to believe that physical cash-or for them especially gold coins is somehow empowering. This I don't agree with.