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> What makes dollars valuable is that the government wants them back. Very common misconception. Dollars have value because there is demand for them (governmen

> What makes dollars valuable is that the government wants them back. Very common misconception. Dollars have value because there is demand for them (governments, other governments, other people and institutions). Bitcoin also has value because there is demand for it. As does your house, expensive art, etc. Why does anything have value? Because someone else will pay your for it. I can say my pencil is worth $1 billion, but it doesn't really unless someone else will execute the trade.

NetWorth16254 6y ago
Actually you wrong. Dolar has value, because even if no one will want dollar, government will buy it for dollar. It backed on government promise.
- dash2 6y ago
  Not sure if this is a joke? What does it mean to say the government will buy a dollar for a dollar?
- xerxesaa 6y ago
  Your argument sounds recursive. What does it mean to say the government will buy a dollar for a dollar? A dollar is only useful if it can be exchanged for things other than itself.
  - streb-lo 6y ago
    I mean avoiding prison for tax evasion sounds pretty useful to me.
- munk-a 6y ago
  That guarantee is sort of like the spark plug of the economy - because it exists (and because the US government was a thing) people initially believe in the value of a dollar (and the same thing happened with every currency) but the currency continues to have value (and has a value exceeding that initial US valuation) because other people will buy it as well. Also, just for a moment, the statement: "Dollar has value, because even if no one will want dollar, government will buy it for dollar." - that's a fair bit of nonsense, outside of the dollar having an exchange value the dollar has no value - fiat currency (and even precious metals TBH) only have value to to the continued demand for them and if that demand falters or if people stop valuing a dollar at as many whoppers as it used to be valued - then bad things start to happen really fast and the government is pretty powerless to stop it once it starts.
thephyber 6y ago
Yes. Usually that concept in that quote is a baseline of demand. The government will accept tax payments in US dollars, but they will probably demand no BitCoin, stamps, bullion, etc. That said, tax payments are not the only type of demand.
deleted 6y ago
[deleted]
paulgb 6y ago
My model of fiat money is like a battery: the government is both the outgoing pole (money printing) and the incoming pole (taxation). Money flows through the economy from one pole to the other, but all demand terminally stems from the taxation pole just as all supply stems from the printing pole. Of course, things get more complicated because money exists across time, credit, and inflation. But as a simple model it explains why, for example, money tends to get devalued when it stops being accepted as tax. Just as a circuit stops flowing when you disconnect either pole.
- munk-a 6y ago
  I disagree strongly here - there really is no incoming pole in the government and the outgoing pole is incredibly ineffective. The US (as an example) doesn't have the ability to effectively decrease monetary supply by simply failing to redistribute taxes - the total national wealth of the US is currently 105 trillion[1] while the total tax revenue is somewhere in the 3.5 trillion[2] range - it would take 30 years to cycle the full value of the US through the government at the current churn rate, the GDP is significantly smaller and (at 22 trillion) would likely take six years to fully process. Money can be thought of like a battery - sorta, but more like a bank of batteries - each one of us has a certain earning and spending potential that constitutes the voltage we're contributing to the economy - and it's all of us tiny batteries that contribute a much large proportion to the over all monetary flow than the big contributors like government (who are, by comparison, in the minority). 1. https://en.wikipedia.org/wiki/List_of_countries_by_total_wealth https://en.wikipedia.org/wiki/List_of_countries_by_total_wea... 2. https://en.wikipedia.org/wiki/United_States_federal_budget https://en.wikipedia.org/wiki/United_States_federal_budget
  - paulgb 6y ago
    > The US (as an example) doesn't have the ability to effectively decrease monetary supply by simply failing to redistribute taxes Why would it matter how quickly the government could cycle through the national wealth, which includes all private assets? The M1 money supply, at 5.2T[1] and using your 3.5T tax revenue figure, would take less than two years to cycle through. 1. https://fred.stlouisfed.org/series/M1 https://fred.stlouisfed.org/series/M1
clarkmoody 6y ago
Specifically, "reserve demand." People and institutions demand to hold a positive balance of the monetary good, and the aggregate sum of these reserve demands set the purchasing power. The notion that fiat money has value because governments demand it in taxes, might set a non-zero value for the money, but it does not set a specific price level. For instance, I could make a trade for dollars at the exact moment that I pay taxes, and it wouldn't matter what the actual value of the dollars is at that point. I would hold the dollars long enough to pay the taxes but no longer, so my reserve demand for the dollars is minimal. The effect on my finances is exactly the same if one dollar buys a pair of leather boots or a single shoelace. So: positive value, but no specific purchasing power.
- cameldrv 6y ago
  There is a reserve demand created because taxes are not due until some time after the transaction that created the tax liability. If you don't want to have exchange rate risk, you need to hold the dollars until the tax is due.
  - clarkmoody 6y ago
    It's a good point, but: If you don't want to hold the fiat, you can always send taxes on a continual basis to the collection agency (most people do this with each paycheck, via the automatic withholding). In the case of a rapidly inflating fiat currency, you would make the trade, since you are probably going to lose value holding the dying fiat.
austinl 6y ago
You mentioned expensive art, which is a pretty fascinating field because the value of individual pieces can be fairly subjective and difficult to appraise. This has massive tax implications in the United States. Imagine donating a piece of art, which you claim is worth $1 million. But the question of who is allowed to make that claim is quite complex, and often goes unnoticed unless the IRS chooses to investigate. A couple of articles on this: Inflated art appraisals cost U.S. government untold millions https://www.latimes.com/local/la-me-irs2mar02-story.html https://www.latimes.com/local/la-me-irs2mar02-story.html The secretive panel of art experts that tells the IRS how much art is worth https://www.washingtonpost.com/lifestyle/magazine/the-secretive-panel-of-art-experts-that-tells-the-irs-how-much-art-is-worth/2017/12/06/a8bd9dec-a3aa-11e7-8cfe-d5b912fabc99_story.html https://www.washingtonpost.com/lifestyle/magazine/the-secret...
notahacker 6y ago
> Why does anything have value? Because someone else will pay your for it. Sure, but there is a reason why dollars will have value in future: the quantity of outstanding dollar-denominated debt and future tax liabilities vastly exceeds the number of dollars in circulation. As people will need to have dollars for future repayments in future, you won't have trouble finding people to execute a trade of dollars you have for things you want. The [central] banking system can also vary the amount of dollars in circulation to link the supply of a currency on a given day to its demand and keep prices in line. Conversely there's little reason to believe that anybody will need most of the Bitcoin in circulation in future [very little BTC denominated debt, and all other payments or speculative holding can be made with other currencies, crypto or otherwise], and no other stabilising mechanism. So whilst you can say your BTC is worth at least what you paid for it, it really isn't unless you're lucky enough to find someone else to offload it to.
imtringued 6y ago
I'm not sure how you disproved what you quoted. You only strengthened it. Governments create artificial demand for the national currency.

NetWorth16254 6y ago

Actually you wrong. Dolar has value, because even if no one will want dollar, government will buy it for dollar. It backed on government promise.

dash2 6y ago
Not sure if this is a joke? What does it mean to say the government will buy a dollar for a dollar?
xerxesaa 6y ago
Your argument sounds recursive. What does it mean to say the government will buy a dollar for a dollar? A dollar is only useful if it can be exchanged for things other than itself.
- streb-lo 6y ago
  I mean avoiding prison for tax evasion sounds pretty useful to me.
munk-a 6y ago
That guarantee is sort of like the spark plug of the economy - because it exists (and because the US government was a thing) people initially believe in the value of a dollar (and the same thing happened with every currency) but the currency continues to have value (and has a value exceeding that initial US valuation) because other people will buy it as well. Also, just for a moment, the statement: "Dollar has value, because even if no one will want dollar, government will buy it for dollar." - that's a fair bit of nonsense, outside of the dollar having an exchange value the dollar has no value - fiat currency (and even precious metals TBH) only have value to to the continued demand for them and if that demand falters or if people stop valuing a dollar at as many whoppers as it used to be valued - then bad things start to happen really fast and the government is pretty powerless to stop it once it starts.

thephyber 6y ago

Yes. Usually that concept in that quote is a baseline of demand. The government will accept tax payments in US dollars, but they will probably demand no BitCoin, stamps, bullion, etc. That said, tax payments are not the only type of demand.

deleted 6y ago

[deleted]

paulgb 6y ago

My model of fiat money is like a battery: the government is both the outgoing pole (money printing) and the incoming pole (taxation). Money flows through the economy from one pole to the other, but all demand terminally stems from the taxation pole just as all supply stems from the printing pole. Of course, things get more complicated because money exists across time, credit, and inflation. But as a simple model it explains why, for example, money tends to get devalued when it stops being accepted as tax. Just as a circuit stops flowing when you disconnect either pole.

munk-a 6y ago
I disagree strongly here - there really is no incoming pole in the government and the outgoing pole is incredibly ineffective. The US (as an example) doesn't have the ability to effectively decrease monetary supply by simply failing to redistribute taxes - the total national wealth of the US is currently 105 trillion[1] while the total tax revenue is somewhere in the 3.5 trillion[2] range - it would take 30 years to cycle the full value of the US through the government at the current churn rate, the GDP is significantly smaller and (at 22 trillion) would likely take six years to fully process. Money can be thought of like a battery - sorta, but more like a bank of batteries - each one of us has a certain earning and spending potential that constitutes the voltage we're contributing to the economy - and it's all of us tiny batteries that contribute a much large proportion to the over all monetary flow than the big contributors like government (who are, by comparison, in the minority). 1. https://en.wikipedia.org/wiki/List_of_countries_by_total_wealth https://en.wikipedia.org/wiki/List_of_countries_by_total_wea... 2. https://en.wikipedia.org/wiki/United_States_federal_budget https://en.wikipedia.org/wiki/United_States_federal_budget
- paulgb 6y ago
  > The US (as an example) doesn't have the ability to effectively decrease monetary supply by simply failing to redistribute taxes Why would it matter how quickly the government could cycle through the national wealth, which includes all private assets? The M1 money supply, at 5.2T[1] and using your 3.5T tax revenue figure, would take less than two years to cycle through. 1. https://fred.stlouisfed.org/series/M1 https://fred.stlouisfed.org/series/M1

clarkmoody 6y ago

Specifically, "reserve demand." People and institutions demand to hold a positive balance of the monetary good, and the aggregate sum of these reserve demands set the purchasing power. The notion that fiat money has value because governments demand it in taxes, might set a non-zero value for the money, but it does not set a specific price level. For instance, I could make a trade for dollars at the exact moment that I pay taxes, and it wouldn't matter what the actual value of the dollars is at that point. I would hold the dollars long enough to pay the taxes but no longer, so my reserve demand for the dollars is minimal. The effect on my finances is exactly the same if one dollar buys a pair of leather boots or a single shoelace. So: positive value, but no specific purchasing power.

cameldrv 6y ago
There is a reserve demand created because taxes are not due until some time after the transaction that created the tax liability. If you don't want to have exchange rate risk, you need to hold the dollars until the tax is due.
- clarkmoody 6y ago
  It's a good point, but: If you don't want to hold the fiat, you can always send taxes on a continual basis to the collection agency (most people do this with each paycheck, via the automatic withholding). In the case of a rapidly inflating fiat currency, you would make the trade, since you are probably going to lose value holding the dying fiat.

austinl 6y ago

You mentioned expensive art, which is a pretty fascinating field because the value of individual pieces can be fairly subjective and difficult to appraise. This has massive tax implications in the United States. Imagine donating a piece of art, which you claim is worth $1 million. But the question of who is allowed to make that claim is quite complex, and often goes unnoticed unless the IRS chooses to investigate. A couple of articles on this: Inflated art appraisals cost U.S. government untold millions https://www.latimes.com/local/la-me-irs2mar02-story.html https://www.latimes.com/local/la-me-irs2mar02-story.html The secretive panel of art experts that tells the IRS how much art is worth https://www.washingtonpost.com/lifestyle/magazine/the-secretive-panel-of-art-experts-that-tells-the-irs-how-much-art-is-worth/2017/12/06/a8bd9dec-a3aa-11e7-8cfe-d5b912fabc99_story.html https://www.washingtonpost.com/lifestyle/magazine/the-secret...

notahacker 6y ago

> Why does anything have value? Because someone else will pay your for it. Sure, but there is a reason why dollars will have value in future: the quantity of outstanding dollar-denominated debt and future tax liabilities vastly exceeds the number of dollars in circulation. As people will need to have dollars for future repayments in future, you won't have trouble finding people to execute a trade of dollars you have for things you want. The [central] banking system can also vary the amount of dollars in circulation to link the supply of a currency on a given day to its demand and keep prices in line. Conversely there's little reason to believe that anybody will need most of the Bitcoin in circulation in future [very little BTC denominated debt, and all other payments or speculative holding can be made with other currencies, crypto or otherwise], and no other stabilising mechanism. So whilst you can say your BTC is worth at least what you paid for it, it really isn't unless you're lucky enough to find someone else to offload it to.

imtringued 6y ago

I'm not sure how you disproved what you quoted. You only strengthened it. Governments create artificial demand for the national currency.