A complete list of Salon's Money Week coverage

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T O D A Y

Let's Get This Straight
By Scott Rosenberg
Wired's cover feature on CUC leaves out one important fact.

Reality check
By Scott Rosenberg
Digital-economy revolutionaries need to sober up.

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T A B L E_T A L K

Clash of the titans: Microsoft says there's nothing wrong with making its browser part of the Windows operating system. The Justice Department says Microsoft broke the rules. Who's right? Join the debate in Table Talk's Digital Culture area.

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R E C E N T L Y

Will the Net spawn intelligent life?
Andrew Leonard on George Dyson's "Darwin Among the Machines"
(10/23/97)

Sliced off by the cutting edge
Second of two excerpts from Ellen Ullman's "Close to the Machine"
(10/16/97)

Elegance and entropy
Ellen Ullman talks with Scott Rosenberg about what makes programmers tick
(10/09/97)

Disappearing into the code
First of two excerpts from Ellen Ullman's "Close to the Machine"
(10/09/97)

Clicking for Godot
By Scott Rosenberg
Interactive art struggles to produce masterpieces
(10/02/97)

BROWSE THE 21ST ARCHIVES

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ILLUSTRATION BY
RICH BORGE

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When science-fiction writer William Gibson coined the word "cyberspace," he defined it as a "consensual hallucination." As people pressed him to define the word, he'd often say, "It's where the bank keeps your money."

The choice of example was not a coincidence. Anyone looking to understand the concept of "consensual hallucination" need look no further than the nearest wallet. We all know that little slips of green paper -- or, for that matter, even more evanescent notations on passbooks or entries in bank computers -- have no intrinsic worth. Yet the great majority of human energy is devoted to the pursuit, collection, care and feeding of the consensual hallucination we call money.

The hallucination is obvious. (What would you rather have the next time you're stranded on a barren desert island: a million bucks in crisp $100 bills, or a couple crates of crisp Cheerios?) And the consent is something we all provide out of pure trust. We know that -- most of the time, under normal circumstances -- our money is exchangeable for food, shelter, clothing and whatever else we might crave to upholster our brief lives. Despite the likelihood of economic turmoil, this trust is powerful enough that we readily salt away the fruits of present labor in a variety of savings accounts and retirement plans that we confidently expect will still be worth something decades from now.

Money's consensual hallucination depends on a surplus of trust over fear. The more people share the hallucination, the more solid the money; the more they doubt it, the more it fades.

Today there's a bull market in punditry focused on how the rise of digital technology changes everything we thought we knew about money. The new "network economy" will suspend the business cycle and quite possibly result in a "long boom," according to Wired magazine. In this new world of "Webonomics," many of the old principles we grew up with -- stuff like the laws of supply and demand -- work differently, or not at all, and novel concepts like tipping points, "virtuous circles" and the "law of increasing returns" are on the rise. A new book called "The Friction Free Economy" declares that we now live in "a world where traditional economic principles no longer apply."

One principle that we should not be so ready to dismiss is the one that tells us the market that goes up also goes down. Whether this week's stock market turmoil proves a mere "correction" or a pivotal downturn, it should put a welcome damper on outpourings of utopian blather.

Unsurprisingly, most of the digital-economy rhetoric has emerged directly from Silicon Valley, where the architects of the personal computer industry and the Internet have become convinced that they've discovered essential new principles for building wealth. Proudly surveying their own achievements in the software industry, they imagine that the rest of the economic world will quickly transform itself in their own image -- or vanish into the dustbin of history.

As Esther Dyson puts it in her new book, "Release 2.0," "For better or worse, Silicon Valley is becoming a model emulated worldwide -- and is a model for the future for all of us."

But is it? It's always difficult to test the hypotheses of futurists, but if you want to understand what's happening in an economy, a good place to start is with money itself. If digital technology is going to utterly transform every aspect of our lives, dissolving the material economy into cyberspace, surely it will begin by working its magic upon money itself.

"Electronic money" is one of the great meaningless phrases of our time. Define it one way and it doesn't exist yet; define it another and we're swimming in it. In her book "Virtual Money," economist Elinor Harris Solomon tries to offer a kind of taxonomy of "e-money." In the U.S. economy for 1995, it turns out, cash accounted for 550 billion transactions worth $2.2 trillion; checks, 62 billion transactions worth $73 trillion; electronic transfers, 19 billion transactions worth a whopping $544 trillion.

Today, electronic funds transfers at the bank level -- through networks like the Federal Reserve's Fedwire and CHIPS, run by private New York clearing banks -- account for more than $2 trillion a day. In other words, ever larger sums of money move electronically ever faster from bank to bank and country to country. We're all swimming in e-money. We still use cash for a large volume of petty transactions, but cash and even checks make up an ever smaller amount of total monetary activity. "Cash is dying," James Gleick wrote in a New York Times Magazine cover story last year.

But what's replacing it? The Net is full of experiments in "pure digital cash" -- online payment systems that rely on cryptography to provide the security and anonymity we associate with old-fashioned cash. But none of them -- not DigiCash (founded by e-money theorist David Chaum) nor First Virtual Holdings, nor similar approaches depending on "smart cards" with chips embedded in them nor any other ambitious, innovative scheme dependent on new technology -- has caught on.

Why not? One word, like the man in "The Graduate" said: plastic. As in credit cards.