Written by: Hsu Chuo-yun
This article was published in April 2020.
The credit card system has become very common in the United States. The popularity of credit cards also affects the money circulation; due to the rapid circulation of money, even if the issuance remains stable, the increased speed of flow effectively raises the relative supply of money several times.
The world's first credit card was invented by Frank McNamara.
In my memory, before World War II, credit cards were not common; only individuals or companies with deep relationships with banks could use credit to pay outside and then have the bank settle.
At that time, the most famous cards were probably only three types: one was used by wealthy merchants in luxurious hotels, restaurants, etc., called the 'Diners Club.' Another, more extravagant, was the 'Card Blanc,' meaning that the cardholder could fill in any amount of expenditure for the other party to collect from the bank.
The third type is the popular 'American Express' card in the United States. This card allows the cardholder to enter into an agreement with the American telegraph company, enabling travelers to use this card to make payments while abroad, with the local telegraph company providing a loan, and settling at the end of the month.
American Express
These cards can only be used by privileged individuals or those with special identities. Their membership fees are also quite expensive. Because their number is limited and each cardholder has considerable deposits in the bank, the bank is not worried about them defaulting. Thus, the operation of these cards does not affect the overall money circulation.
After World War II, the economic prosperity in the United States, especially in the 1950s, was due to the extensive highway system and the rapid development of the airline industry, making travelers willing to hold cards for convenience during their journeys. Thus, besides the aforementioned limited cards, various banks began issuing credit cards, and some department stores, and even oil companies, issued similar cards.
Credit cards have become so popular that large entities, such as schools, can also issue credit cards in cooperation with banks, recognizing that certain staff members can carry cards and charge during shopping.
Harvard University students in uniforms.
The proliferation of credit cards has caused a crisis: some people have used large amounts without repaying in real-time, running away instead. Since issuing cards is very easy, many issuers should verify the applicant's credit but fail to do so, leading to another problem.
A cardholder, although aware that the expired card repayment must incur an interest of nineteen to over twenty percent. This cardholder might apply for another card to repay the debt of the previous one.
Around the 1980s, a common phenomenon: a person's wallet could hold a dozen or twenty cards, 'using one card to pay another.' Eventually, massive debts accumulated, and cardholders simply ran away, or applied for bankruptcy, wiping out previous debts.
Using one card to pay another often leads to personal credit bankruptcy.
To counteract these issues, the current credit card system has been divided into two parts: one is the traditional credit card, and the other is the prepaid card. The funds for the latter are directly deducted from the bank account; when swiping the card, the machine immediately reflects whether there are sufficient funds in the account. With such arrangements, the situation of cards being maxed out has become relatively rare.
However, a large number of cards are circulating in the market, typically with a one-month limit between cardholders swiping their cards and paying their bills. During this blank period, the usage of many cards can be calculated as having several times the credit of the money circulation flowing outside.
This kind of inflation is not easy to control; its apparent effect on the market seems to promote prosperity; but in reality, it conceals the severity of unrestrained inflation. The issues surrounding credit cards also reflect that today’s currency has already detached from the genuine security originally guaranteed by the government.
The large circulation of credit cards may lead to inflation.
Currency itself expands several times in the market through credit, with no one to constrain it. The economy of a country or a market is almost based on a hollow bubble. These bubbles stimulate the production of money, causing overproduction and the awkward situation of not being able to repay. Without regulation, if such a large bubble bursts, the economy collapses.
Recently, another phenomenon has emerged, where virtual symbols replace tangible currency. On November 19, 2017, the Chicago Merchandise Market announced the formal inclusion of 'Bitcoin' in the exchange of goods.
The so-called Bitcoin is a virtual unit specially designed in the computer program that calculates the exchange rates of various countries' currencies. The value of this unit is very small, hence called 'bit.' Through this program, one can obtain a benchmark for exchange rates among the world's currencies at any time. This calculation standard is a virtual unit, not any country's currency, and cannot be used to pay any debts; it has surprisingly become a 'commodity' that can be bought and sold.
There was no Bitcoin in the world; surprisingly, it can become an investment object.
In the market, the price of Bitcoin rises and falls at any time, being very sensitive. Some people speculate between shorts, taking advantage of buying a certain amount of Bitcoin at one moment and selling a certain amount at the next. At this point, the exchanged goods are not real products with independent value, nor do they represent any underlying credit that supports these goods.
There is no Bitcoin in the world; such a virtual unit, hollow and void, surprisingly can serve as an object of investment exchanges. Modern economics has reached this point, indeed straying from the relationship between production and consumption, with the market becoming a gamble and the economy turning into a game.
This is not the capitalism we understand, but an illusion created by the accumulation of money. However, because there are profits to be made, some people stir trouble within. The illusions created by humans can actually influence the economy that should naturally balance itself. We can only say that the magician is playing with his wand.
The magician is playing with his wand.
The economic development of the United States is characterized by pioneering uncultivated land, increasing the purchasing power of farm products, then establishing factories to produce basic raw materials, such as steel and machinery, and finally producing everyday consumer goods. This capitalist production method pays for equipment and labor with money, and may also include transportation and land acquisition.
In this production cost, the price of a unit product, plus the interest that the original capital should have obtained during this period, becomes the price of consumer goods. Investors obtain profits represented by the interest.
Workers at various stages, including those on the production line to the final stage, the clerks who pack goods for customers: this line sees many laborers receiving wages — this is formal capitalism, where the production system and the exchange system constitute the economic system.
Workers on the meat and poultry production line in the United States.
Today, after more than a hundred years of evolution, high industrialization, and the continuously updated production model due to technological research results; such a superior modern industrial civilization actually falls into a false bubble of credit economy!
The credit economy maintains prosperity through continuous expansion; it stimulates desires and increases consumption, fearing that the speed of circulation is not fast enough. All these behaviors sustain this bubble, constantly enlarging it. Regardless of how sophisticated economic theories explain it, in common sense, this system's structure is not solid.
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