Can I destroy large amounts of money?

Factual Questions
1

I was idly thinking today about the distinction between money and value and I came up with something interesting. Say you have an island economy that has 100 people, 10,000 apples and $10,000 in the money supply, divided equally among the 100 people. Thus, the price of 1 apple is exactly $1 and each person can buy exactly 100 apple. Now, imagine, I took my $100 and threw it into my fireplace, I’ve reduced the total money supply of the island to $9,900 but the total value of the economy of the island is still the 10,000 apples which means the price of 1 apple is now 99 cents and each person can buy 101 apples. In effect, what I’ve done by burning my $100 is managed to hand every single person on the island one extra apple.

So say I’m a strong libertarian and I believe the best way to help people is to simply give them money and let them make the right decision about how to best help themselves. I’ve worked through that reasoning and figured that they most effective way to help people is to simply destroy my own store of money. If I have $100, this is easy. I just go to the bank, withdraw the money and burn it. But say I have $10 million, physically withdrawing that sum of cash would be cumbersome.

I was wondering if there was any mechanism whereby I could simply instruct the bank to destroy the money for me. To be clear, I don’t want the money to go anywhere, I don’t want the bank to take it, I don’t want the government to take it, I just want it to be gone, as if I had withdrawn the cash and burnt it. In theory, all it would take is just to fiddle some numbers around in the computer but I wouldn’t have a clue how I would go about doing it. Is there a form I can fill out or something? Has anyone ever done it before? Is it common?

2

I think the only thing you could do is put the money into a no interest account, or withdraw it and hide it away somewhere to never be spent. The bank can’t get rid of the money without it going somewhere that’s the heart of accounting. Anytime you take money out of one account it MUST get put into another. Do a google search on Balance Sheet or two column journal and you’ll see.

So no, the only way to take the money out of circulation is to not spend it.

3

I think part of the problem (and economists, please correct me) is that an island economy is something called a zero-sum system: no new money ever comes in, what you see is what you get, and so destroying money increases the value of everything in the system. In the real world, however, I don’t believe this works.

4

I had never heard the term before now. I thought it seemed odd how fast this economy reacted to money being destroyed.
Regardless, the question is about wheather or not the bank can be ordered to withdraw money on your behalf and not give it to someone else. The answer is still no. If they did this, their debits and credits would not balance out and someone wouldn’t get to go home from work until the balance sheet balanced.

5

If someone wants to buy an apple, why is the seller going to reduce the price from $1 to .99 just because you destroyed your money?

6

I suppose that depends on if we have a capitalist or communist society.

7

It won’t work but not for that reason. The reason it won’t work is because the size of the money supply is not fixed but determined by the central bank which can increase or decrease it at will. If you burn $10 million dollars, then the central bank will see that inflation is too low and adjust inflation so there is an extra $10 million dollars more than if you had not destroyed it. Thus, what you’ve done is transferred that money to the government, not the people.

8

Lets say every person on the island eats 50 red apples and 50 green apples a day. There are 50 red apple farmers and 50 green apple farmers on the island and each apple farmer can pick 100 apples a day. Every morning, I go out into my field and pick 100 red apples, I go to the central market and sell 50 of my red apples to the market for $50. That evening, I go back to the central market and buy 50 green apples for $50 and go home and have my dinner.

Now, one day as I’m picking apples, I discover a magic potion which cures my hunger so I never need to eat again. I still pick my red apples and sell all 100 of them at the market but I burn the $100 I get. When nightfall comes, suddenly theres a surplus of apples so everyone gets 1 extra red apple which means they paid less for each apple.

In a real economy, the free market replaces the role of the central market and things get a bit more complicated but the essential nature of the transaction still remains the same.

9

I’m not too keen on your original scenario

You are equating ‘money’ with ‘wealth’ and assuming a 1 to 1 correlation.

Rather than ‘apples’ I would have used ‘apple trees’

  • eg: things that produce a flow of something useful

Rather than going down the path of trying to decide what ‘money’ is, which we could waste about 50 years attempting to do, you are actually describing a rudimentary concept in Economics called the Fisher Equation :

 M x V  =  P x T     eg: Money x Velocity of circulation  =  average Price x Transaction count

Decrease M and V might rise, if not then Price could rise (inflation) alternatively the number of Transactions could fall (negative growth).

What actually happens is uncertain, we could spend another 50 years figuring out how what is called ‘the Transmission Mechanism’ works.

However in very primitive economies ‘Money’ is a commodity and in an economy with just two commodities ‘Silver coins’ and ‘Everything Else’ a decline in the availability of one thing will generally make all other things fall in value relative to it - in short if there are fewer ‘Silver coins’ then ‘Everything Else’ will become cheaper in terms of ‘Silver coins’.

It is pretty easy to see that a really massive influx of ‘Silver coins’ would probably lead to inflation.

Personally I prefer to look at ‘Money’ as oil, like a lubricant, too little of it makes things slow down and too much of it makes things speed up.

However people are alarmingly good at making things into ‘Money’, what really matters is what people think is going to happen - which Economists call ‘Expectations’.

If you can convince people that there is going to be a slump, then you’ll get a slump, and if you can convince them that there will be a boom, then there will be a boom.

It all boils down to psychology - which is a bit like herding cats suffering from ADS.

To answer your question, you could instruct your bank to withdraw cash from your account and stick it in a strong room. Just sticking it in a zero interest account would do nothing, banks lend about 90% of their deposits - and don’t much care whether they are paying you interest or not.

I doubt if withdrawing 1% of notes and coins from circulation would make much of a change to an economy, and if it did the banks would buy more from the currency issuing authority, which would leave them less to lend to other people. Stickier lending might cause a slowdown in the economy, but since the central bank controls interest rates, that could be offset by a well publicized drop of 0.25% in the ‘official’ interest rate.

10

I’m not sure about being able to instruct the bank to delete your balance but as for burning large amounts of cash see how the K-foundation burned a million quid. There seem to have been no legal repurcussions.

11

That won’t take the money out of the economy, as the bank still has it available to lend to someone else. You would have to physically take possession of the cash to remove it from the economy.

12

You’re right, I thought about that later.

Are there laws against that in Scotland (is that where it was)?
In the U.S. it’s illegal to deface money in a way that renders it unfit to be re-issued.

13

Really?

I thought the way those penny-squishing machines worked was that it’s only illegal if you’re attempting to defraud.

14

I’m not sure about the legal position, but given they were hardly furtive about it (releasing a movie and all) it would seem reasonable to infer that no laws were broken.

15

U.S. Code : Title 18 : Section 333

16

This is not a problem at all. We can accomplish the same thing. In fact, by not technically taking the money out of circulation, the US Treasury will not print more money. It’s all very simple: Send your money to me! I promise I won’t use it.

17

Except that you’ve destroyed your money, and can no longer afford to buy any apples. There is now a money supply of $9,900, divided among 99 people, or $100 per person, just like before. There are still 10,000 apples available to everyone but you. I hope you have your own orchard; otherwise you’re SOL.

18

No, before when there was a dollar per apple on the island everyone was happily selling apples for a buck a time and all the apples were getting sold. Now, with the smaller money supply, people are going to wind up with unsold apples. So they will cut you a deal on the apple surplus in order to have some money for their apples instead of no money. And after a small amount of toing and froing, it will emerge that the average price of an apple is now $0.99.