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> That intrinsic value is that the US government accepts it as payment for taxes That can be argued to be an abstract utility for the US Dollar, but it is not

> That intrinsic value is that the US government accepts it as payment for taxes That can be argued to be an abstract utility for the US Dollar, but it is not an argument for the value (or "intrinsic value", whatever that means) of the US dollar in that the value of it is what determines the tax obligation. That is, if I own taxes on a non-USD transaction (say capital gains for BTC sales), the amount of those taxes is dependent on the value of USD. There's no forcing function -- if USD is valuable, I owe fewer dollars, if USD is cheap then I owe more dollars. There's no net demand. To summarize -- tax obligations create no net demand for USD, thus are not a factor in the value of USD. The exception to this is things like fees and (in the short-term) specific value taxes (like property taxes). These are not a significant factor in US government revenue, so I think we can safely discount them, although many municipalities rely on them to a greater degree. I don't understand why this tired old meme keeps getting circulated -- it makes me want to write an angry letter to David Graeber. I think it's an interesting thesis for the origin of money, as early taxes were more like fees, tariffs, and tolls rather than ad valorum, and serves as a useful counterpoint to the Mises regression theorem, but stating it as a fact for the current state of things rather than a historical vestige requires a gross misinterpretation of the facts.

darawk 9y ago
> That can be argued to be an abstract utility for the US Dollar, but it is not an argument for the value (or "intrinsic value", whatever that means) of the US dollar in that the value of it is what determines the tax obligation. That is, if I own taxes on a non-USD transaction (say capital gains for BTC sales), the amount of those taxes is dependent on the value of USD. There's no forcing function -- if USD is valuable, I owe fewer dollars, if USD is cheap then I owe more dollars. There's no net demand. In what sense is there no "net demand"? There is a fixed (at any given time) amount of USD in circulation. People will need that USD to pay taxes. That is the demand side. Where is the supply side to make it net zero?
jganetsk 9y ago
The idea that taxes create a demand for currency (and hence the value) is explored at depth in Modern Monetary Theory: http://neweconomicperspectives.org/2011/07/mmp-blog-8-taxes-drive-money.html http://neweconomicperspectives.org/2011/07/mmp-blog-8-taxes-...
voidmain 9y ago
I really think you have this wrong. At the least, you need a better defense of your position. Assume for the moment that the number of USD in circulation is fixed. (Presumably we agree that if the government prints or retires currency they can change the value of USD, so let's remove that as a factor). For the sake of argument let's say there are 10^13 USD at all times. Every year America produces some amount of real income. Let's just call that 1 A, measured relative to some fixed basket of goods. And let's say the government collects .2A in taxes. Now, you are saying that the value of USD is not constrained by this situation. Suppose that almost everyone switches to cryptocurrency and 1USD = 10^-16 A. Then at tax time Americans have to come up with 0.2A=2x10^15 USD which is 200x more than actually exist. So people will need more USD than they have and will have to bid the price up. Thus, given a fixed money supply and that the government doesn't literally instantly spend every tax dollar, there is a floor on the value of the USD proportional to total tax collection (and thus to the size of the economy being taxed).
- voidmain 9y ago
  To add some real world numbers: it seems that federal, state, and local taxes total about 40% of the $18.6 trillion GDP, or $7.4 trillion per year. The broad money supply M2 is about $13.8 trillion. So more than half of all the USD in existence anywhere need to be handed to US governments every year! If the value of the USD were to fall precipitously, this fraction would go up. It seems crazy to think that this doesn't bound the value of the dollar.

darawk 9y ago

> That can be argued to be an abstract utility for the US Dollar, but it is not an argument for the value (or "intrinsic value", whatever that means) of the US dollar in that the value of it is what determines the tax obligation. That is, if I own taxes on a non-USD transaction (say capital gains for BTC sales), the amount of those taxes is dependent on the value of USD. There's no forcing function -- if USD is valuable, I owe fewer dollars, if USD is cheap then I owe more dollars. There's no net demand. In what sense is there no "net demand"? There is a fixed (at any given time) amount of USD in circulation. People will need that USD to pay taxes. That is the demand side. Where is the supply side to make it net zero?

jganetsk 9y ago

The idea that taxes create a demand for currency (and hence the value) is explored at depth in Modern Monetary Theory: http://neweconomicperspectives.org/2011/07/mmp-blog-8-taxes-drive-money.html http://neweconomicperspectives.org/2011/07/mmp-blog-8-taxes-...

voidmain 9y ago

I really think you have this wrong. At the least, you need a better defense of your position. Assume for the moment that the number of USD in circulation is fixed. (Presumably we agree that if the government prints or retires currency they can change the value of USD, so let's remove that as a factor). For the sake of argument let's say there are 10^13 USD at all times. Every year America produces some amount of real income. Let's just call that 1 A, measured relative to some fixed basket of goods. And let's say the government collects .2A in taxes. Now, you are saying that the value of USD is not constrained by this situation. Suppose that almost everyone switches to cryptocurrency and 1USD = 10^-16 A. Then at tax time Americans have to come up with 0.2A=2x10^15 USD which is 200x more than actually exist. So people will need more USD than they have and will have to bid the price up. Thus, given a fixed money supply and that the government doesn't literally instantly spend every tax dollar, there is a floor on the value of the USD proportional to total tax collection (and thus to the size of the economy being taxed).

voidmain 9y ago
To add some real world numbers: it seems that federal, state, and local taxes total about 40% of the $18.6 trillion GDP, or $7.4 trillion per year. The broad money supply M2 is about $13.8 trillion. So more than half of all the USD in existence anywhere need to be handed to US governments every year! If the value of the USD were to fall precipitously, this fraction would go up. It seems crazy to think that this doesn't bound the value of the dollar.