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Much Ado About Nothing

August 1, 2001

From the flurry of articles and broadcasts not long ago dealing with ATM charges, one might assume that the matter was important. Of course, it isn't, because the ATM machines themselves aren't important. I, for example, do not have an ATM card, and wouldn't use it if I did. I am sure I am not unique. True, there were, in 1996, almost 11 billion ATM transactions, but these were matters more of convenience than necessity.

The raging question seems to be: should customers be made to pay for this convenience, and if so, how much? Senator Alphonse D'Amato quivers with outrage that some banks are "double-charging" for ATM use, although, according to his own statistics, a nearly equal number are not. This policy may result in some individuals paying as much as two or three dollars for the withdrawal of twenty. That, says the Senator, is "outrageous."

Well, he's right. That's a charge of ten to fifteen percent--just about the lowest rate at which people pay income tax, except that in the case of the ATM they're paying for something they want, and voluntarily, as contrasted to paying for lots of things they absolutely don't want, under compulsion. I think it safe to disregard Senator D'Amato's position as that of a pompous populist windbag.

The other side of the argument is presented by, for example, the Libertarian Party, which has issued a paper defending the ATM charges as an example of free enterprise, with companies---in this case, banks--offering a service to people who are free to accept it or reject it. Ban ATM charges, say the Libertarians, and the banks would simply raise other charges, so that the ATM costs would be spread among the entire population of bank-users, instead of just those who use the machines.

If I were a banker (God forbid!) I would find the debate amusing, because it fails to take into account the fact that banking is not like any other business, or, at least, any other legitimate business. As long as this misapprehension exists, the banker is safe to continue his depredations. In fact, banking is unique, and the banker is the only one among us who gets a free lunch.

The free lunch, or the assertion that there is no such thing, is the epitome of the hard-knock school's economic wisdom. "You get what you pay for" is another version of the same almost-true aphorism. Let's see how we can get ourselves lunch for nothing--without being anyone's guest.

It is simplicity itself. Pay with a check. Now before you get all outraged and indignant, bear with me a while. Let's suppose that the restaurateur, instead of taking the check to the bank, uses it to buy pay his laundry service. The restaurant is now considered paid, and will not dun you for the amount of the bill. You have bought lunch, and not paid for it. The launderer, in turn, endorses the check over to the filling station for gas. The station operator in turn endorses it over to his employee, who uses it, in turn, to "pay" for some videos. Look at what's happened: the check has bought you lunch, the restaurateur laundry, the launderer gasoline, the filling-station operator the services of an employee, and the employee some recordings. And, of course, the chain could go on and on, until there was no more room on the check for endorsements. At that time, the check would be brought to the bank, and, finally, the amount of your meal would be deducted from your balance. Then, and only then, would you have paid for your lunch.

But what if you were the banker, to whose bank the check was brought for "payment?" Does the bank have an account with itself? If you, a banker, had taken potential customers to lunch, and paid for your lunch with a check, the only "expense" you would have incurred was that of adding the amount of the check to the account of the person who eventually presented it for deposit. And, of course, that "expense" would be paid with---your paycheck!

Alternatively, if the paper instrument were elaborately engraved, and marked "legal tender," it would never be presented for payment, being thought of as "money" in and of itself. Banks can get currency by buying it, and they buy it with---a check! From four to five percent of the annual growth of the money supply is money created by banks for their own use, since it would be absurd for them to lend it to themselves, although lending is the process by which they create it for non-bankers. As a prominent St. Louis banker once declared on the witness stand, banks cannot spend money. If they try to, they merely create it instead.

Hence, the "cost" to the bank of running the ATM machines is nothing. The machines are said to much cheaper, per transaction, than a flesh-and-blood teller, but that's only true if you think that it costs the bank anything to pay a teller. Aren't tellers paid by check, or electronic transfer of funds? Do those numbers, which the bank adds to the employee's account, represent anything which the bank then owes the teller? Do they establish a claim by the teller on anything of the bank's? Did the bank have to do some work to get them? Did it part with something in order to place the number in the employee's account?

In other words, the bank pays for everything it wants, including lunch, with checks that aren't any good, except that the arbiter of what is "good" or not regarding a check is--the bank itself! In this sense, Senator D'Amato, if you can believe it, is nearer a true sense of the picture than the libertarians: how dare the banks charge for something which costs them nothing! But, of course, the Senator is not objecting to the charge, but only to what he considers an excess charge.

Well, it's not surprising. In a country which is often associated with the expression "fair play," and which is prohibited from establishing a royal caste (at least officially) there is, in fact, a royalty among us that goes undetected and unappreciated, to its own delight. It has always been considered the prerogative of the sovereign to issue money; and our sovereign maintains this tradition. We must work to pay for our lunch, for work is the only way we can earn the numbers in our checking account. The banker, by contrast, need merely create whatever number he needs for the bank's expenses; that is the extent of his "work."

Concern about ATM fees is a molehill; the mountain of injustice represented by money-creation is, despite its enormity, much less visible. As long as it remains that way we will remain subjects, and the bankers, sovereigns.

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