Credit card exchange fee externalities

This week's Economist contains an article making the argument that credit card points represent a transfer from less affluent to more affluent people because businesses taking cards price in the average 2% exchange fee that includes the points. So those who use cash or loyalty points free debit cards don't get the benefit of the points, thereby transferring wealth to those who do. 

I get that. I've heard the argument before. So far so good.

But what about the benefits of reducing the amount of cash in circulation and thereby the transaction costs associated with securing the cash. All the extra layers of security guards, armored trucks, trips to banks at the end of the day to deposit cash, etc. The diminished risk of a store being subjected to an old-fashioned pistol-toting hold up because crooks know that the risk-reward balance isn't there if a store will have very little cash in the till. There are all sorts of benefits in terms of diminished transaction costs to trimming down cash. Pre-crypto, the traceability of digital commerce made policing it a little easier, so long as institutions lifted a finger on their Know Your Customer efforts, as Morgan Stanley apparently has left off doing.

One could produce arguments that that whole value chain of physical security represents a lot of employment possibilities for working class people, but that depends upon the cynical assessment that these people are so ineducable as to be unemployable in a digital world, which I reject out of hand. In the form of the market and we have just decided that we don't care enough to do the educating.

Alternately, one could argue that, to the extent that the cash-based world depends on higher levels of person-to-person interaction, community of shared interest and mutually acknowledged interdepency than does a digital one, and that all that is preferable. That's a fun thought exercise.

My gut is that digital commerce -- pre-AI -- is less carbon-intensive than cash-based commerce, but that would be a complex thought process.

Undoubtedly, however, the cash-based world provides for a much richer range of dramatic situations suitable for action movies. Office Space pretty muched plumbed the depths of that one and it came up all comedy, no action. But eminently worth revisiting.