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Can Hard Currency Reduce Economic Efficiency? You Bet!

June 28, 2013

Conventional wisdom suggests that money creates economic efficiencies. But within geographically localized communities, barter can more effective. In early civilization, for example, traders operated mostly out of their own back yards and knew each other’s needs. As trade grew more complex, especially when geographical trade areas expanded, information grew imperfect, and the resulting commercial information vacuum necessitated the invention of hard currency.

Today’s cash-based economy depends on the equilibrium between customer demand and vendor capacity, but this ratio is heavily skewed with capacity far exceeding demand. The opportunity cost associated with a cash economy is staggering; perhaps $274 million per day or $100 billion per year, assuming a very modest 10% of excess capacity. Sole proprietors’ “time inventory” or overcapacity, juxtaposed to cash-poor customers, unnecessarily impedes trade and reduces communities’ standard of living.

While the velocity of money is inherently dampened by its finite supply, the velocity of trade is virtually infinite. The DUI lawyer, for example, whose house needs painting – and his neighbor, the painter, who faces DUI charges – are unlikely to know one another’s needs, except through the currency-based economy, e.g., paid advertising.

So why do communities deprive themselves of $100 billion worth of services?  They simply lack actionable information. changes all that, creating a central repository of the collective commercial consciousness.



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