Money burning

500 French franc banknote burning

Money burning or burning money is the purposeful act of destroying money. In the prototypical example, banknotes are destroyed by literally setting them on fire. Burning money decreases the wealth of the owner without directly enriching any particular party. However, since it reduces the supply of money, it increases the value of the remaining money, increasing (by roughly the same amount as the money burnt) the collective wealth of everyone else who holds money.

Money is usually burned to communicate a message, either for artistic effect, as a form of protest, or as a signal. In some games, a player can sometimes benefit from the ability to burn money (Battle of the sexes). Burning money is illegal in some jurisdictions.

Macroeconomic effect

For the purposes of macroeconomics, burning money is equivalent to removing the money from circulation, and locking it away forever; the salient feature is that no one may ever use the money again. Burning money shrinks the money supply, and is therefore a special case of contractionary monetary policy that can be implemented by anyone. In the usual case, the central bank withdraws money from circulation by selling government bonds or foreign currency. The difference with money burning, is that the central bank does not have to exchange any assets of value for the money burnt. Money burning is thus equivalent to gifting the money back to the central bank (or other money issuing authority). If the economy is at full employment equilibrium, shrinking the money supply causes deflation (or decreases the rate of inflation), increasing the real value of the money left in circulation.

Assuming that the burned money is paper money with negligible intrinsic value, no real goods are destroyed, so the overall wealth of the world is unaffected. Instead, all surviving money slightly increases in value; everyone gains wealth in proportion to the amount of money they already hold.^[1] Economist Steven Landsburg proposes in The Armchair Economist that burning one's fortune (in paper money) is a form of philanthropy more egalitarian than deeding it to the United States Treasury.^[1] In 1920, Thomas Nixon Carver wrote that dumping money into the sea is better for society than spending it wastefully, as the latter wastes the labor that it hires.^[2]

Opposites

Central banks routinely collect and destroy worn-out coins and banknotes in exchange for new ones. This does not affect the money supply, and is done to maintain a healthy population of usable currency. The practice raises an interesting possibility. If an individual can sneak in and steal money away from the incinerator, the effect is the opposite of burning money: the thief is enriched at the expense of society. One such incident at the Bank of England inspired the 2001 TV movie Hot Money and the 2008 film Mad Money.^[3]

Another, more common near-opposite is the creation of counterfeit money. Undetected counterfeit money harms the rest of society by decreasing the value of existing money — one of the reasons why attempting to pass it is illegal in most jurisdictions and is aggressively investigated.^[4] Another way to analyze the cost of forgery is to consider the effects of a central bank's monetary policy. Taking the United States as an example, if the Federal Reserve decides that the monetary base should be a given amount, then every $100 bill forged is a bill the Fed cannot print and use to buy Treasury bonds. The interest earnings (after expenses) on those bonds is turned over to the US Treasury, so any lost interest must be made up by U.S. taxpayers, who therefore bear the cost of counterfeiting.^[5]

Rationales

Behaviorally speaking, burning money is usually a purely negative act. An individual who compulsively destroys money may be showing signs of mental illness, in which case a mental health professional can be justified in restraining him or her to prevent the financial harm.^[6] The cognitive impact of burning money can even be a useful motivational tool: patients who suffer from nail biting may be trained to burn a dollar bill every time they engage in the habit. One study found this form of suppression training by self-punishment to be effective compared to control groups, although not as effective as substitution training.^[7]

On the other hand, there are some situations where burning money might not be so unreasonable. It is said^[8] that the ancient Greek philosopher Aristippus was once on a ship at sea when he was threatened by pirates; he took out his money, counted it, and dropped it into the sea, commenting, "Better for the money to perish because of Aristippus than vice versa." Cicero would later cite this episode as an example of a circumstance that must be considered in its full context: "...it is a useless act to throw money into the sea; but not with the design which Aristippus had when he did so."^[9]

Symbolism

Joss paper burned around the Ghost Festival

Publicly burning money can be an act of protest or a kind of artistic statement. Often the point is to emphasize money's intrinsic worthlessness.^[1] In 1984, Serge Gainsbourg burned a 500 French franc note on television to protest against heavy taxation.^[10]

On 23 August 1994, the K Foundation (an art duo consisting of Bill Drummond and Jimmy Cauty) burned one million pounds sterling in cash on the Scottish island of Jura. This money represented the bulk of the K Foundation's funds, earned by Drummond and Cauty as The KLF, one of the United Kingdom's most successful pop groups of the early 1990s. The duo have never fully explained their motivations for the burning.^[11]

In the 1995 film Dead Presidents, the title sequence directed by Kyle Cooper features close shots of burning U.S. bills; it took two days of shooting and experimenting with the paper to get the effect right.^[12]

In the early 18th century, New York City courts would publicly burn the counterfeit bills they gathered, in order to show that they were both dangerous and worthless.^[13]

In traditional Chinese ancestor veneration, imitation money in the form of joss paper are ceremonially burned, with the aspiration that the dead may use the money to finance a more comfortable afterlife.

Game theory

In game theory, a threat to burn money can affect the strategies of the players involved; a classic example is the situation described as 'battle of the sexes', where the ability to burn money allows the player to achieve the desired equilibrium without actually having to burn money.

For commodity value

Fiat money can sometimes be destroyed by converting it into commodity form, rather than completely forfeiting the value of the money. Sometimes, currency intended for use as fiat money becomes more valuable as a commodity, usually when inflation causes its face value to fall below its intrinsic value. For example, in India in 2007, Rupee coins disappeared from the market when their face value dropped below the value of the stainless steel from which they were made.^[14] Similarly, in 1965, the US government had to switch from silver to copper-nickel clad quarter coins because the silver value of the coins had exceeded their face value and were being melted down by individuals for profit. At the peak of inflation in the Weimar Republic, people burned banknotes for warmth, as their face value had fallen below their value as fuel.^[5]

Legality

United States

In the United States, burning banknotes is prohibited under 18 U.S.C. § 333: Mutilation of national bank obligations, which includes "any other thing" that renders a note "unfit to be reissued".^[15] In an amicus brief for Atwater v. City of Lago Vista, Solicitor General Seth Waxman writes that arresting an individual who removes the corner dollar values "may expose a counterfeiting operation".^[16] It is unclear if the statute has ever been applied in response to the complete destruction of a bill. Certainly people have publicly burned small amounts of money for political protests that were picked up by the media — Living Things at South by Southwest,^[17] Larry Kudlow on The Call^[18] — without apparent consequence.

The question of legality has been compared to the much more politically charged issue of flag desecration. In 1989, in a Senate Judiciary Committee hearing on the Flag Protection Act, former US Attorney General William Barr testified that any regulation protecting something purely for its symbolic value would be struck down as unconstitutional. The Senate report recommending passage of the Act argued that Barr's theory would render 18 U.S.C. § 333 unconstitutional as well.^[19] In a dissent in Smith v. Goguen, Justice Rehnquist counted 18 U.S.C. § 333 in a group of statutes in which the Government protects its interest in some private property which is "not a traditional property interest".^[20] On the other hand, the Government's interest in protecting circulating currency might not be purely symbolic; it costs the Bureau of Engraving and Printing approximately 5 cents to replace a note.^[15]

Legal Tender,^[21] a 1996 telerobotic art installment by Ken Goldberg, Judith Donath, and Mark Pauline, was an experiment to see if the law could instill a sense of physical risk in online interactions. After participants were advised that 18 U.S.C. § 333 threatened them with up to six months in jail, they were given the option of remotely defacing small portions of a pair of "purportedly authentic" $100 bills over the web. A crime may be occurring — but "only if the bills are real, the web site is authentic, and the experiment actually performed."^[22] In fact, one bill was real and the other counterfeit.^[23] Almost all of the participants reported that they believed the experiment and the bills to be faked.^[24]

The destruction of money is also bound by the same laws that govern the destruction of other personal property. In particular, one cannot empower the executor of one's estate to burn one's money after one dies.^[25]

See also

• Crop burning

References

1. ^ ^{a b c} Landsburg, Steven (1995). The Armchair Economist. pp. 68–69. 
2. ^ Carver, T. N. (January 1920). "The Relation of Thrift to Nation Building". Annals of the American Academy of Political and Social Science 87: 5. http://books.google.com/?id=uKS1AAAAIAAJ&pg=PA5. Retrieved 1 August 2009. 
3. ^ As usual for a heist comedy, Mad Money avoids the moral implications of the act; see the review by Chang, Justin (15 January 2008). "Mad Money". Variety. http://www.variety.com/review/VE1117935784.html. Retrieved 4 August 2009. 
4. ^ Musgrave, Frank; Kacapyr, Elia (2001). How to Prepare for the AP Macroeconomics/Microeconomics (2 ed.). pp. 243–244. 
5. ^ ^{a b} Krugman, Paul; Wells, Robin (2009). Economics (2nd ed.). pp. 400, 864. 
6. ^ For the context of the UK Mental Capacity Act 2005 see Jones, Richard Martin (2005). Mental Capacity Act manual. p. 9/32. 
7. ^ Adesso, Vincent J.; Norberg, Melissa M. (2006). "Behavioral Interventions for Oral-Digital Habits". In Douglas W. Woods, Raymond G. Miltenberger. Tic Disorders, Trichotillomania, and Other Repetitive Behavior Disorders. p. 230. 
8. ^ Diogenes Laërtius (2000). D. S. Hutchinson, translator. ed. Lives and Sayings of Famous Philosophers, Book I, Chapter 8: Aristippus of Cyrene. p. 77. http://montejohnson.googlepages.com/D.L.I.65-85Aristippus2008iii30.pdf. Retrieved 1 August 2009. 
9. ^ Cicero (2004). C. D. Yonge, translator. ed. De Inventione. Kessenger Publishing. p. 133. 
10. ^ Hodgkinson, Will (5 February 2003). "Serge, mon amour". guardian.co.uk. http://arts.guardian.co.uk/features/story/0,,888892,00.html. Retrieved 1 August 2009. 
11. ^ Reid, Jim (1994-09-25). "Money To Burn". Observer. http://www.libraryofmu.org/display-resource.php?id=387. Retrieved 2009-08-10. 
12. ^ Codrington, Andrea (2003). Kyle Cooper. p. 26. 
13. ^ Zabin, Serena R. (2009). Dangerous Economies: Status and Commerce in Imperial New York. p. 19. 
14. ^ O’Connor, Ashling (16 June 2007). "Coins run out as smugglers turn rupees into razors". Times Online. London. http://www.timesonline.co.uk/tol/news/world/asia/article1940319.ece. Retrieved 1 August 2009. 
15. ^ ^{a b} Schoen, John W.. "Answer Desk: Is it a crime to burn money?". msnbc.com. http://www.msnbc.msn.com/id/7148966/. Retrieved 1 August 2009. 
16. ^ http://www.usdoj.gov/osg/briefs/2000/3mer/1ami/1999-1408.mer.ami.pdf
17. ^ Brown, August (23 March 2009). "Living Things burn through dollars, sense". LA Times music blog. http://latimesblogs.latimes.com/music_blog/2009/03/living-things-b.html. Retrieved 1 August 2009. 
18. ^ E.H.H. (19 March 2009). ""This is what's happening to our money": CNBC's Kudlow lights dollar bill on fire". Media Matters for America. http://mediamatters.org/research/200903190026. Retrieved 1 August 2009. 
19. ^ United States Senate Committee on the Judiciary (1989). The Flag Protection Act of 1989 : report together with additional and minority views (to accompany S. 1338). Senate Report. 101-152. Washington, D.C.: U.S. G.P.O..  Reprinted in Curtis, Michael Kent (1993). The Constitution and the Flag: The flag burning cases. 2. p. 434. 
20. ^ 415 U.S. 566 (1974)
21. ^ "Legal Tender". http://www.eiu.org/legal_tender/. Retrieved 4 August 2009. 
22. ^ Canny, John; Paulos, Eric (2001). "Tele-Embodiment and Shattered Presence: Reconstructing the Body for Online Interaction". In Ken Goldberg. The Robot in the Garden. p. 283. 
23. ^ Goldberg, Ken. "Legal Tender". http://goldberg.berkeley.edu/art/tender/tender.html. Retrieved 4 August 2009. 
24. ^ Dreyfus, Hubert (2001). "Telepistemology: Descartes' Last Stand". In Ken Goldberg. The Robot in the Garden. p. 60. 
25. ^ Restatement of Trusts, Second § 124 p.267, cited in Eyerman v. Mercantile Trust Co., 524 S.W.2d 210 (Mo. App. 1975) [1] along with In re Scott's Will, 88 Minn. 386, 93 N. W. 109 [2]

Further reading

• Afshar, Farhad (1992). "The Nation State as the Main Factor of Social Destabilisation in the Periphery. The Gordian Knot of Development". In Claude Auroi. The role of the state in development processes. London: Frank Cass. pp. 32–33. 
• Axelrod, S.; Hall, R.V.; Weis, L.; Rohrer, S. (1974). "Use of self-imposed contingencies to reduce the frequency of smoking behavior". In Mahoney, M.J., Thoresen, C.E.. Self-Control: Power to the Person.. Monterey,: Brooks/Cole. pp. 77–85. 
• Boyer, J. (May 1912). "Destroying 300 millions in paper money: a scientific method of burning banknotes". Scientific American 106: 396. 
• Butler, Eamonn (1985). Milton Friedman: A Guide to his Economic Thought. p. 54. 
• Karlen, Peter H. (1992). "Moral Rights and Real Life Artists". Hastings Communications and Entertainment Law Journal 15: 929. 
• Kirshner, Jonathan (1997). Currency and Coercion: The Political Economy of International Monetary Power. p. 100. 
• Köhler, Heinz (1970). Economics: the science of scarcity. pp. 188, 194. 
• Kreh, William R. (December 1962). "Pentagon sidelights". Popular Mechanics: 34. 
• McNally, Dennis (2003). A Long Strange Trip: The Inside History of the Grateful Dead. p. 256. 
• Ruskin, John (31 July 1868). "Letter to the editor: Is England Big Enough?". The Daily Telegraph. http://books.google.com/books?id=MpELAAAAIAAJ&pg=PA276. 
• United States House Judiciary Committee (1967). Desecration of the Flag: Hearings Before Subcommittee No. 4, Ninetieth Congress, First Session, on H.R. 271 and Similar Proposals to Prohibit Desecration of the Flag. p. 267. 
• United States House Judiciary Subcommittee on Criminal Justice (1982). Revision of the federal criminal code. pp. 4726, 4782. 
• United States House Judiciary Subcommittee on Civil and Constitutional Rights (1989). Statutory and constitutional responses to the Supreme Court decision in Texas v. Johnson. p. 225.