Of Fare Hikes and Fiat Currency

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"No
one ever lost money speculating on subway tokens."
~ RC Schmidt, NYC subway aphorismist

Despite official
rates
of inflation that lack a certain honesty
, there are always underlying
measures that track reality. An informal New Yorker's rule of thumb
indicates that the price
of a single ride on the subway system tracks that of a slice of
pizza
in the city, and that when the slice goes over the cost
of a single ride on the system, a fare hike is headed the city's
way. Sure enough, when
April rolls around the cost to ride the system will have increased
,
albeit at a lower rate than originally planned.

For now, the
fare will remain at $2 for a single ride. This increase compares
with the original fare for the system when it was privately run
from 1904 to 1940 of a nickel. The
old IRT was profitable until World War I
, when wartime monetary
expansion increased the costs of its inputs, chiefly labor and especially
coal, while its nickel fare was contractually guaranteed with the
city and could not rise to reflect increased costs. It was only
Warren G. Harding's return
to normalcy
after the war, with a sharp contraction and reversal
of inflation that allowed the company to continue to operate at
a profit and provide expanded service to the city. FDR's depression,
combined with competition from a city-run system in the 1930s, drove
the IRT and its private competitor BMT into the arms of the city
in 1940. The first fare hike after 36 years of private operation
and flat-rate fares followed soon thereafter, in
1948
.

It is interesting
to note that the first fare's cost represented 1/413 of an ounce
of gold, set in 1904 at $20.67. The recent $2 fare represents about
the same percentage of the
50-day moving average of the price of gold
, recently above $800
for the first time. Thus the 40-fold increase in the nominal fare
can be laid squarely on the monetary dilution at the hands of the
Federal Reserve; it is not coincidental that the first war "to
make the world safe
for democracy
" crippled and eventually killed the private
provision of mass transit in New York City, and the aftermath of
the second world war gave the city its first fare increase.

In
any case, the "more
efficient
" public ownership of the system commenced, and
a scant five years after the first fare increase yet without any
need to pay dividends to exploitative capitalist owners, the fare
rose again, to 15 cents. This, however, presented a problem, especially
in a city filled with as many irritable and rushed people as New
York is: how to drop only one coin into a slot to permit entrance
through a turnstile into the system? 1953
saw New York create its own sort of fiat currency
, the subway
token; it bore the inscription "Good
For One Fare
," a seeming eternal promise.

The 1953 token
held out at 15 cents until 1966, when the fare was raised to 20
cents. This first fare increase caught New Yorkers somewhat unawares,
but they soon figured out that they could stockpile cheaper tokens
to use after the fare hike. The system planners had not counted
on this rational response, and so, just
as Gary North noticed during the last days of the all-silver dimes
and quarters
, a shortage appeared. There being only so many
dollars to invest in subway tokens, however, the shortage disappeared
after the fare hike.

The authorities
were ready at their next fare hike, in 1970. They replaced the smaller
token with a new, larger token, the first that this writer can recall
holding in his grubby little hands. The older, small tokens would
no longer work, but the hoarders did not suffer if they turned in
their tokens to token booths in time: they could exchange the tokens
for their previous cost, and buy new ones. Thus, "going long"
subway tokens allowed the New Yorker a free "call
option
" on subway rides with no downside except lost time
and usually a 50% or higher upside.

The inflationary
seventies offered two more fare hikes, in 1972 and 1975, and both
times token speculators were rewarded. Later fare hikes had different
results. The Transit Authority countered with new tokens on several
occasions, and in 1989 even tried to limit token purchases to two
at a time. The chief reason for avoiding new tokens was the cost
in ordering new ones minted, and also the labor in changing over
all the turnstiles to accept only the newer tokens. The authority
had another bad surprise when the 1986 token turned out to be nearly
identical to a much cheaper token used nearby on the Garden State
Parkway
, and so the offensive against the quick-drop, one-fare
token began.

Transit systems
designed by bureaucrats with no intention that masses of people
will ever use them, like BART
and the Metro
in Washington, DC, had long used an electronic card reading system
that read a fare card at entry and exit. Given the sparse ridership
on these systems, the inevitable traffic jam at exit as everyone
fished for his fare card was not too bad; New York's system had
long abandoned zone-based fares and so required payment only at
entry, as New Yorkers were more likely to trample the slow-of-exiting
than citizens of less-civilized cities (natural
selection
, and all that). Since the system runs 24 hours a day,
365.25 days a year, there is no limit to the amount of riding that
one fare will buy. Even so, difficulties with token changeovers
led to the introduction
of the MetroCard
in the mid-1990s, which allowed entry to the
system with an electronic swipe.

New Yorkers
did not take kindly to the MetroCard at first, and its use lagged.
An incentive was required to get them to discard their tokens, and
like all plastic and insubstantial currency issuers, the MTA had
an idea in July 1997: a free lunch. Or in this case, a free transfer
between subway and bus, eliminating the "two-fare zone"
from the city, and allowing each commuter to shell out only one
fare on his commute. In addition, for the only time in the system's
history, purchase of a MetroCard entailed a discount on fare, with
11 purchased for the price of ten. Never before had there been a
fare decrease (and, of course, never since!). Finally, the system
changed mass transit from a variable expense to a fixed one by introducing
a fixed-price unlimited fare card, $70 for 30 days of unlimited
usage. With the incentives of free transfers and unlimited ride
cards, MetroCard use increased while token use gradually dropped,
and tokens were abandoned in April, 2003, their memory only preserved
in the names given to locations where station agents sell MetroCards,
token booths.

The history
of the token encapsulates in miniature many of the issues that have
plagued the whole country in the last 95 years since the introduction
of the Federal Reserve, and especially since the Federal Government
outlawed
private ownership of gold in 1933
. First, with
apologies to Nietzsche
, one nation may try to lie to its citizens
with fiat currency, but the grimace that is the price in gold always
shows the truth: the fare to ride the subway in New York has increased
not at all in gold terms in 100 years, but the dollar in the pocket
has shrunk in value. Second, citizens will prefer a coin standard
with some sort of precious metal (brass in the case of tokens) over
an arbitrarily-valued piece of paper or plastic, and only the promise
of a free lunch (interest
on demand deposits with no penalty for early withdrawal
, free
transfers where none existed before) will encourage them to exchange
coins for paper. Third, the government will always adorn its "tokens"
with slogans in which it does not really believe, like "Liberty,"
"In God We Trust," and "Good For One Fare";
the latter would be an example of fraud and expose the seller to
a lawsuit if it were a private concern that sold a token good for
one ride, and failed to honor its commitment. (This is only another
example of the limit of consumer redress of grievances in an America
dominated by public concerns.) Fourth, the coins and tokens of the
government agency will be gradually devalued in terms of intrinsic
metallic worth, as the token went from solid brass to a brass/steel
mixture, to a pathetic, shrunken coin of baser metal than brass;
just the same way, I recall discovering a 1956 silver dime from
its sweet ring when dropped, a delightful sound that today's clad
coins deny to children of all ages. And given the transition
in the denarius from silver to base metal
over 1700 years ago,
this is an ancient practice. Fifth, the free ride in the fiat money
will lead to a boom; the subways have been increasingly packed,
although this is as much due to innovative pricing strategies that
brought more riders into the system.

New York will
undergo a new set of fare hikes in March, 2008. The Port Authority,
which operates New York's "other subway," the PATH
train
, will increase
fares by 8.3%
, but will for the first time offer an unlimited-ride
monthly card. The cost of a single subway ride will remain at $2,
but those buying rides in bulk will receive only 15% in bonus rides,
as opposed to 20% now, a 4.35% increase. However, the strange nature
of the peculiar fiat currency that is the fare card affords the
denizens of Gotham a unique opportunity: they can "print"
as much of it as they desire, at the current values, only needing
to worry about expiration of cards, a particular hazard with PATH
fares, but not
the new SmartLink card
. So one method to beat the increase is
to buy as many rides as you expect to use over the next year, and
hope that inflation does not exceed the amount of the fare increase.
Another possibility suggests itself in this credit
card rebate offer
, whereby every $150 in transit purchases until
March 31st will earn a $10 rebate, a 6.7% discount; combine
that with a decent
cashback card
from the same company offering 3% cash back on
purchases, and it will be possible to pay as much as 18% less than
other New York subway riders in April for the same ride. And you'll
be taking part in a tradition that goes back 42 years to the first
token fare hike, and sadly shows no signs of stopping.

February
6, 2008

Thomas M.
Schmidt [send him mail],
a native of Brooklyn, swears vengeance on the Port Authority of
New York and New Jersey for cheating him out of 34 fares because
his fare card expired, and will give away at least 34 free rides
to strangers when he gets his new unlimited-ride PATH fare card
in March.

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