Law in the Internet Society

Cash is King

-- By ShawHorton - 29 Dec 2014

Cash is becoming increasingly irrelevant in our economy. Although Americans have become less reliant on credit cards since the 2008 financial crisis [1], bills and coins represented just 7.2% of the United States economy in 2012 [2].

Not a useful statistic. Money has a velocity, and it's not surprising that the medium of exchange facilitates the exchange of goods and services at a level much larger than its own volume. If it didn't, it couldn't work. You might as well say that the catalyst is only 7% of the mass involved in a chemical reaction, as though that implied that tomorrow the catalyst wouldn't be needed anymore.

Because consumer spending accounts for roughly 70% of the United States economy [3], corporations have an enormous ability to not only surveil buyers, but influence their actions.

This is non-sequitur. You can make it coherent, but you need another thought in between.

Legal Tender

Under 31 U.S. Code 5103, “United States coins and currency are legal tender for all debts, public charges, taxes, and dues.” According to the U.S. Department of the Treasury, this means that all United States money identified above are a “valid and legal offer of payment for debts when tendered to a creditor.” [4] This does not, however, mean that a private business or person must accept cash as payment for goods or services. For example, Apple required the use of a credit card to purchase the iPhone in 2007. [5] Only a state statute may prohibit practices like this.

And what did you find out about state legal tender laws when you looked?

Erosion of Cash Payments

At the very least, the United States retains the ability to mandate the acceptance of cash payments. This is starkly different from Europe. For instance, the absence of this ability may be playing a part in Sweden’s movement away from cash. In 2012, bills and coins represented a paltry 2.7% of the Swedish economy. [2] Many Swedish companies, including large retailers and mobile phone providers, have required the use of a credit card as a form of payment. Finally, three of Sweden’s largest banks have stopped manual cash-handling services in a majority of their branches.

Bengt Nilervall, the head of payments at the Swedish Trade Federation, argues that this transformation has occurred because of consumer trust in the financial system. This trust, however, is misguided and dangerous. The retention of the right to pay with cash is important for two reasons. First, cash remains the only truly anonymous form of payment. Second, in a non-cash payment system, individuals may only buy or do what the system allows them to buy or do.

Credit Cards and Data Mining

Corporations can efficiently create detailed profiles of credit card users in a process called data mining. The New York Times recently interviewed Andrew Pole, a statistician working for Target. Andrew Pole discussed how corporations use purchase data and demographics to determine an individual’s personal preferences and needs [6]. For instance, he is able to determine whether a woman is pregnant before she buys a diaper simply by analyzing her purchase patterns.

Although this is not as overt as, for example, listening in on an individual’s private phone conversations, it is properly characterized as a form of surveillance. It is a significant invasion of an individual’s privacy, revealing information that consumers likely want to keep secret.

Those who favor the use of credit cards may argue that using cash is simply too inconvenient. For instance, it is very difficult to purchase items online without a credit card. Many people do not have the time to shop for everything they need in person. Moreover, they may argue that corporations are not concerned with individual shoppers. Instead, corporations are interested in patterns. These patterns allow retailers to stock certain products in particular stores based on the demographics of the area. Finally, they may argue that providing this information to corporations is worth it because of the benefits received. For example, companies offer credit cards with rewards or cash back, and retailers send targeted advertisements or coupons. Even if we were persuaded by these arguments, they do not address the possibility that companies will use the information destructively in the future. It is conceivable that credit card companies will sell data to other companies. Although the credit card companies would be legally obligated to disclose this to their users, people rarely read these types of contracts. The purchasers of this data may, in turn, make employment decisions based off of it. For instance, imagine Corporation A, a corporation run by a religious entity like the Mormon Church. They purchase data on the spending habits of their employees. As a result, they discover that an employee is engaging in pre-marital sex. Because the Mormon Church believes that it is immoral to engage in pre-marital sex, Corporation A seeks to fire the employee. To mask this, the corporation cites other plausible reasons for the firing, including poor performance or tardiness. If the employee seeks to sue the employer, it would be nearly impossible to prove the inappropriate conduct.

The Future

Android and Apple phones allow users to pay with their phones via NFC chips. Startups around the world are developing technologies that allows for biometric payments [8]. The proliferation of these alternative payment systems only exacerbates the problem. From a privacy standpoint, cash is the best payment system. In an ideal world, the government would require corporations to accept cash payments. Given the unlikelihood of this, however, it is important that government enact a strict regulatory framework around alternative payment systems to ensure some level of privacy.

So what is the idea you want the reader to take away from the essay? Put it up front, clearly and simply, so that the subsequent development keeps the reader's interest. Is it that cash should be king? If so, even the title is less than helpful. If it is that cash is fated to disappear, and that the consequences of non-anonymous payment systems are scary to you, that should be the jumping-off point for the essay, not a distant and hazy consequence of a mushy semi-conclusion.

Resources

Why don't you make links of your links? What's the point of breaking the natural use of the web? The wiki editor helps you to make links. See also TextFormattingRules.

[1] http://www.gallup.com/poll/168668/americans-rely-less-credit-cards-previous-years.aspx

[2] http://www.bloomberg.com/news/2013-10-27/stockholm-s-homeless-accept-cards-as-cash-no-longer-king.html

[3] http://research.stlouisfed.org/fred2/graph/?g=hh3

[4] http://www.treasury.gov/resource-center/faqs/Currency/Pages/legal-tender.aspx

[5] http://www.wired.com/2007/10/the-iphone-cash/

[6] http://www.nytimes.com/2012/02/19/magazine/shopping-habits.html?_r=2&pagewanted=1&hp

[7] http://www.creditcards.com/credit-card-news/retailer-data-tracking-privacy-credit-debit-cards-1282.php

[8] http://techcrunch.com/2014/04/14/quixter/

SECOND VERSION: The Disappearance of Cash

Although Americans have become less reliant on credit cards since the 2008 financial crisis [1], cash remains a largely unused medium for exchange. Consumer spending accounts for roughly 70% of the United States economy [2]. Because the vast majority of this spending occurs through credit card transactions, corporations have an enormous ability to not only surveil buyers, but influence their actions. To protect privacy, consumers must rely more heavily on cash payments and the government must enact a strict statutory and regulatory framework. Nevertheless, consumer laziness and government ineptitude will likely lead to the disappearance of cash in favor of non-anonymous payment systems.

Legal Tender

Under 31 U.S. Code 5103, “United States coins and currency are legal tender for all debts, public charges, taxes, and dues.” According to the U.S. Department of the Treasury, this means that all United States money identified above are a “valid and legal offer of payment for debts when tendered to a creditor.” [3] This does not, however, mean that a private business or person must accept cash as payment for goods or services. For example, Apple required the use of a credit card to purchase the iPhone in 2007. [4] Only a state statute may prohibit practices like this. Although states like Utah have passed legal tender acts, they generally only reaffirm the language provided by federal law [5].

Erosion of Cash Payments

At the very least, the United States retains the ability to mandate the acceptance of cash payments. This is starkly different from Europe. For instance, the absence of this ability may be playing a part in Sweden’s movement away from cash. In 2012, bills and coins represented a paltry 2.7% of the Swedish economy. [6] Many Swedish companies, including large retailers and mobile phone providers, have required the use of a credit card as a form of payment. Finally, three of Sweden’s largest banks have stopped manual cash-handling services in a majority of their branches.

Bengt Nilervall, the head of payments at the Swedish Trade Federation, argues that this transformation has occurred because of consumer trust in the financial system. This trust, however, is misguided and dangerous. The retention of the right to pay with cash is important for two reasons. First, cash remains the only truly anonymous form of payment. Second, in a non-cash payment system, individuals may only buy or do what the system allows them to buy or do.

Credit Cards and Data Mining

Corporations can efficiently create detailed profiles of credit card users in a process called data mining. The New York Times recently interviewed Andrew Pole, a statistician working for Target. Andrew Pole discussed how corporations use purchase data and demographics to determine an individual’s personal preferences and needs [7]. For instance, he is able to determine whether a woman is pregnant before she buys a diaper simply by analyzing her purchase patterns.

Although this is not as overt as, for example, listening in on an individual’s private phone conversations, it is properly characterized as a form of surveillance. It is a significant invasion of an individual’s privacy, revealing information that consumers likely want to keep secret.

Those who favor the use of credit cards may argue that using cash is simply too inconvenient. For instance, it is very difficult to purchase items online without a credit card. Many people do not have the time to shop for everything they need in person. Moreover, they may argue that corporations are not concerned with individual shoppers. Instead, corporations are interested in patterns. These patterns allow retailers to stock certain products in particular stores based on the demographics of the area. Finally, they may argue that providing this information to corporations is worth it because of the benefits received. For example, companies offer credit cards with rewards or cash back, and retailers send targeted advertisements or coupons.

Even if we were persuaded by these arguments, they do not address the possibility that companies will use the information destructively in the future. It is conceivable that credit card companies will sell data to other companies. Although the credit card companies would be legally obligated to disclose this to their users, people rarely read these types of contracts. The purchasers of this data may, in turn, make employment decisions based off of it. For instance, imagine Corporation A, a corporation run by a religious entity like the Mormon Church. They purchase data on the spending habits of their employees. As a result, they discover that an employee is engaging in pre-marital sex. Because the Mormon Church believes that it is immoral to engage in pre-marital sex, Corporation A seeks to fire the employee. To mask this, the corporation cites other plausible reasons for the firing, including poor performance or tardiness. If the employee seeks to sue the employer, it would be nearly impossible to prove the inappropriate conduct.

The Future

Android and Apple phones allow users to pay with their phones via NFC chips. Startups around the world are developing technologies that allows for biometric payments [8]. The proliferation of these alternative payment systems not only exacerbates the problems I have outlined above, but also moves the momentum more squarely in favor of removing cash payment entirely. Consumers should be scared, but there is little that can be done.

Resources

[1] http://www.gallup.com/poll/168668/americans-rely-less-credit-cards-previous-years.aspx

[2] http://research.stlouisfed.org/fred2/graph/?g=hh3

[3] http://www.treasury.gov/resource-center/faqs/Currency/Pages/legal-tender.aspx

[4] http://www.wired.com/2007/10/the-iphone-cash/

[5] https://statelegaltender.com/federalist-society-white-paper/#_ftn10

[6] http://www.bloomberg.com/news/2013-10-27/stockholm-s-homeless-accept-cards-as-cash-no-longer-king.html

[7] http://www.nytimes.com/2012/02/19/magazine/shopping-habits.html?_r=2&pagewanted=1&hp

[8] http://techcrunch.com/2014/04/14/quixter/

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r3 - 05 Jan 2015 - 14:54:51 - ShawHorton
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