Why Aren't Cashless Economies Realistic?

Regular readers may already suspect, why I believe they are not. The desirable neutrality of a cashless economy, also assumes that all kinds of resource capacity can be treated in essentially the same way. There's only one problem. In the long run, it's not possible for national government budgets to "match" observable sets of (secondarily funded) time based preferences, with shown preferences in terms of primary resource capacity. Knowledge and time based wealth are already being threatened, as the good deflation of traditional manufacture conflicts with the organizational capacity of non tradable sectors.

Asset creation (particularly housing) also reflects the time based wealth, which societies are attempting to hold in check. Primary and secondary sources of wealth origination could become further unbalanced, if the slowdown in international growth continues. However, a local marketplace for knowledge based skill, could be generated alongside the traditional production and asset creation of general equilibrium. Time based wealth needs not just a secondary role, but also a primary role in present day economies.

Nick Rowe also questions how cashless economies could work, in a recent post:

If you want to talk about a world where bonds are used as a medium of exchange and medium of account, then I will reply that your "bonds" are not really "cash".  

If you want to talk about a barter economy, where any two people can directly swap any fruit with any other fruit...then okay, that really is a cashless economy. But that does not look like where our economy is headed.

Consider why this is the case. Time based coordination is difficult to achieve with other forms of resource coordination, because present day budgets aren't built to align the two for broad macroeconomic purposes. Governments haven't taken the secondary wealth role of today's services into account. As a result, that secondary role matters greatly, whenever services can't contribute to wealth creation through gains in traditional manufacture and asset formation. While monetary policy is more effective - and important - than fiscal policy, too much of today's knowledge based wealth was envisioned on fiscal terms.

Fortunately, it is possible to align time based production/consumption needs at local levels, with other forms of resource use. Local corporations would be able to utilize time value (as opposed to bonds for instance) as both medium of exchange and medium of account, alongside money's primary role in this regard. However, the local coordination of symmetric compensation is as far as it goes, for time value and money in a dual capacity. The spontaneous conditions of asymmetric time compensation are generally necessary, for the coordination of larger economies.

Understanding the difference could be key, for potential services growth. Central bankers are (at least) attempting to maintain the asset values, which help to generate the asymmetric compensated services already in place. The problem - however - is that any spontaneous service formation associated with national budgets, is now limited. This reality contributes to the political free for all regarding services access, which has broken out in too many national arenas.

Asymmetric claims for time based compensation, contribute to the difficult nature of monetary neutrality at the margin. Statistically this can be difficult to decipher, because it also involves determining the representation of a still missing services marketplace. No one knows "true" preferences in this regard, because individuals seek consumption preferences along two dimensions which are further affected by income. One of those is time based preferences, while the other involves choices among resource sets which exist separately from time value.

By creating room for a time based marketplace at local levels, those with small wages could eventually find a better alignment for time based needs and other consumption preferences. Even though a cashless economy could theoretically provide this in general equilibrium, many political constituencies do not appear comfortable with full production and consumption potential, in this context. Already, monetary policy is not being treated as neutral, given the fact that technological deflation may be preferred, to the actual expenditure needs for today's services provisions which are already in place.