I was at Big Daddy’s the other day for my annual liquor run. I’ve never met Big Daddy himself. He’s a chain. He’s big! In fact, I was in Big Daddy’s Store No. 47.
(He’s not that big. Apparently, there are only about 10 Big Daddy’s. But if Hyatt can get away with adding ten floors to the height of its New York hotel merely by numbering the elevator buttons to skip straight from 3 to 14 — so that when you’re on 16 you’re actually on 6 — I don’t see why Big Daddy can’t number his liquor stores and lounges any dang way he pleases.)
Anyway, I was there for my basic 1.75 liter bottle of Absolut — top of the line — plus my basic two gallons of whatever’s cheapest to refill the Absolut bottle with, since in mixed drinks no one can tell the difference . . . OK, I don’t actually do that anymore, but I used to . . . But what I’m trying to tell you, if I could just get you to focus for a minute, is that I saw on the counter of Big Daddy’s Store No. 47 a revealing sign:
WE ONLY ACCEPT THE NEW $100 BILLS
And I suddenly realized how smart the U.S. Treasury was in bringing out those new bills and assuring everyone that the old ones would stay good forever. Didn’t want to start a panic. Didn’t want to suggest the U.S. would ever default on its own currency. Didn’t want to acknowledge the size of the counterfeiting problem. (I don’t know how big that problem is, but I did get stiffed with a bad $100 bill myself, which I keep in my wallet if ever I lose a bet on whether you can taste the difference between Absolut and Big Daddy vodka in mixed drinks.)
No, Uncle Sam could take the high road, knowing that Big Daddy and the rest of the world would inevitably enforce Gresham’s Law. I can’t quite remember what Occam’s Razor is, or Plato’s Retreat, but Gresham’s Law says simply that “good money drives out bad.” (Actually, it says bad money drives out good, but I’ll get to that.)
Like many simple things (“a stitch in time saves nine”), this is very easy to remember but not so easy to dope out. Only you feel too stupid to ask. (What, exactly, is a “stitch in time?” Is it like “a point in time?” Is it some woven relativity thing, like a time warp woof?) So I’ll tell you. Gresham’s law — good money drives out bad — means that a nice crispy new uncounterfeitable $100 bill is soon going to be considered more desirable than the old kind, if only because guys like Big Daddy won’t accept the old kind. (For all I know, failing to accept legal tender is illegal, but who’s going to stop Big Daddy?) So if you have two $100 bills in your wallet, which one are you going to keep for yourself and which is going to be driven out of your wallet at the first opportunity? Good money drives out bad. Gresham didn’t decree it — it’s not that kind of law, I eventually realized, just as I began to doubt Occam was a barber — he merely observed that, given human nature, it was inevitable.
Good money drives out bad. Especially in places like Russia, where the soundness of the money is not taken for granted. At first, Russians were hesitant to accept the new $100s, wondering if they were really good. But by now I’m guessing the good ones are driving the bad ones out like crazy, meaning they’ve become the hot potatoes, increasingly wrinkly as they get passed from one greasy palm to the next and then turned in to the bank for a “good” one.
The criminals and tax dodgers here and abroad who allegedly sit atop millions of the old $100s must dole them out slowly, hoping to get good ones in return, or find someone to launder them at, perhaps, 90 cents on the dollar. Or eighty cents? I’m just speculating — I’ve spoken with no one from the CIA — but let’s say you’re a Colombian drug kingpin, or a Russian mafia mogul, sitting on 50,000 old style $100 bills — $5 million. You fear that in time people will not accept them, so you want to exchange the old ones for new. But how? Maybe you just go to your friendly banker, who in turn remits the old bills to his central bank which remits them to Washington to be exchanged. In Washington, they’re shredded for novelty items. Thus good money has driven out bad.
Or maybe you don’t have a friendly banker and you don’t have such an easy time. You show up at Big Daddy’s or its Russian equivalent to stock up for New Year’s Eve and walk out empty-handed.
As for counterfeiters, they can still print old-style $100s, but what will be the point once no one will take them? Uncle Sam can guarantee banks will take them. But not without checking them very carefully first — and perhaps taking your picture, too.
Not to run on too long about this, especially given my striking lack of any real knowledge. But there’s $380 billion in U.S. currency now circulating around the globe — mainly $100 bills, I think — which Lester Thurow has noted comes to “almost $5,400 per [American] family. How many American families do you know with that kind of cash in their homes? Not very many.”
In other words (and even after accounting for cash in American cash registers, petty-cash boxes, cookie jars and bank vaults), most American currency is abroad, in places like Russia, where there are still no checking accounts and the American $100 bill is the de facto currency for much of the nation’s commerce.
What will all these old $100 bills be worth? Will you be able to trade one new one for two old ones outside the Hermitage? (Wouldn’t that be an easy way to finance your travels, so long as the old ones you bring home aren’t counterfeit.)
My guess is that Big Daddy is the straw in the wind, and that pretty soon the old-style $100 bills will be rarely seen.
And, OK, for you mizzable purists in the crowd, I suppose I’d better acknowledge that, strictly speaking, Gresham’s law is not that “good money drives out bad,” but that “bad money drives out good.” Not because the concept is so much different, just that by “drives out” he meant out of circulation, not out of favor. People won’t be paying for things with “good” money — they’ll hoard it — if they can get away with paying with bad. But Big Daddy says: not in my store.
Maybe the reason Gresham said it the way he did is that through much of history, governments have issued devalued, “bad” new money (like silver coins that were slightly underweight), hoping no one would notice. This bad new money would drive the good old money into hiding. But sometimes — as with this new $100 bill — the newcomer is the GOOD money (because it’s harder to counterfeit), and so any sensible maxim should make IT the subject of the sentence. NEW drives out OLD. WINTER drives out FALL. GOOD money drives out BAD.
And in the long run, this good money will drive the old money out of circulation, because people won’t accept it.
Quote of the Day
I don't understand a goddam thing about insurance, except that I don't want to have any.~ex-Harvard Treasurer Paul Cabot
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