Rubbish arguments of social media - The magic disappearing $50 note.
13/06/2023 Category: dodgy-arguments
An argument widely-shared on social media criticizes the growing trend towards a cashless economy. The argument purports to demonstrate the superiority of cash as a payment system over electronic transactions. However, the argument is fundamentally flawed.
Surprisingly, even well-informed individuals sometimes endorse this argument, revealing that they have been misled. This underscores the point that when people are emotionally attached to an idea or concept, they can overlook the tests of logic and sound reasoning. Even individuals with strong intellects can be fooled by fallacious reasoning.
The argument can be summarized as follows:
"I have a $50 banknote in my pocket. I use it to pay for dinner at a restaurant, and then the restaurant owner uses it to pay for laundry. The laundry owner subsequently uses it to pay the barber, who uses it for shopping. After an unlimited number of transactions, the $50 bill still retains its $50 value, serving its purpose for everyone who used it. Meanwhile, the bank gains nothing from these cash transactions.
If I were to pay digitally via card at the restaurant, the bank charges a 3% fee, which amounts to around $1.50. The same fee applies to subsequent transactions—laundry, barber, and so on. Consequently, after 30 transactions, the initial $50 is reduced to $5, with the remaining $45 going to the bank due to digital transaction fees. Once it's gone, it's gone! Cash is king!"
This argument is nonsensical. The $50 mentioned is essentially a token. After 30 transactions, its value remains at $50, having been used in $1500 worth of economic activity. How much of this has been lost to bank fees? Some, undoubtedly.
The argument wrongly assumes that cash transactions are exempt from fees and charges, which is not the case, as banks do not operate for free. However, these fees for cash transactions are not explicitly highlighted.
Moreover, the costs associated with handling cash for all parties involved are actually higher than those for electronic transactions. These costs encompass factors like time and transportation expenses.
This fact was a primary motivator for the shift to electronic transactions. Therefore, the percentage of the $1500 in economic activity lost to the bank or other costs is likely higher in cash transactions than in online transactions. Additionally, the added costs of cash handling are typically reflected in the prices consumers pay. Thus, isolating the $50 note, as this argument does, amounts to a misleading story.
In conclusion, this reasoning is entirely erroneous. It appeals to those resistant to change who prefer traditional methods, as well as individuals with a general distrust of banks.
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