“Bagman” is one of those chameleon words that mean different things in different environments. In the U. S. bagmen were the retail arm of a criminal organization. They collected the cash from the numbers racket, the horse parlors and poker games, and the protection rackets. In other countries, it could mean simply a salesman.
In our country, “bagman” isn’t heard as frequently as it once was, but it is still not usually meant as a compliment. It has not lost its link to illegal activities and political corruption.
The need for bag men may have declined because lotteries, which were once illegal, have been taken over by government enterprises, just as horse race gambling had been years before that. Additionally, the mob isn’t what it once was, and its numbers rackets and protection rackets, which required a lot of street-level personnel, have largely disappeared.
Despite the changes, organized crime is still mostly a cash-based industry. Its organizational structure is more gang-oriented than family-oriented, and its focus seems to have shifted to drugs and human trafficking, but its need to move cash has remained.
Cash, meaning U. S. currency, is the most common and acceptable medium of exchange in the domestic and international drug trade. Police raids, when successful, often find large amounts of cash, sometimes bales of it shrink-wrapped in plastic. Whether profits or payments, individuals and organizations involved in the drug trade tend to accumulate cash in large amounts. Those who watched “Breaking Bad” saw that the lead character had pallets full of currency.
Moving cash from buyer to seller, from retail entities to wholesale organizations, and from wholesalers to producers presents a major logistics headache to drug trade participants. The U. S. Treasury added to this headache when, in 1969, it withdrew currency denominations over $100.00 from circulation. But it did not stop it.
Cash also presents a logistics problem for legitimate businesses, even without the threat of police intervention. Counting it is error-prone, and takes time, which increases labor costs. It also presents a temptation to those who sometimes devise ways to siphon off some of it for their own use.
In large quantities, cash shipments to banks and controlling internal cash distributions — to individual stores or cashiers, for example — become a significant cost center operation. Credit card transactions are far more efficient and much less costly. It is no wonder that Amazon and others are designing and planning “cash-free” retail stores.
While unquestionably more efficient for sellers, though, the buying public has not totally abandoned cash. Some customers use credit cards almost exclusively, but there is still a demand for U.S. currency. A recent computer glitch at a Fred Meyer store blocked cash transaction at the self-checkouts and caused a near-panic as long lines developed at the remaining human cashier stations.
As for the sources of demand, paying with cash instead of a credit card provides consumers with something that is increasingly scarce in our economy: privacy. In the same way that cash-based illegal activities provide anonymity, cash-based legitimate purchases insulate the buyer from “big data” collections of their preferences. It also insulates them from the credit card fees and interest charges that seem to accumulate each month.
Those considerations may explain the recent rise in demand for $100 bills, the largest available. They have become so common that they are known as “Benjamins,” because Ben Franklin’s image graces the bill. Whether this increased preference is driven by legitimate purchases or increased illegal activity, though is harder to determine.
The amount of U.S. currency in circulation, $1.75 trillion as of Jan. 20, is regulated by the Federal Reserve and printed up by the Treasury Department. It is part of the required reserves of the member commercial banks and is part of the “money supply.” Because it is a small portion of those reserves and is not very volatile, it doesn’t play a big role in economists’ decisions.
The “dark side” of currency usage and anonymity demand, though, affects our economy and is worthy of some attention. Recent reports indicate increased “dark side” activity on Bitcoin, and intelligence information that Iran intends to use crypto-currency to avoid U.S.-led sanctions remind us of how little we know about the criminal sector of our economy.
Information about illicit activity is hard to come by and the kind of consistent data the modern economic models require is virtually non-existent. We know that big money is involved, though, and that by itself is enough for us to keep an eye on it. Its impact on consumer behavior as well as our institutions, though, provide an imperative. We have to know the dimensions and workings of the illicit economy before it provides us with an unpleasant surprise.
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