Money Laundering

The author of this article writes about how individuals are losing faith in the monetary system because their currency is losing its value. People are looking to other ways to barter instead of using traditional currency, and in this particular example, they are using Tide laundry detergent.

By Jeffrey Tucker
Mar 15th, 2012
Whiskey and Gun Powder

The story from The Daily swept through the Internet with blazing speed. The report: Criminals around the country are stealing an inordinate number of bottles of Tide laundry detergent. This is not because the criminals plan to go into the laundry business. There is not a “grime wave.” It seems that these Tide bottles are functioning as a store of value, even a form of money, within many black markets.

As the story memorably puts it, on the street, Tide is known as ‘liquid gold.’ Harrison Sprague of the Prince George’s County, Maryland, Police Department says that his undercover agents are asking for drugs but being offered Tide instead. They are busting drug rings and finding more blue liquid than white powder.

To be sure, some news outlets are raising some questions about this story, pointing out that Tide theft doesn’t seem to be a national problem. For my part, I have no problem with the credibility of the report. In fact, it seems entirely reasonable that new forms of currency are popping up in black markets. This is why stores are starting to add anti-theft devices to the bottles.

The driving force here is a war on the dollar. Carrying around vast amounts of cash raises questions among the authorities. It is increasingly difficult to “wash” the money through the banking system. And in any case, dollars are always losing value. So it makes sense to look for other ways to facilitate exchange. This is hardly unusual. The digital economy is getting ever better at bartering services and software as an alternative to letting dollars change hands.

But if we are to think of Tide as money, that means its use goes beyond the barter stage. People aren’t acquiring Tide to wash their clothes, but rather to trade for other things, like drugs. In a limited sense, then, Tide is being used to facilitate indirect exchange. That is to say, it has become a money.

Actually, there are many conditions in which alternative monies can come to exist. You can see this among kids when they trade candy following Halloween night. The kids will gather and first begin to barter, but as the trading term continues, one candy will emerge as the one to get — not to consume, but to trade for other things. For a brief time, one candy will emerge with monetary properties. As trading comes to an end, that very candy will be demonetized and re-emerge as a consumption good.

Money is frequently reinvented under the right conditions, emerging from a commodity currently in use. Cigarettes become money in prison. War zones become hotbeds of currency competition too, in anything from liquor to matches. Throughout history, money has taken many forms, from shells to salt to animal skins. The usual qualities of a commodity that economists say make for good money: durability, divisibility, high value per unit of weight, uniformity of quality (fungibility), recognizability.

Tide doesn’t qualify in every respect. However, it is durable in the sense that it doesn’t spoil. It is divisible. The tamper-proof top provides a measure of security against counterfeiting. True, it’s not as good as a precious metal, but traders aren’t worried about that. They are just looking for some marketable commodity that can take the place of the dollar, which has become extremely risky to use for blatantly illegal purposes.

The government’s war on the dollar as a means to fight the drug war wins nothing in this case. So long as there is a market, so long as there is demand and supply, there will be pressure to come up with some means to make indirect exchange possible. Or so Ludwig von Mises explained in his treatise The Theory of Money & Credit, written in 1912, at the dawn of the central banking age.

One major problem is Tide doesn’t have a stable supply, so its value as a means of exchange will be subject to inflationary pressures. The more that enters the black market, the more its price falls relative to the goods and services it can buy — the inflationary tide could rise and rise.

But as you think about it, as bad as Tide might be as a currency, there is a sense in which the dollar is actually worse. It costs less to print on linen than it does to make a bottle of laundry detergent, meaning that the dollar is more likely to be inflated into oblivion. And whatever is wrong with detergent, if the price falls low enough, the producer doesn’t have any reason to keep making it. Profit and loss signals govern how much is produced. Its physicality alone imposes some limit — and this is not the case for the Fed’s data entries that it calls money.

The monetization of Tide demonstrates something critically important about the institution of money itself. Its existence in the market owes nothing to the government or some social contract. Its emergence, as Carl Menger argued in the late 19th century, grows out of market exchange. Selecting which commodity is to become money is a matter for entrepreneurs and market forces.

No central planner — even one within the black market community — decided that Tide should become money. Also note that Tide is produced entirely privately, which provides an indication of what could be true of all money today. We don’t need government to select it and make it. The market can handle this just fine.

There is a final lesson to observe in this case: It is sometimes asserted that only government is smart enough to be able to select, make and manage monetary affairs. Surely, private parties can’t handle this job, and the attempt will just lead to chaos. But this is not so. Private markets can do all these things, including juggling many different currencies in competition with each other and managing the price relationships between them. This goes on in the developing world all the time, with even young children learning the math and workings of the currency market.

The biggest problem Tide money now faces is a security issue. When you see the armored car driving up to the local Walgreens, you’ll know that they are working on getting the problem solved. The sight can make us all nostalgic for the old days when our official money was something at least as real and useful as laundry detergent.

Regards,

Jeffrey Tucker

To see original article CLICK HERE

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