by David Wolman
We order mai tais and burgers, and von NotHaus launches into stories about seeing Santana at Diamond Head in the early 1970s, his 1985 trip to Japan as a goodwill ambassador, the Free Marijuana Church of Honolulu, which he founded (“The service is inside your head!”), and how Hawaii is special because everyone is a minority here.
Von NotHaus washes down his mai tai with a pint of Guinness. Listening to the gentle rhythms of the ukulele, he briefly sets aside his megalomania and revolutionary ramblings and begins talking like a person who’s getting on in years and contemplating his mark on the world. “I don’t really have a lot of piss and vinegar left in me, you know? I’m trying to do everything I can to get those people their money back.”
By those people he means Liberty Dollar investors/participants/ supporters/suckers/early adopters. One associate sent von NotHaus pretty much his entire pension, $260,000, to buy Liberty Dollars, and now he doesn’t know when he’ll get it back, if ever. Another enthusiast sent von NotHaus tens of thousands of dollars to convert into Liberty Dollars. That money arrived the day before the raid, so von NotHaus’s colleagues didn’t even have time to make the silver purchase. “So now he’s out of his property, his silver, and his money,” says von NotHaus.21
And von NotHaus’s ninety-one-year-old mother had what he says was 16,000 ounces of silver locked up in her son’s private currency experiment—about half a million dollars’ worth. In the summer of 2010, when he was caught violating the terms of his bail for minting and selling Hawaiian Dalas, Tea Party Dollars, and other derivatives of the same model he was already in trouble for, he had to borrow $1,000 from his mother so that he could report to the judge in North Carolina to accept his jail sentence. (The charges against the Liberty Dollar group were brought in Asheville, North Carolina.) “I have like $72 in the bank,” he says. “I’m paying her back in weekly installments” with money earned from sales of commemoratives from the Royal Hawaiian Mint.
“That must be pretty painful,” I say.
“It is. But she trusts me. So do all the other incredible people who believed in the Liberty Dollar.”
In recent years, and especially in the wake of the raids and subsequent charges that put a stop to the Liberty Dollar, von NotHaus has become both a media whore and darling. He craves the podium, while those who give it to him get the dual benefit of his unconventional ideas and nonexistent filter when it comes to articulating them. They also like quirky stories, and what’s quirkier than trying to supplant “real” money with D.I.Y. silver coins stamped with “Trust in God”?
The weird thing is that I find myself admiring von NotHaus. It’s not the conspiracy theories, obviously, or even the Liberty Dollar per se. Anytime someone tries to sell you something by shouting that it isn’t a scam, you’ve got to worry a little. The Federal Reserve’s conjured dollars, seigniorage profits, and offloaded debt in the form of government-issued paper may sound like a scam too, but a confusing and inflationary system isn’t necessarily a deceitful one.
Von NotHaus’s claim that the Liberty Dollar could compete with U.S. currency the way Federal Express competes with the U.S. Postal Service doesn’t hold much water, either: while there are no laws against delivering packages, there are laws, however obtuse, against too much monetary mischief. His questions about money’s worth are refreshing, but I worry that so much slandering of the national currency will create a kind of self-fulfilling prophecy of undermining it, when it fact it may be the best system we could ever come up with. And it goes without saying that I disagree with the idea of reverting to some old form of physical money.
Yet I appreciate von NotHaus the dreamer. Here is a person who decided to scrutinize one of the most omnipresent elements of our lives and then ask: why does it have to be this way? Then he had the audacity to propose something else. His “solution” may be offbeat, but who else is out there, badgering the establishment about the form, meaning, and value of modern money?
The Samoan fire-dancer is now onstage at the luau, and von NotHaus keeps looking over my shoulder to watch. The statuesque man, covered from his midsection to kneecaps in dark tattoos, spins, throws, stomps, and claps to the music, with his two torches whirling in hypnotic circles. I look back at von NotHaus, who’s now hunched over his drink, the fire from the dancer reflecting in his glasses. He’s crying a little.
“All these people whose property was seized in the raids—they really wanted to do something good for the country,” he says. “I’m just the point person. And I’m not going to cop a plea. This is my last hurrah. I’ve got to crow as much as I can.”
When I ask if he feels guilty, he snaps back into firebrand mode. “Guilty for what? That is a bad word, David. I haven’t done anything wrong. I’ve done everything possible to keep this above board and the government HAS NO CASE. Now I’m doing everything I can to get people their property back.” He insists that all of his supporters still stand by him and his private currency, and indeed it’s hard to find Liberty Dollar associates complaining that they were ripped off.
IN MARCH 2011, a federal court convicted von NotHaus of conspiracy and counterfeiting. Following the verdict, the lead U.S. Attorney for the government said: “Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism.” She went on: “While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country.... We are determined to meet these threats through infiltration, disruption, and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government.” Von NotHaus will appeal, of course, while federal prosecutors work to take (by forfeiture) an estimated $7 million in Liberty Dollar coins and bullion.
Yet this latest round of post-conviction publicity has also renewed discussion as to whether the government may have gone too far. A new team of lawyers from Virginia has volunteered to help von NotHaus with an appeal. Who knows? Maybe the guy really is on to something big, or at least paving the way for someone else to do so. Or maybe he needled the establishment in just the right way, provoking the rest of us to think a little more about how it all works. “All government currencies are going down, David,” he told me that night at the luau. “They came after me because they don’t want competition.”
CHAPTER 7
The Revolutionaries
E pluribus unum
“Out of many, one”
Sonu Kumar owns a dusty electronics repair shop on a rutted dirt road west of the Indian capital of Delhi. Surrounded by ancient television sets and a few suspect-looking VHS and DVD players loaded on rickety shelves, Kumar sits hunched over a table strewn with spare parts.
He points a small screwdriver into what looks like an unsalvageable transistor radio. Yet after a couple of turns, followed by a pinch with pliers, a crackle of static breaks the silence. A moment later a Hindi-language dance tune pours forth, spilling into the street.
The customer hands Kumar two crumpled 100-rupee notes (worth about $5), which vanish into a shirt pocket. Until recently, those banknotes, like all of Kumar’s earnings, would have stayed bunched up in that pocket, or crammed into a hiding spot in his upstairs apartment.
On the opposite side of the road from Kumar’s shop stands a cluttered drugstore, Sharma Medicos, where owner Lakhnlal Sharma fills prescriptions and sells multivitamins, shampoo, prepaid minutes for cell phones, and, as of a few months ago, bank accounts.
Kumar, who is twenty-one, walks over and greets the pharmacist. The young repairman places 1,000 rupees worth of bills on the counter, pulls out his cheap-o Nokia cellphone, and starts punching a few quick codes. A moment later he receives a text message confirming that his savings account with the State Bank of India has been credited 1,000 rupees. Sharma the pharmacist also enters numbers on his cellphone. The cash on the countertop is now rightfully his, as if he’d made an ATM withdrawal, so his bank account is debited 1,000 rupees.
That’s it. They’re done. It’s a decidedly undramatic exchange. Yet the technology powering this brief transaction is being heralded as one of the twenty-first century’s most promising weapons in the battle against poverty. For cash, it could prove to be the angel of death.
UPHILL FROM SEATTLE’S Space Needle, Ignacio Mas has just finished a call in his glassy office at the headquarters of the Bill and Melinda Gates Foundation. In recent years, the Gates Foundation has committed tens of millions of dollars to support a kind of financial innovation that has nothing to do with Wall Street’s latest Byzantine products, and everything to do with the humble cellphone program Kumar used to deposit his 1,000 rupees. In November of 2010, Melinda Gates announced a $500 million commitment to further promote these kinds of advances in basic financial services, recognizing that merely having the means to sock money away empowers people, as she put it, “to use their own energy, their own talents to lift themselves out of poverty.”1
Mas is deputy director of the foundation’s Financial Services for the Poor program, and it’s his job “to teach the world that cash is the enemy of the poor.” Born in Spain and trained in economics at MIT and Harvard, Mas first began thinking about the relationship between saving money and money’s various forms in the 1990s while working at the World Bank. He was hop-scotching the globe from one financial fiasco to the next, trying to help governments regain more stable economic footing. While on the job, he began to suspect that something was amiss about the way experts at the World Bank and other institutions assess the economic health of a given country.
One key measure looks at how much the population saves. The figure is derived by comparing aggregate savings of the country with gross national product, which matters because it provides a broad picture of what the people, collectively, can afford. “But I began to realize that that tells you nothing about who’s saving,” says Mas. Is it 83 percent of the population, or is it only 3 percent who have money saved in banks?” Because if it’s just 3 percent, then the financial situation for the people is extremely unstable, even if the population as a whole has a large sum of money saved up.
He wasn’t the only person to see it this way, and among economists today, says Mas, “there’s much more of a sense that $1 doesn’t equal $1. To improve peoples’ welfare, you need participation in banking, not just money in banks.” How to expand participation, he realized, was a question that required fresh thinking about the interplay between saving, cash, and electronic money. “People tend to intellectualize this stuff, but it’s very straightforward. The poor are trapped using cash.” Herein lies physical money’s hidden cruelty: the privileged don’t want it and can easily avoid it; the poor can’t avoid it, and are most penalized by it. When your only option is cash, your assets are stuck in the material world. Without the ability to convert the cash into electronic money, you’re completely out—excluded from banking, and thus denied a safe and reliable way to save.
A savings account of some kind won’t remedy a fundamental shortfall of economic resources. But it can add a dose of financial stability where once there was only turmoil. This is banking in its most humanitarian form, even though, in the era of Occupy Wall Street, that sounds like an oxymoron. A rosy view of financial institutions might not come easily in the post–financial meltdown era, but in the developing world, banking in the uncomplicated, no-derivatives sense of deposits and responsible lending is of fundamental importance. You can’t feed or vaccinate your children with a bank account. Yet having a secure means to store money and conduct transactions empowers people in ways that few other tools can.
But conventional banking means making trips to a bank branch, waiting in line when you could be out earning income, maintaining a minimum balance—all requirements that are impractical and out of reach for the poor. According to one recent study, the average cost of a bank transaction, when you factor in all of the various travel, time, and fees, is about $1. That doesn’t sound like much to many of us, but for the 2.7 billion people in the world who live on an income of $2 a day, it’s a huge sum.2 So they stick with cash. (Not that costs and barriers to banking are only a problem for people in faraway lands. An estimated eighteen million Americans don’t have bank accounts, and twenty million rely on payday lenders and check-cashing businesses, which owe their very existence to the fact that their customers are trapped using cash.)
The poorer you are, the more crushing the costs and risks of cash become. Everyone you know—a habitually drunk cousin, an ailing neighbor, your belligerent spouse—can beg you for a few bucks, or steal the hard-earned money that you’re trying to save to pay your children’s school fees. A fire or natural disaster can obliterate your meager savings. And you may have to spend days riding buses and walking to the countryside to deliver cash to, or retrieve cash from, a relative. Even if a wire service is accessible, you must endure steep fees when wiring funds, which is especially costly when you have so little money to begin with.
In wealthy countries, money, for the most part, is born in the form of 1s and 0s on some distant computer, usually by way of a bank deposit. As old-fashioned as checks are, even they represent money in electronic form. How do you spend that money? If you happen to want or need cash, you stroll to a nearby ATM. Otherwise, you use your credit or debit card, because merchants are generally equipped to accommodate your electronic money needs.
Having money in electronic form is our ticket to both streamlined commerce and financial services that help us build stability beyond the next meal or visit to the doctor: mortgages, small-business loans, interest-bearing accounts, health insurance, home insurance, college savings, e-commerce, and more. This access is a luxury we barely notice.
Countries like India, however, are so completely hooked on cash that visitors can’t realistically go without it, unless they plan to remain inside their hotels during their entire stay. I was in a jetlag-induced stupor at Amsterdam’s Schiphol Airport, awaiting my connecting flight to Delhi, when I suddenly realized that I would need cash in India. There was no way around it. To pay for a taxi, buy water, hire a rickshaw, employ a translator, purchase a souvenir, pay the small entrance fee to visit historic sights—to do any and all of it, I was going to need physical money. My year without cash would have to go on pause.
In the arrivals hall at Indira Gandhi International, I made my way to a currency exchange window, set a few hundred dollars in the gray crater below the glass, and requested a mix of large and small bills. (As a tourist, I expect price gouging, but there’s no need to invite it by only carrying high-value notes.) The teller handed me a mountain of paper, and for a second I was seduced by the denomination effect. So many zeroes. A moment later the exchange-rate reality set in, and I saw the cash for what it was: a pain in the ass. No offense to Mahatma Gandhi, whose bespectacled face smiles on all of India’s paper money, but the softly worn banknotes renewed that whole suite of hygiene concerns, as if their very fibers were a preview of the humidity, dirt, and sweat of this megalopolis.
For me, India’s dependence on cash was a mild inconvenience. For locals, it’s crushing. Cash not only perpetuates peoples’ exclusion from banking and the formal economy, it also has a knack for being spent. This may sound contrary to the credit card effect, which shows that people have a harder time parting with cash versus plastic. But those studies test subjects in wealthy countries who live with both electronic and material money. When you’re poor, it’s cash that’s most turbo liquid.
Paper money is just as tough on the state. Although India’s central bank collects seigniorage like any other issuing authority, a recent McKinsey study found that if the government could find a way to make all of its payments to citizens electronic, India could save more than $22 billion a year. That would take a 20 percent chunk out of India’s national deficit, or fund the country’s major food aid program for two years. It would also get people saving.
The poor need better ways to save because they lead deceptively complex financial lives, and becau
se it’s almost impossible to break the cycle of poverty without money in a bank or something like it. Rural farmers receive essentially the whole year’s income in one or two lump sums, which means they must stretch their earnings from one harvest to the next. Migrant laborers have the potential to earn more frequently, but usually in smaller sums, and they don’t know if they’ll have income tomorrow, or at all this week, which means they too must find ways to spread resources over time. As for people with menial employment, the salary may be dependable, but the amounts are still so paltry that day-to-day management of resources is as crucial as it is for the farmer who gets paid twice yearly.
Such instability guarantees vulnerability. People are climbing out of poverty all the time, but financial shocks are pushing just as many right back into it. When unanticipated hardship arrives—a sprained ankle, broken-down scooter, sick child, or flood—the economic impact will wreck a family. For the billions of people who don’t have a bank account, having one could offer a chance to brace against such turmoil. Cash, in contrast, remains as inefficient and precarious as it was three hundred years ago.
Back in Seattle, Mas and I lunch at a café down the street from the Gates Foundation offices. When it’s time to settle up, Mas takes a $20 bill from his wallet. I give him a surprised look. “I don’t actually have a problem with cash,” he says, laughing. Advantages such as universal acceptability, anonymity, and simplicity, he says, are tough to beat. And he, like me, has the luxury of choice.
Mas’s indictment of cash is really an indictment of its inconvertibility, and the damage that engenders. By encouraging technologies that open avenues to electronic money, the Gates Foundation and other aid groups, from the World Bank to Mercy Corp, hope to reduce cash dependence while expanding access to savings and financial stability.