Monday, November 16, 2009

The free market

The other day, I was paying for groceries with my debit card at one of the self-checkout lanes of a grocery store. It occurred to me that the entire process is incredibly bizarre.

After all, I walked into the store with nothing of value, left nothing of value behind, and left with enough food for a week. I did this without dealing with a single representative of the store or its interests. And this was perfectly legal.

Paper money works essentially the same way; but at least when cash changes hands, this is an exchange of a physical good which has a definite worth determined by the market. The only thing you have to have faith in when accepting cash is that it will be worth what you think it's worth when you decide to spend it.

With debit cards and the like, there is a virtual, rather than physical, exchange of money; so there are two layers of good faith involved in the exchange: faith in cash, and faith in the digital systems' ability to properly represent cash flow in a virtual environment.

Does it really make sense to rely on these two factors? With the state of the economy, the public debt, and the projected budget deficits for the next several years, it seems as though our nation's financial course is unsustainable. It's not difficult to imagine the total financial collapse of the Federal government, which would result (among other things) in a massive devaluation of American cash. Computer systems, furthermore, are accessible to all the immoral computer geeks of the world.

In short, on a daily basis, we place an enormous amount of faith on these two factors which seem fundamentally unworthy of our faith. Is this a sensible system; and, more to the point, is it a sustainable system?


Rainier96 said...

It is amazing, if not bizarre. But I'd say, yes, it is sensible and it is sustainable.

The faith in the technology involved is as justified as the faith in any other technology that we only half-understand -- such as flying in a plane or watching the news on TV. Faith in currency, as you say, is based on faith in the government. If the government collapses, inability to use our debit cards will be the least of our worries.

If you have faith in neither, are you advocating return to a barter system, or to exclusive use of gold coin?

Or are you just astounded at the complexity of our whole commercial system? In which case, I share your astonishment.

Zachary Freier said...

I'm not sure what the answer is. I'm certainly not advocating the return to any old system; the world has changed, and there is no longer any way such a system could work.

It's just that the way these things work now, and the way they seem to be progressing, strikes me as flawed. Perhaps this is just an abstraction, a dizzying thought experiment with no practical application, but I can't avoid it.