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I really don’t buy the old taxes-make-the-money-work chestnut. Far too many counterexamples.

pydry 4y ago
Taxes are only a chunk of what makes fiat money work but theyre probably the largest chunk. There arent really many counterexamples and arguably the counterexamples have extenuating circumstances (e.g. dinar under saddams occupation).
bluetomcat 4y ago
Paying taxes in a given currency means that the government forces the use of that currency nation-wide. Without a central tax authority requiring that currency, groups of people could start exchanging, say, peanuts for the mutual exchange of goods and services. Since you can't pay your taxes in peanuts, you would want to hold national currency instead of peanuts.
- yakak 4y ago
  I would want to exchange peanuts and consequently owe no taxes. That is why the US has very complicated rules to discourage bartering and gives every sign it would complicate and eventually outlaw quid-pro-quo family/friend arrangements for things like child and elder care if large and powerful groups of people weren't still extended family oriented.
  - elil17 4y ago
    Genuinely curious here: has anyone actually proposed making family helping with childcare illegal (or perhaps taxed?) Even if it’s just an economist weirdo I’d be curious to see what the argument is there
    - yakak 4y ago
      The exceptions in the rules here for example are almost certainly directly constructed by Congress or anger from Congress and not particularly consistent with how the IRS expands laws by expanding existing theories if left alone: https://www.irs.gov/businesses/small-businesses-self-employed/family-caregivers-and-self-employment-tax https://www.irs.gov/businesses/small-businesses-self-employe...
      - bombcar 4y ago
        Most IRS rulings and much of tax law itself are to try to patch over loopholes that are being exploited (the very page describes the various checks they have in place).
  - bluetomcat 4y ago
    > I would want to exchange peanuts and consequently owe no taxes. This idea is at odds with the concept of the modern nation state. You can't have running state institutions and an army that, in theory, should provide some level of security of the state borders. Having many groups of people, each exchanging peanuts, beans or stones would lead to a decreased level of trust and no concept of national unity.
    - yakak 4y ago
      I don't get your point or you don't get mine. The individual individual's incentives are to have benefits without them being measurable income so Tax being about dollars makes dollars less desirable without many more actions from the state to force dollar measurable transactions.
    - yellowapple 4y ago
      > This idea is at odds with the concept of the modern nation state. Good.
- benmanns 4y ago
  For example with USD, this also requires not just transacting in USD once a year, but hedging in the national currency, as many crypto earners and traders are learning. If you get paid 1 BTC when BTC is worth $50k, you really should sell and hold 15-50% of it immediately to cover your tax obligation. If the price drops to $20k, you can sell and book a $30k loss, but you may only be able to deduct $3k of it against your $50k in income, leaving you in a bad spot come April 15.
klntsky 4y ago
It's not taxes but salaries.
danachow 4y ago
As stated it’s bollocks - but also a straw man. The value depends on the value of the state in question. A wealthy state will force money to have some value if they collect taxes in that currency. A completely dysfunctional state with no wealth or services doesn’t exchange any value for taxes. But for the US, Europe, China, whatever - not Zimbabwe - it’s a major factor
SkyMarshal 4y ago
Edit: Oh, gotcha, failed/ing states with currencies that hyperinflated despite being the only accepted currency for taxes. — What are some of the counterexamples?
rvense 4y ago
As far as I can tell, money is so entirely based on trust that it might as well consist of it, trust in in some fuzzy combination of other people's continued rationality and things staying roughly the same. I accept 100 euro bills for my labour because I believe I'll continue to be able to trade them for food and shelter.
- enaaem 4y ago
  Fiat is indeed based on trust. The trust that the government remain functioning. Fiat is a government backed claim on economic production. That’s not trivial, because the government is the sole arbiter and enforcer of property rights. Fiat determines what resources you can legally assign to you, according to the rules of the sole arbiter of property rights. The notion of property rights is only relevant with a central authority who is able to enforce it. Which could be a nation state, tribal chief or a lord. In the jungle you only own whatever you are able to defend. Even your own life.
  - datadata 4y ago
    > The notion of property rights is only relevant with a central authority who is able to enforce it. The innovation of bitcoin is precisely making this statement no longer true. The "property" might only be digital data, rather than physical things, so you can argue that it is no longer true in only a limited context, but it is not longer absolutely true.
    - enaaem 4y ago
      Absolute truth is not relevant because 99.99% of what you need to sustain yourself is physical. It’s practically 100%. Maintaining BTC itself requires physical inputs and physical property rights. You need fiat to buy energy. Your house with mining rigs needs enforcement of property rights.
      - datadata 4y ago
        The physical inputs to bitcoin are decentralized and robust against disruption. You don't need to be a miner yourself to store or transact. > You need fiat to buy energy. This is a circular argument and not true. You can buy energy today with gold or bitcoin.
wuliwong 4y ago
To me, the stronger government intervention is taxing the use of cryptocurrencies (or pretty much anything except dollars in the US) when buying something with it. There is a capital gains tax event that happens if you buy something with BTC, for example. So you have to pay extra to use non-dollars for transactions but also a regular person's taxes would become extremely complicated if they used non-dollars for all their transactions.
- datadata 4y ago
  Excellent point. This also lends to it being easier for US tax subjects to use the dollar as a unit of account and ignore its (small, but not insignificant and always trending downward) value changes. I think a crypto wallet app that optimized for this problem would be super valuable, e.g. making doing taxes of these transactions seamless, and suggesting paying using a currency that is optimal for taxes (e.g. realizing a loss if that is possible, because then your purchase would come with a tax credit.) There are also efforts by legislators to enable de minimis exemptions for crypto transactions (taxes waived if the transaction size is sufficiently small)
anonporridge 4y ago
Taxes aren't why money generally works (money emerges naturally in human societies), but taxes are what makes national currencies work. If you don't pay your taxes, you don't get to participate in the local economy for very long. Men with guns will eventually come to your home and take your stuff and/or take your freedom. You can't even do direct barter without cash without incurring a tax obligation in the US, https://www.irs.gov/taxtopics/tc420 https://www.irs.gov/taxtopics/tc420, so even if you live your life like this, you still need to find a way to get actual dollars to pay your taxes. This is what creates the basic and permanent demand for dollars. The simple truth is that every government is at its core the biggest, baddest gang in the land. The old royalty were literally mob bosses, and often presented themselves as gaudily and arrogantly as the street gang bosses in the modern age. They have the monopoly on violence in their realm and then printed a bunch of tokens that they demand as tribute for the promise of letting you live your life in peace. Because they control the issuance of these tokens, they effectively control the flow of the economy and can more easily manipulate people. They can't arrest everyone, so there's still a fine balancing act required to keep the masses generally consenting of the arrangement, with just the right show of force to reinforce the system. But other things beyond currency are still money, like gold and bitcoin, because money is just something scarce that you hoard in the hope that in the future, you can trade it for at least as much goods and services as you originally traded for the money, if not more. Anything scarce can be monetized when the currency becomes less scarce, which is part of what is driving up housing as people hoard it as a better store of value than currency. And importantly, making the thing you store this ethereal "money" in even more scarce relative other things increases the value of your own, which is part of the driving force behind NIMBYs who block new housing developments.
- globalreset 4y ago
- catlifeonmars 4y ago
  > so there's still a fine balancing act required to keep the masses generally consenting of the arrangement Yes, this is the part where the government (state or federal) delivers value, such as education, healthcare, natsec, and generally facilitates the ability to do business via the court system. I think it’s disingenuous to make the argument you’re making without acknowledging the value that government provides.
samatman 4y ago
I agree with this, it's a market of last resort but it hasn't prevented hyperinflation ever. No one facing a hyperinflationary death spiral says "oh well, at least the government will take taxes in this crap" they desperately cast around for a stable place to put wealth.

Taxes are only a chunk of what makes fiat money work but theyre probably the largest chunk. There arent really many counterexamples and arguably the counterexamples have extenuating circumstances (e.g. dinar under saddams occupation).

bluetomcat 4y ago

Paying taxes in a given currency means that the government forces the use of that currency nation-wide. Without a central tax authority requiring that currency, groups of people could start exchanging, say, peanuts for the mutual exchange of goods and services. Since you can't pay your taxes in peanuts, you would want to hold national currency instead of peanuts.

yakak 4y ago
I would want to exchange peanuts and consequently owe no taxes. That is why the US has very complicated rules to discourage bartering and gives every sign it would complicate and eventually outlaw quid-pro-quo family/friend arrangements for things like child and elder care if large and powerful groups of people weren't still extended family oriented.
- elil17 4y ago
  Genuinely curious here: has anyone actually proposed making family helping with childcare illegal (or perhaps taxed?) Even if it’s just an economist weirdo I’d be curious to see what the argument is there
  - yakak 4y ago
    The exceptions in the rules here for example are almost certainly directly constructed by Congress or anger from Congress and not particularly consistent with how the IRS expands laws by expanding existing theories if left alone: https://www.irs.gov/businesses/small-businesses-self-employed/family-caregivers-and-self-employment-tax https://www.irs.gov/businesses/small-businesses-self-employe...
    - bombcar 4y ago
      Most IRS rulings and much of tax law itself are to try to patch over loopholes that are being exploited (the very page describes the various checks they have in place).
- bluetomcat 4y ago
  > I would want to exchange peanuts and consequently owe no taxes. This idea is at odds with the concept of the modern nation state. You can't have running state institutions and an army that, in theory, should provide some level of security of the state borders. Having many groups of people, each exchanging peanuts, beans or stones would lead to a decreased level of trust and no concept of national unity.
  - yakak 4y ago
    I don't get your point or you don't get mine. The individual individual's incentives are to have benefits without them being measurable income so Tax being about dollars makes dollars less desirable without many more actions from the state to force dollar measurable transactions.
  - yellowapple 4y ago
    > This idea is at odds with the concept of the modern nation state. Good.
benmanns 4y ago
For example with USD, this also requires not just transacting in USD once a year, but hedging in the national currency, as many crypto earners and traders are learning. If you get paid 1 BTC when BTC is worth $50k, you really should sell and hold 15-50% of it immediately to cover your tax obligation. If the price drops to $20k, you can sell and book a $30k loss, but you may only be able to deduct $3k of it against your $50k in income, leaving you in a bad spot come April 15.

klntsky 4y ago

It's not taxes but salaries.

danachow 4y ago

As stated it’s bollocks - but also a straw man. The value depends on the value of the state in question. A wealthy state will force money to have some value if they collect taxes in that currency. A completely dysfunctional state with no wealth or services doesn’t exchange any value for taxes. But for the US, Europe, China, whatever - not Zimbabwe - it’s a major factor

SkyMarshal 4y ago

Edit: Oh, gotcha, failed/ing states with currencies that hyperinflated despite being the only accepted currency for taxes. — What are some of the counterexamples?

rvense 4y ago

As far as I can tell, money is so entirely based on trust that it might as well consist of it, trust in in some fuzzy combination of other people's continued rationality and things staying roughly the same. I accept 100 euro bills for my labour because I believe I'll continue to be able to trade them for food and shelter.

enaaem 4y ago
Fiat is indeed based on trust. The trust that the government remain functioning. Fiat is a government backed claim on economic production. That’s not trivial, because the government is the sole arbiter and enforcer of property rights. Fiat determines what resources you can legally assign to you, according to the rules of the sole arbiter of property rights. The notion of property rights is only relevant with a central authority who is able to enforce it. Which could be a nation state, tribal chief or a lord. In the jungle you only own whatever you are able to defend. Even your own life.
- datadata 4y ago
  > The notion of property rights is only relevant with a central authority who is able to enforce it. The innovation of bitcoin is precisely making this statement no longer true. The "property" might only be digital data, rather than physical things, so you can argue that it is no longer true in only a limited context, but it is not longer absolutely true.
  - enaaem 4y ago
    Absolute truth is not relevant because 99.99% of what you need to sustain yourself is physical. It’s practically 100%. Maintaining BTC itself requires physical inputs and physical property rights. You need fiat to buy energy. Your house with mining rigs needs enforcement of property rights.
    - datadata 4y ago
      The physical inputs to bitcoin are decentralized and robust against disruption. You don't need to be a miner yourself to store or transact. > You need fiat to buy energy. This is a circular argument and not true. You can buy energy today with gold or bitcoin.

wuliwong 4y ago

To me, the stronger government intervention is taxing the use of cryptocurrencies (or pretty much anything except dollars in the US) when buying something with it. There is a capital gains tax event that happens if you buy something with BTC, for example. So you have to pay extra to use non-dollars for transactions but also a regular person's taxes would become extremely complicated if they used non-dollars for all their transactions.

datadata 4y ago
Excellent point. This also lends to it being easier for US tax subjects to use the dollar as a unit of account and ignore its (small, but not insignificant and always trending downward) value changes. I think a crypto wallet app that optimized for this problem would be super valuable, e.g. making doing taxes of these transactions seamless, and suggesting paying using a currency that is optimal for taxes (e.g. realizing a loss if that is possible, because then your purchase would come with a tax credit.) There are also efforts by legislators to enable de minimis exemptions for crypto transactions (taxes waived if the transaction size is sufficiently small)

anonporridge 4y ago

Taxes aren't why money generally works (money emerges naturally in human societies), but taxes are what makes national currencies work. If you don't pay your taxes, you don't get to participate in the local economy for very long. Men with guns will eventually come to your home and take your stuff and/or take your freedom. You can't even do direct barter without cash without incurring a tax obligation in the US, https://www.irs.gov/taxtopics/tc420 https://www.irs.gov/taxtopics/tc420, so even if you live your life like this, you still need to find a way to get actual dollars to pay your taxes. This is what creates the basic and permanent demand for dollars. The simple truth is that every government is at its core the biggest, baddest gang in the land. The old royalty were literally mob bosses, and often presented themselves as gaudily and arrogantly as the street gang bosses in the modern age. They have the monopoly on violence in their realm and then printed a bunch of tokens that they demand as tribute for the promise of letting you live your life in peace. Because they control the issuance of these tokens, they effectively control the flow of the economy and can more easily manipulate people. They can't arrest everyone, so there's still a fine balancing act required to keep the masses generally consenting of the arrangement, with just the right show of force to reinforce the system. But other things beyond currency are still money, like gold and bitcoin, because money is just something scarce that you hoard in the hope that in the future, you can trade it for at least as much goods and services as you originally traded for the money, if not more. Anything scarce can be monetized when the currency becomes less scarce, which is part of what is driving up housing as people hoard it as a better store of value than currency. And importantly, making the thing you store this ethereal "money" in even more scarce relative other things increases the value of your own, which is part of the driving force behind NIMBYs who block new housing developments.

globalreset 4y ago
catlifeonmars 4y ago
> so there's still a fine balancing act required to keep the masses generally consenting of the arrangement Yes, this is the part where the government (state or federal) delivers value, such as education, healthcare, natsec, and generally facilitates the ability to do business via the court system. I think it’s disingenuous to make the argument you’re making without acknowledging the value that government provides.

samatman 4y ago

I agree with this, it's a market of last resort but it hasn't prevented hyperinflation ever. No one facing a hyperinflationary death spiral says "oh well, at least the government will take taxes in this crap" they desperately cast around for a stable place to put wealth.