The Cashless Society – How Did We Get Here?

The Lowest Cost. Period.

The Cashless Society – How Did we Get here?

As the cashless society, once a futuristic concept appears to be upon us, we ask: How did this happen?

The Lowest Cost. Period.

Welcome to the Cashless Society – How Did We Get Here?

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Part 3A Government

In Part 1 of Welcome to the Cashless Society- There is no War on Cash– we noted that there was no war because there weren’t two sides fighting. In Part 2 of Welcome to the Cashless Society we covered the “Dark Side of a Cashless Society” and noted the loss of privacy and liberty that could occur in a cashless society and how dangerously close we are towards becoming one.

A cashless society also has the danger of becoming a priceless society, a society in which prices are set by the government and purchases of set quantities of products are mandated by the government at set prices.

Boiled Frog Syndrome

During the past few years there have been increasing stories discussing the cashless society as something like a futuristic concept that arose out of nowhere. The western world has been heading in a cashless direction for decades. It’s only recently that people are starting to notice that the transition to a totally cashless society is nearly complete.

Welcome to the Cashless Society Part A -Government Action

As we read stories about partial cash bans in some countries, Ireland banning small cash withdrawals or JP Morgan banning the storing of cash in safe deposit boxes, it seems so sudden a change. The cashless society, however, has been in planning and process for over a century.

In this part 3A of “Welcome to The Cashless Society”, we will cover how we got to where we are.

Well, How Did We Get Here?

A cashless society has its roots in changing laws, cultures and technology that also have the effect of influencing each other.

Government Actions

Since cash is pocketed freedom, government actions and central planning strive to eliminate that freedom via reducing the amount of cash its citizens have, its value and limiting and eventually eliminating the use of cash. Governments also want control on how cash is spent and wish to know WHAT people are spending money on to fight crime and income tax evasion.

Here are some of the major United States government actions that have had the effect of removing cash from its citizens’ hands.

Creation of The Internal Revenue Service and the Income Tax – 1913

The Internal Revenue Service (IRS) was founded in 1913 by the passage of the 16th Amendment. The Federal Income Tax was not intended to eliminate cash, but it did have the impact of reducing a portion of income over which one had direct control. The introduction of the income tax meant that citizens (now “taxpayers”) had to set money aside to pay the Federal Government who would decide how that money would be spent, or in many cases wasted.

Initially, the IRS taxing applied only to “the 1%” who were taxed at a low rate. Today, however, the IRS taxes the earnings of most of the nation’s individuals, with a top tax rate of 39.6%. The U.S. also has the third highest corporate tax rate in the world (39%), giving the Federal government control over how nearly half of corporate profits are spent.

Creation of The Federal Reserve System – 1913

The Federal Reserve was established by the Federal Reserve Act of 1913. The Act created a nation wide Federal Reserve banking system that was intended to manage the nation’s money supply and act as a bank of last resort in the event of bank failures. Since 1913, the United States dollar has lost 98% of its value. For the past 100 years we have been led to believe that inflation, like taxes and death are inevitable.

Prior to 1913 only one of those three were inevitable.

Recently, the Federal Reserve (the Fed) and other central banks have also tried to convince the public that inflation is desirable as they set “inflation target rates”. Inflation operates as a stealth tax and transfers (by policy!) even more of its citizen’s wealth to the government.

The Fed conducts “monetary policy” in which it injects itself into the markets by setting interest rates and manipulating the money supply. The Federal Reserves creates dollars, reallocates and distributes them where it sees fit.

Pursuant to the Federal Reserve Reform Act of 1977, the Fed has gone from being a bank of last resort to one with a dual mandate of creating maximum employment and stable prices. The Reform Act gave the Fed enormous power and leeway to conduct monetary policy. From 2009-2014, the Federal Reserve used this power to print dollars in order to buy U.S. Treasury Securities and mortgage backed securities from the largest banks in the United States (“quantitative easing”) to help alleviate the shocks from the financial crisis of 2008-2009.

The Fed sets the price of money by setting interest rates. The setting of interest rates removes from the market place the price discovery mechanism of where interest rates should be. The cost of money impacts the economic decisions that market participants make. When the Fed sets interest rates artificially low, money is cheap and people will be encouraged to spend it, perhaps recklessly and discouraged from saving it. This has the effect of incentivising people to give up their cash and to spend it instead.

By creating and directing flows of capital, the Fed removes individual and corporate power to decide how their money is spent and by intentionally creating inflation, the Fed removes some of the value of individuals’ and corporations’ money that is not already taxed by the IRS.

The Federal Reserve and IRS have grown significantly since their inceptions in 1913.

President Roosevelt’s Executive Order 6102 -1933

In 1933, with the stroke of a pen, President Franklin Delano Roosevelt removed gold coins that had been freely circulating as legal tender in the United States, by requiring U.S. citizens to turn their gold coins (and other forms of gold) into the U.S. government.

Roosevelt’s Executive Order 6102 removed, by law, the ultimate form of money from U.S. citizens’ hands – gold.

Pre 1933 Gold Coins for Sale

SD Bullion
From Golden Eagle Coin
From Money Metals Exchange

American Liberty coin gold coin

American gold coin of the type subject to confiscation in 1933.

Passage of the Social Security Act – 1935

In 1935, Congress passed the Social Security Act which authorized amounts to be withheld directly from payroll checks in order to fund an old age retirement program. The Social Security tax removed cash directly off the top of employees’ wages and required the employer to contribute an amount equal to the amount deducted from the employees’ salary. The money that goes automatically in the form of social security withholdings represents cash that is no longer under the workers’ control, but rather under government control.

Automatic Payroll Deduction – 1943

The Current Tax Payment Act of 1943, required employers to withhold federal income taxes from its employees’ paychecks and submit them directly to the Federal Government on the employees’ behalf. Prior to this, from 1913 employees would have to calculate and send their portion of income tax quarterly to the Federal government.

The Passage of The Medicare Amendment to the Social Security Act – 1965

In 1965 Congress passed the Medicare Amendment to the Social Security Act. In 1966, automatic payroll withholdings to pay for Medicare began. Medicare deductions meant U.S. employees had three automatic Federal withholdings made from their wages that remain to this day – social security, income tax and Medicare.

Removal of Silver Coins and Silver Certificates from Circulation 1963-68

Good-Bye Silver Certificates

In his Annual Economic Report to the Congress on January 21, 1963, John F. Kennedy said he wished to “authorize the Federal Reserve System to issue notes in denominations of $1, so as to make possible the gradual withdrawal of silver certificates from circulation.” In conjunction with John F. Kennedy’s plan to demonitize silver, the U.S. Congress passed the Act of June 4, 1963, which provided, among other things, the blue print to remove U.S. Silver Certificates from circulation.

$5 US silver certificate dated 1953 photo

Silver Certificates were U.S. legal tender and entitled the holder to redeem them for the face value in silver.

Pursuant to the Act of June 4, 1963 U.S. Treasury C. Douglas Dillon announced in March 1964 the end of redemption of silver certificates to coincide with the cessation of mintage of silver coinage at the end of that year. The Act allowed the exchange of silver certificates for silver bullion until June 24, 1968.

Good Bye Silver Coinage

Prior to 1965 the United States minted dimes, quarters, half dollars and dollar coins of 90% silver and 10% copper. Silver coins were so prevalent as a form of everyday currency in the United States that the US. Mint used 550 million ounces of silver to produce 1964 dated dimes quarters and half dollars.

The chart below show the breakdown in the number of coins minted in 1964 and the amount of silver required to mint them:

550 million ounces of silver used in minting US coins in 1964

Click above to see some of these coins.

Pursuant to the Coinage Act of 1965 U.S. coins would no longer be made of 90% silver. (Kennedy Half Dollars would be minted of 40% silver from 1965-1970) From 1965 on, U.S. coins would be minted from a mixture of copper and nickel.

Buy 90% Silver U.S. Coins at Golden Eagle Coins
Buy 90% Silver U.S. Coins at Money Metals Exchange

Removal of U.S. Bills Larger than $100 From Circulation – 1969

On July 14, 1969, Secretary of the Treasury, David M Kennedy and the Fed announced that they would immediately stop distributing currency in denominations higher than $100. At the time of the announcement, $500 (featuring President McKinley), $1,000 (featuring President Cleveland), $5,000 (featuring President Madison) and $10,000 (featuring Senator Salmon Chase) bills were in circulation.

The Fed’s stated reason for their removal from circulation was that “Their main purpose was for bank transfer payments. With the arrival of more secure transfer technologies, however, they were no longer needed for that purpose.”

In 1969 it was deemed that a $100 bill was a valid denomination for ordinary circulation. On February 16, 2016, however, former Treasury Secretary Lawrence Summers penned an editorial in which he advocated “It’s Time to Kill the $100 Bill . Mr. Summer’s editorial advocating killing the $100 bill was based on contemporaneous discussions in the European Union to eliminate the €500 bill. Mr. Summers reasoned that notes with large denominations are “highly irresponsible and mostly… a boon to corruption and crime.”

The removal of larger denominated bills, also makes it inconvenient for law abiding people to hold large sums of money in cash.

Bank Secrecy Act – 1970

In 1970 Congress passed the Bank Secrecy Act that required banks to file reports of transactions with its customers of more than $10,000 in a single day and to file suspicious activity reports regarding potential money laundering, tax evasion or other suspected criminal activity. This means that perfectly legal transactions over $10,000 would be reported as a matter of course by banks and legal transactions that bank, in their discretion believe might involve money laundering or tax evasion or criminal activity also get reported.

As we noted in “The Dark Side of a Cashless Society”

Civil Forfeiture – Seize First, Ask Questions Later

Your bank account can be raided by government authorities, like the Internal Revenue Service (IRS) without notice or reason given. If the IRS believes your bank account deposit and/or withdrawals activity is suspicious and/or may involve a pattern designed to avoid reporting requirements, they may seize your account. According to the Institute of Justice, the IRS seized more than $242 million from over 2,500 accounts for illegally structuring deposits or withdrawals. One third of these cases resulted in no criminal charges filed and involved deposits and withdrawals under $10,000.

President Nixon’s Breach of the Bretton Woods Gold Standard Agreements – 1971

In 1944, as World War II drew to a close, delegates from forty-four countries met at the Mount Washington Hotel in Bretton Woods, New Hampshire to hash out a new international monetary system. The United States was the dominant military and economic power at the time and held most of the world’s gold, so the U.S. dollar was selected to be the world’s reserve currency. According to the Bretton Woods Agreements the dollar could be redeemed by other countries’ central banks for gold from the United States Treasury upon request. This “gold standard” coupled with the United States’ preeminent military and economic position, gave the world confidence that the dollar was as good as gold.

On August 15, 1971, President Richard Nixon in a nationally televised speech unilaterally and without warning ripped up the Bretton Woods agreement. In his address, Mr. Nixon announced that he was “temporarily” suspending the convertibility of the dollar into gold.

Mr. Nixon also attempted to dispel the “bugaboo” that taking the U.S. dollar off the gold standard would result in a devalued dollar by assuring the nation that “your dollar will buy just as much tomorrow as it does today.” That may have been technically correct, but it was not true that a dollar on August 15,1971 would buy as much as it did on that day as it would on August 15, 1973 or August 8, 1974, the day Nixon resigned, or on August 15, 1979, as inflation raged throughout the 1970’s, depriving American consumers of a substantial portion of their dollar’s purchasing powerr.

The USA Patriot Act – 2001

The USA Patriot Act 0f 2001, expanded the reporting requirements of transactions over $10,000 to merchants selling consumer durables (eg. cars), collectibles (eg. art, rugs, antiques, metals, gems, stamps or coins), or travel or entertainment services. The ostensible reason for the Act was to fight terrorism, but the Act applies to all U.S. citizens irrespective of the legality or intent of their transactions.

Foreign Account Tax Compliance Act (FATCA) 2010

Congress enacted FATCA in 2010 to target U.S. taxpayers who might be using foreign accounts to avoid payment of taxes. FATCA requires foreign financial institutions and U.S citizens to report financial information to the IRS relating to accounts held by U.S. taxpayers overseas. Penalties for non-compliance include steep fines and/or loss of the account(s) No criminal intent is required to impose penalties or to confiscate assets under FACTA; only a failure to disclose assets is required.

Affordable Health Care Act – 2010

The Affordable Health Care Act (AHCA) marked the first time the U.S. Government could require its citizens to purchase a product or service. Under the AHCA, U.S. citizens must purchase a qualifying heath plan or pay a tax penalty if they do not comply.

MyRA -2014-15

In his 2014 State of the Union Address, President Obama announced the concept of MyRA. Recognizing that social security was not longer sufficient for a comfortable retirement, the President outlined his plans to give US citizens the option to purchase U.S. Treasury Bonds through automatic withholdings from their paychecks. The MyRA program went live in late 2015 and for those citizens participating, they will have four automatic Federal withholdings from their paychecks – Social Security, Federal income tax, Medicare and MyRa.

The AHCA precedent may one day pave the way to make MyRA contributions mandatory, thus requiring U.S. citizens to fund the U.S. deficit by purchasing U.S. Treasury Bonds and depriving U.S. citizens of more cash under their control.

Imposition of Negative Interest Rates -200?

As early as 2010, the Fed has been discussing the introduction of negative interest rates. Negative interest rates effectively make if economically unfeasible to hold cash as the holder must pay the bank to keep it for him. Under a negative interest rate regime, people have no incentive to save their money in banks so they can either spend it or put it in other potentially appreciating assets like stocks or bonds. Persons wishing not to pay the bank for the privilege of having their cash stored there, may horde cash in other places.

Central planners realizing this potential, know that for a negative interest rate regime to have any chance of succeeding, physical cash must be abolished.

Each of the foregoing governmental actions have had the effect of tacking cash outright or forcibly redirectig it. Going cashless is not all about government, there are cultural and technological reasons pushing people towards a cashless society. We will discuss those in our next installment of “Welcome To The Cashless Society.

Missed Part 1 of “Welcome to the Cashless Society – There is No War on Cash”? click here or Part Two of Welcome to the Cashless Society – “The Dark Side of a Cashless Society?” click here

Next Up: Part 3B ” Welcome to the Cashless Society – How Did we Get Here? Culture and Technology” and Part 4 of “Welcome to the Cashless Society – Where are we Headed?” – Subscribe to to receive these reports as soon as they are published.

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Further Reading:

There Is No War on Cash

The Dark Side of a Cashless Society

The Dark Side of Artificially Low Interest Rates

The Dark Side or Rising Home Prices

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