What is happening to money these days?

I had the honor to share a panel recently with Jean Chatzky, author and journalist.  She knows about money, Jean does.  That's her beat, money and finance.  And it turns out she looks a little like Alice in Wonderland.  How apt.  How poetic.  Can there be a better metaphor for the world of money now?  Think of Jean as our Alice. 

To encourage the metaphor, Jean came to the panel bearing Dodgsonian (Carrollian) puzzles, including this stunner.  Apparently studies say we spend a credit dollar more easily than we do a debit dollar and a debit dollar more readily than a cash dollar.  And this strikes at the heart of the economics paradigm.  Economists rely on the idea that that all money is created equal. 

Certainly, we have heard evidence of this before.  Zelizer's work at Princeton on earmarking is an examination of how the categorization of value can change the value of value.  And my favorite example: a couple of years, the Canadian government tried to roll up the Baby Bonus it created after WWII.  It wasn't much money, about 14 dollars a month.  But there was a great outcry because many households treated these 14 dollars differently from the rest of the dollars in the household budget. (Roughly: they belonged to women who had license to spend them on discretionary purchases.)

Generally, though we treat these as exceptions, as events that occur on the margin of the economics paradigm, as anomalies with which we can live, as differences that make no difference theoretically.  And maybe this is right.  (But what if it isn't?) 

The liberating thing about value as money is that it's "colorless."  It carries no meaning.  When value is "at rest" in this way, it is culture free, non denominational, undeclared, so to speak.  It will become cultureful when used to buy a Hummer or a Prius.  But for the moment it is value free.  All units of value are the same.  (Until they aren't.)

I have been tracking the stories about the rise of negotiating over prices (aka haggling).  This was a fixture of market economies until the installation of the fixed price.  Certainly, haggling was allowed at tag sales and farmer's markets.  But these too were exceptions that proved the rule.  Mostly, we think that prices should be fixed, and anything else is unseemly and unduly complicated.  (And we persist in thinking this even as digital technologies threaten to make fixed prices the antique of another age.)

Haggling appears to be on the upswing.  Apparently, it is now possible to haggle at places like Nordstrom and Best Buy.  Really.  I have no personal data here because Canadians do not question prices.  (We would rather pay too much than risk being identified as a "trouble maker." )

So what is going on with money?  It's behaving in new ways on both sides of the buyer-seller divide, becoming more meaningful, cultureful even when in storage.  Or maybe this is just noise generated temporarily by our Wonderland economy.  Perhaps  the conventional idea of value is perfectly safe, fixed at anchor even when driven about by high winds and water.  On the other hand, if even this is in play…


Carroll, Lewis (aka Charles Dodgson). 2005. Alice's Adventures in Wonderland. Old LandMark Publishing.

Noguchi, Yuki.  2009.  Haggling Picks Up Steam During Recession.  NPR.org. August 10.  here.

Zelizer, Viviana A. 1997. The Social Meaning of Money: Pin Money, Paychecks, Poor Relief, and Other Currencies. Princeton: Princeton University Press.

3 thoughts on “What is happening to money these days?

  1. Bruce Davis

    I tell a story about a young woman I was observing whose had managed just such cultural alchemy to justify spending £3000 on a new kitchen/bathroom (that choice was still to be made). I couldn’t work out where the money had come from; not her father, and not from her surplus cash. (As a trainee teacher all her money disappeared to direct debit land so where had it come from?) Day 3 of observation the truth came out when I asked about the direct debit of £15 per month that represented her student loan (of about £3000 funnily enough) on her budget list of direct debits. It turned out that our frugal teacher had never spent her student loan (interest rate in the UK 1.5%) and put it in an ISA (tax free saving account with allowance of £3600 per year). Her student loan was her ISA and as such justified in purchasing a kitchen with the cash! When I tell this story to people who run banks they realise that there is more than one world of money in which we live and perhaps theirs is the Wonderland!

  2. Ethan Decker

    For a while economists–on second thought, it’s probably psychologists–have known that a tax rebate dollar is “different” from an earned dollar; the former is spending cash, while the latter goes to pay bills. A $10 bill found on the street is likewise a windfall to be used for fun, even when it’s nestled next to a $10 in your wallet that has to pay for eggs and toilet paper. And that same $10 bill is barely enough to tip a valet to one person, while it might be a week’s meals for another.

    So while money is drab compared to a Prius, is it ever colorless? It clearly has different shades in the eyes of the high-stakes stock trader–for whom millions might be a rounding error–and the migrant worker–for whom millions might be a hazy abstraction.

    The riskier bet is that we’re rational agents in a logical market. It makes for easier economic models, but not necessarily for more accurate ones. The safe bet is that we’re already through the looking glass, and money has always been colorful.

  3. srp

    Actually, Ethan’s comment is inaccurate. There is a host of empirical evidence that people are much more likely to save tax rebates and other one-time windfalls than they are money from raises. Just google “permanent income hypothesis” and track the many, many studies of spending behavior with different sorts of tax cuts. Bush’s last tax rebate stimulus, for example, was heavily saved rather than spent.

    It makes perfect sense; most people would rather have a fairly steady rate of consumption rather than highs and lows (there’s a story about diminishing marginal utility of consumption in any given period that gives further support but is not essential). Given that preference, there is a tendency to engage in consumption smoothing in the face of varying income, which means saving and dissaving in response to temporary income shocks. It is true that the data do not show 100% correctness of the theory: contemporaneous income accounts for more consumption than it “should” in a simple permanent income mode. But the qualitative relationship is still one where windfalls are less likely to be spent than permanent increases in income.

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