Showing posts with label electronic money. Show all posts
Showing posts with label electronic money. Show all posts
Wednesday, June 26, 2013
The Accounting System #12: Electronic Money Takes Over
previous: Unraveling in 1930 and the New Deal
But in the 1930's ubiquitous accounting was being held back by the sheer amount of human effort needed to produce accurate accountings. In addition to adding machines (bulky, mechanical predecessors to today’s electronic calculators), there was some mechanized counting and data manipulation using punch-card machines. After World War II the accounting machines used by humans to do data entry and calculation started a cycle of major upgrades. The machines now known as computers were invented during the war. The new computers could do more than arithmetic: they could be programmed to manipulate numbers and information in almost limitless ways. Starting around 1950 they became available to the largest corporations for accounting and data processing.
With the computer revolution the accounting system itself began to be virtualized. Records and programs were first kept on punch cards or punched paper tapes, then as years passed on magnetic tape, on magnetic disks, and then on hard disk drives. The rules of accounting could be written in computer programming code. Humans still made the rules, and understood the rules, but the code itself had no material substance to it at all. Accounting programming code could be printed out, or viewed on a machine, but its essence was just an arrangement of electric charges or anything else that could represent numbers and symbols.
Money — abstract, virtual, accounting money — began to be transferred between banks using electronic means, tracked by the computerized accounting systems. Various methods were used, but the important thing was that such transfers were accounted for. Otherwise someone could create (or destroy) money in an account by making a phony transfer. More directly, if the accounting system did not catch such errors or cheats, money could be created or destroyed just by changing the balance numbers in accounts.
By 2010, an American could still write paper checks, but once they entered the banking system they would be virtualized. Cancelled paper checks were no longer returned to their writers. In 2002 Germany started phasing out paper checks altogether, and other nations followed suit. An increasing percentage of transactions are done using credit cards or electronic direct transfers to and from bank accounts.
Money is now electronic, and The Accounting System, with its myriad tentacles, must be totally trustworthy or the entire global economy would be at risk. While identity thieves and computer hackers continue to find chinks in the armor of the System, so far it has been reasonably reliable. Errors in accounts are eventually detected and dealt with. People generally trust that the electronic dollars they put in their accounts will be available to withdraw and use later. Creditors, including the banks themselves, trust that they can keep track of loans and, if necessary, courts will trust their electronic records proving indebtedness. [Contracts may be on paper, and signed by human hands, especially for larger deals like mortgages, but even contracts and signatures are moving to electronic formats.]
Next: to be continued
[The Accounting System, Your Fate is in the Cloud, is a work in progress by William P. Meyers, ©2013]
Sunday, April 21, 2013
The Accounting System #4: The Big Reversal
Previous: Banks, Credit Cycles, and Gold
Decade by decade, The Accounting System grew in size and importance. Since some of the accounting by corporations listed on the American stock markets was found to be fraudulent in the aftermath (pun intended) of the 1929 crash, the Securities and Exchange Commission (SEC) undertook to establish public accounting standards. Over time these came to be issued by the Financial Accounting Standards Board. The Generally Accepted Accounting Principles (GAAP) are used by all accountants in the United States. Similar systems are used in other nations.
When a statement about money is made that diverges from GAAP, accountants refer to those figures as non-GAAP. Non-GAAP figures issued by publically listed corporations during the Internet Stock Bubble led to the current era in which any non-GAAP figures released by traded companies are expected to be issued with an explanation of their relationship to GAAP figures.
The possession by individuals of gold coins and bullion (but not jewelry) was illegal in the U.S. from 1933 to 1974. Because there was inflation during this period, some economists claim the gold standard is necessary for a sound economy. Reasoning from ideology rather from fact, they refuse to look at the fact that using gold as money had been a historic disaster. Overall 1933 to 1974 for a great run for the American economy, showing that the gold standard had holding the nation back, rather than helping, back before 1929.
Credit cards as an idea go back at least as far as the novel Looking Backwards by Edward Bellamy, first published in 1887. Credit cards in their modern form first became common in the 1960s, when perhaps 100 million were mailed, often unsolicited, to bank customers. While there are many other forms of credit, including business loans, loans on property, and student loans, the credit card and its relative the debit card put The Accounting System in the pockets of most Americans (and their international equivalents).
This led to a paradoxical role reversal. We do our accounting in units of coin (the dollar in the U.S., originally silver coins issued by the Dutch and then Spanish governments). For portability these units are mainly represented by paper currency, mostly in the form of $20 bills accessed from ATMs. While banks count paper currency in their accounting systems, and businesses still account for such bills until they can be turned into real money (bank deposits), individuals seldom systematically account for the cash they carry or keep. Each note has a serial number, which the Federal government records, largely as a defense against counterfeiting.
In effect cash is now at the periphery of The Accounting System. Almost all money in the United States, and even globally, now consists of entries in the accounting system. These entries are not even hard copies on paper ledgers. They are held in computer databases. They are electronic representations of 1's and 0's. If something ate the banking aspect of the accounting system, they would disappear.
Thus units of value were once counted by coin, but now value is direct relation of numbers of virtual accounting dollars to whatever real goods and services they can buy at any given time.
The Internet itself led to another major expansion of The Accounting System, and a consolidation of its power over people. The Internet tied computers together, including the computers used by banks, government, corporations and individuals for accounting. This led to pressure on individuals and businesses to use electronic fund transfers rather than physical checks for all deposits and withdrawals. Physical checks are now photographed rather than returned to their writers after cancellation. We are rapidly moving in the direction of it being difficult to use cash or even paper checks to make payments for goods and services. Physical property is increasingly identified; even ordinary jewelry diamonds have small serial numbers burned into them.
All sorts of extensions of The Accounting System have come into existence. Medical records are being virtualized. Most forms of messaging via Internet go into permanent records. Almost every action made by any individual on the Internet is recorded, and those "personal profiles" are increasingly being exchanged by corporations and governments.
The Accounting System knows what your balance is, your debt level and credit worthiness, where you shop, what you like, what you own, and whether you can get permission to drive or fly on a commercial airline or cross an international border.
The Accounting System is not just counting and recording. It is an increasingly active system that determines the fates of individuals. It has traps for the unwary and free rides for the privileged. Parts of it are fair, but much of it is biased.
Next, the virtualization of money will be examined at a much higher level of detail.
Next: #5: Physical Money as Portable Accounting
[The Accounting System, Your Fate is in the Cloud, is a work in progress by William P. Meyers, ©2013]
Decade by decade, The Accounting System grew in size and importance. Since some of the accounting by corporations listed on the American stock markets was found to be fraudulent in the aftermath (pun intended) of the 1929 crash, the Securities and Exchange Commission (SEC) undertook to establish public accounting standards. Over time these came to be issued by the Financial Accounting Standards Board. The Generally Accepted Accounting Principles (GAAP) are used by all accountants in the United States. Similar systems are used in other nations.
When a statement about money is made that diverges from GAAP, accountants refer to those figures as non-GAAP. Non-GAAP figures issued by publically listed corporations during the Internet Stock Bubble led to the current era in which any non-GAAP figures released by traded companies are expected to be issued with an explanation of their relationship to GAAP figures.
The possession by individuals of gold coins and bullion (but not jewelry) was illegal in the U.S. from 1933 to 1974. Because there was inflation during this period, some economists claim the gold standard is necessary for a sound economy. Reasoning from ideology rather from fact, they refuse to look at the fact that using gold as money had been a historic disaster. Overall 1933 to 1974 for a great run for the American economy, showing that the gold standard had holding the nation back, rather than helping, back before 1929.
Credit cards as an idea go back at least as far as the novel Looking Backwards by Edward Bellamy, first published in 1887. Credit cards in their modern form first became common in the 1960s, when perhaps 100 million were mailed, often unsolicited, to bank customers. While there are many other forms of credit, including business loans, loans on property, and student loans, the credit card and its relative the debit card put The Accounting System in the pockets of most Americans (and their international equivalents).
This led to a paradoxical role reversal. We do our accounting in units of coin (the dollar in the U.S., originally silver coins issued by the Dutch and then Spanish governments). For portability these units are mainly represented by paper currency, mostly in the form of $20 bills accessed from ATMs. While banks count paper currency in their accounting systems, and businesses still account for such bills until they can be turned into real money (bank deposits), individuals seldom systematically account for the cash they carry or keep. Each note has a serial number, which the Federal government records, largely as a defense against counterfeiting.
In effect cash is now at the periphery of The Accounting System. Almost all money in the United States, and even globally, now consists of entries in the accounting system. These entries are not even hard copies on paper ledgers. They are held in computer databases. They are electronic representations of 1's and 0's. If something ate the banking aspect of the accounting system, they would disappear.
Thus units of value were once counted by coin, but now value is direct relation of numbers of virtual accounting dollars to whatever real goods and services they can buy at any given time.
The Internet itself led to another major expansion of The Accounting System, and a consolidation of its power over people. The Internet tied computers together, including the computers used by banks, government, corporations and individuals for accounting. This led to pressure on individuals and businesses to use electronic fund transfers rather than physical checks for all deposits and withdrawals. Physical checks are now photographed rather than returned to their writers after cancellation. We are rapidly moving in the direction of it being difficult to use cash or even paper checks to make payments for goods and services. Physical property is increasingly identified; even ordinary jewelry diamonds have small serial numbers burned into them.
All sorts of extensions of The Accounting System have come into existence. Medical records are being virtualized. Most forms of messaging via Internet go into permanent records. Almost every action made by any individual on the Internet is recorded, and those "personal profiles" are increasingly being exchanged by corporations and governments.
The Accounting System knows what your balance is, your debt level and credit worthiness, where you shop, what you like, what you own, and whether you can get permission to drive or fly on a commercial airline or cross an international border.
The Accounting System is not just counting and recording. It is an increasingly active system that determines the fates of individuals. It has traps for the unwary and free rides for the privileged. Parts of it are fair, but much of it is biased.
Next, the virtualization of money will be examined at a much higher level of detail.
Next: #5: Physical Money as Portable Accounting
[The Accounting System, Your Fate is in the Cloud, is a work in progress by William P. Meyers, ©2013]
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