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>"So the dollar is only worth something because people agree it is." The article was good, but that part is wrong. The dollar is worth something because you n

>"So the dollar is only worth something because people agree it is." The article was good, but that part is wrong. The dollar is worth something because you need it to pay taxes. You can squat in a tent in the woods and eat nuts and berries and not buy anything, but if you trade with anyone, they need dollars to pay the taxes on their income, even if it's just barter.

pengsoo_giant 4y ago
If you barter with someone you don't need to pay sales tax or any other Imperialist tax.
- basicplus2 4y ago
  Not so.. for example in Australia.. https://www.ato.gov.au/Business/GST/In-detail/Rules-for-specific-transactions/Barter-and-trade-exchanges/ https://www.ato.gov.au/Business/GST/In-detail/Rules-for-spec...
- modeless 4y ago
  This is false. Barter is taxed. Of course it has to be, otherwise why would anyone choose to pay in dollars and be taxed?
  - vkreso 4y ago
    Both parties need to have a specific good or service the other wants for barter to be successful. Money, however, can serve as a medium of exchange eliminating that problem thereby being useful enough to let yourself get taxed for its use.
- deleted 4y ago
  [deleted]
whatshisface 4y ago
That's not a reason for the dollar to be worth anything. Pick any value for a dollar in terms of berries, and a 10% income tax will work out to be the same percent of your berries taken away during the trade. Similarly, you can pick any value of the dollar and the property taxes on your forest land will come out to the same number of berries. Since any dollar denomination works, the equation can't fix a value.
- jqgatsby 4y ago
  IMO, that doesn't matter, and OP is correct that taxes are what really drive the pump. If you owe $10 in tax, and all you have are berries, you have to sell the berries to get dollars to pay the tax. Your desire not to go to prison for tax avoidance thus creates demand for dollars.
  - whatshisface 4y ago
    You don't owe $10 in tax, you owe 10% in tax. 10% could be anything and doesn't fix a value for the dollar. The system you're describing is a dollar quota, not a tax, and I don't think that system has ever existed in a western democracy. Seriously, just try to calculate the idealized value of $1 based on a single tax, perhaps a tax you pay. There's no way to come up with anything. The theory being advanced here does not stand up to even the simplest attempt to apply it! (There might have been a cruel feudal lord that demanded one gold coin per annum on threat of imprisonment, but I haven't heard of him if there was.)
    - jqgatsby 4y ago
      It's an interesting point you are making about percentages, and I'm trying to decide if you are confused or I am. We seem to be in agreement that a dollar quota would create dollar demand, is that correct? It seems to me that once the pump starts moving, it doesn't matter whether the government charges a percent or a fixed amount. But I think I agree with you that you can't start the pump by asking for a percent. Makes me wonder if way down in the kernel code of the monetary system there's some kind of dollar quota, or alternatively if the current system booted off a dollar quota. Makes me think of a stamp tax or something like that.
      - whatshisface 4y ago
        There was never a dollar quota. They represented amounts of gold until Richard Nixon finished a process that had begun during the great depression and fully stopped honoring the right to exchange one for the other. That was the end of this system: https://en.m.wikipedia.org/wiki/Bretton_Woods_system https://en.m.wikipedia.org/wiki/Bretton_Woods_system Since everyone was already exchanging in dollars at that time their value didn't drop to zero, although it has fell a lot since then for obvious reasons. Since people don't really use dollars as a store of value on a large scale anymore (Bill Gates does not own billions of dollars, he owns billions of dollars worth of stocks land etc.) it's not as bad as it sounds.
staticautomatic 4y ago
I had no idea that barter was taxable.
- toomuchtodo 4y ago
  https://www.irs.gov/taxtopics/tc420 https://www.irs.gov/taxtopics/tc420 https://www.irs.gov/publications/p525#en_US_2021_publink1000229343 https://www.irs.gov/publications/p525#en_US_2021_publink1000...
- Invictus0 4y ago
  If it weren't then it would be quite easy to avoid taxes.
jkhdigital 4y ago
It's basically correct if you peel back a few abstractions: Taxes must be paid in dollars in accordance with federal law. Federal law is established through elected representatives. The legislative process is a democratic republic's mechanism for coming to agreement on rules that affect society at large. In other words, at some point in time a bunch of elected representatives agreed that the dollar would be worth something and codified that in law.
- throwaway12245 4y ago
  Congress shall have power to coin money, regulate the Value thereof, and of foreign coin, and fix the standard of weights and measures. ~ Art. I, sec. 8, cl. 5. Congress shall have power to provide for the punishment of counterfeiting the securities and current coin of the United States. ~ Art. I, sec. 8, cl. 6.
  - jkhdigital 4y ago
    Yes, and the Constitution gives the legislature the power to make such laws :-) Always traceable to the societal root of trust
deleted 4y ago
[deleted]
porknubbins 4y ago
Currency is a social phenomenon that has emerged in many places without a central goverment requiring tax payments though. I think the value of fiat money is more based on the overall strength stability of the government that says it is legal tender for all debts, rather than tax payments narrowly.
- gamegoblin 4y ago
  Yes, the Chartalist [1] view espoused by OP only applies to fiat currencies. The basic chartalist money story is: - Local warlord/chieftan/strongman wants to get government-type things done, e.g. build a road - Warlord says "I will pay anyone 5 dogecoin per day for working on my road" - The people say "who cares, we don't want your worthless dogecoin" - Warlord says "Anyone who does not pay 20 dogecoins in tax by the end of the month will be killed" Suddenly you have people working on the road. But not everyone wants to work on the road, some people need to do other things like farming food. So the farmers trade food to the road workers in exchange for dogecoins so that the farmers can pay their tax. And the farmer trades some extra dogecoins to the blacksmith for a new shovel. Now the blacksmith can pay his tax. Etc. The imposition of the tax has created a Schelling point where dogecoins now function as a medium of exchange, unit of account (5 dogecoins == 1 day of manual labor), and store of value. i.e. a currency. Another major (and not mutually exclusive) theory of money is that of credit. Let's say the farmer says "I'll give you a bushel of grain now in exchange for 100 dogecoins by the end of the month". Now the road builder has a debt to the farmer, and the farmer has an asset worth 100 dogecoins modulo the creditworthiness of the road worker. The farmer could trade this IOU to someone else as if it were dogecoins (again, modulo default risk), etc. You can build up the whole financial system from here. [1] https://en.wikipedia.org/wiki/Chartalism https://en.wikipedia.org/wiki/Chartalism [2] https://en.wikipedia.org/wiki/Credit_theory_of_money https://en.wikipedia.org/wiki/Credit_theory_of_money
  - jkhdigital 4y ago
    > Schelling point Any explanation of money should be required to refer to this concept
ndm000 4y ago
I agree that taxation is part of money’s value, and there are also other factors. If money is backed by a commodity (i.e. gold) then part of its value comes from the value of the commodity. For fiat currencies where new money is mostly created as debt, the common refrain is that its value is based on common trust. I think it’s more than that. Debt is an obligation between two entities regarding future outcomes - namely, the repayment of the loan plus interest. When looked at this way the value of money comes from humanities ability to affect future outcomes. If I take out a mortgage, the bank trusts me to repay based on evidence I’ve demonstrated, and I trust the bank due to the bank’s reputation, the laws that govern banking, etc. I am not an economist and wouldn’t be surprised if these concepts are already in some theory I’m not aware of. I do think that the sentiment that money created out of nothing is not really correct - rather it’s money created out of expected future value.
Aunche 4y ago
This is wrong. Every country has taxes, but some money is more valuable than others. Argentina's currency devalued even though they raised their tax rates. When McDonald's agrees to sell their Big Mac for $5, they're backing the US dollar. When you agree to work 40 hours a week for a predetermined salary in dollars, you're backing the US dollar. It's the same when you pay for taxes, but it's not different from the previous examples.
bluedays 4y ago
This is a specious argument. Using your logic I could say that this is because everyone agrees to use it to pay taxes. Then further conclude that the government is only legitimate because people think it is and they have not deposed of it. Therefore both the dollar and the United States only exist with the consent of the people. ie, because people agree that it provides value. However, what money actually represents is debt. This is the same with any asset class, but especially with a country's currency. If I have a goat, and you have a cow, and I want milk but you're not interested in what you have to trade I could issue an IOU, if for instance I have excess feed for my goats that I could trade in the summer. This sort of arrangement could be made in smaller communities, because breaking the social contract could have dire consequences. However, when you scale that up on a societal scale you begin to create a currency. The name of the currency doesn't really matter, honestly, it could be the dollar or bottle caps, as long as it's a currency that represents value to everyone. In a small community a hundred bottle caps could be worth the value of a pound of wheat, or 100 pounds of wheat. How do you decide? Well it all comes down to the person who is buying the product, but then again, not really... It's also a social contract that people are making. The value is defined by making comparisons both by how useful the asset is, how rare the asset is, the demand for the asset, but how much people agree the asset is worth collectively and in order to make such a decision the people have to decide how much value a currency has when exchanging goods and services. The same with any fungible asset - all value is created because people collectively decided to assign it this value. You can see this actively playing out in any asset class from housing, stocks, and cars, to things as trivial as magic the gathering cards, to things as important as the value of one's labor. When you're done at the end of a job someone will say to you "how much money do I owe you?" not "how much taxes do I pay you?" because therein lies the real value of a currency. The labor, and the asset that is being provided is the value, not the taxes. Without a common collectively agree upon asset that people can exchange then there is no way to exchange services without a bartering system. The dollar's power is that universally everyone agrees that it has value. However, the dollar can still have power outside jurisdictions that don't pay taxes to the United States government. How does that square with your argument? Why does it have value? People in France are not paying taxes to the Government but they can freely trade Francs in exchange for Dollars. So it can't be taxes. If there is no currency that everyone agrees has a common value how do you pay taxes? How do you even decide what a fair tax value is? If I say tomorrow that the new currency is bottle caps, what is the fair tax rate? Well, the first question you would ask yourself is what is the value of a bottle cap? And thus you return to the beginning of this post, and society has to begin again to make another unspoken agreement about the value of a new currency. The value of a currency is again will be decided relative to the perceived value of the goods and services provided, and the agreed upon value of said currency. In my imagination milk is worth 100 bottle caps, but you may disagree. Thus we barter, and therein lies the value of all currency. Bartering isn't gone, it's just invisible, or symbolic nowadays. So when you're in a business meeting trying to sell your next startup imagine how much milk you can buy, or whatever.
recursivedoubts 4y ago
A dollar is worth something because the largest military in the world stands behind it, declaring that it is good for all debts public and private, and you better damned well take it. It is incorrect to say the dollar is backed by nothing. It is backed by the threat of violence from the US government, and the US government is very good at violence.
gasull 4y ago
Arguably not enough. You needed Zimbabwean dollars to pay for taxes in Zimbabwe, yet the currency collapsed.
- narrator 4y ago
  The hyperinflation situation, like in Argentina or Zimbabwe occurs because the money floods into foreign exchange to buy imports from people who demand dollars. The exporting countries demand dollars because the dollar can be used to buy oil. Oil being priced in dollar, or the petrodollar standard is due to America providing protection to various OPEC countries who in exchange keep all their reserves in dollars. This is somewhat of a more informal arrangement, but is the reason that countries that stop selling oil in dollars usually get in wars with the U.S (e.g Iraq, Libya, Russia). Also. capital gains in foreign currency are not normally taxed. That and Argentina and Zimbabwe are horrible at collecting taxes.

pengsoo_giant 4y ago

If you barter with someone you don't need to pay sales tax or any other Imperialist tax.

basicplus2 4y ago
Not so.. for example in Australia.. https://www.ato.gov.au/Business/GST/In-detail/Rules-for-specific-transactions/Barter-and-trade-exchanges/ https://www.ato.gov.au/Business/GST/In-detail/Rules-for-spec...
modeless 4y ago
This is false. Barter is taxed. Of course it has to be, otherwise why would anyone choose to pay in dollars and be taxed?
- vkreso 4y ago
  Both parties need to have a specific good or service the other wants for barter to be successful. Money, however, can serve as a medium of exchange eliminating that problem thereby being useful enough to let yourself get taxed for its use.
deleted 4y ago
[deleted]

whatshisface 4y ago

That's not a reason for the dollar to be worth anything. Pick any value for a dollar in terms of berries, and a 10% income tax will work out to be the same percent of your berries taken away during the trade. Similarly, you can pick any value of the dollar and the property taxes on your forest land will come out to the same number of berries. Since any dollar denomination works, the equation can't fix a value.

jqgatsby 4y ago
IMO, that doesn't matter, and OP is correct that taxes are what really drive the pump. If you owe $10 in tax, and all you have are berries, you have to sell the berries to get dollars to pay the tax. Your desire not to go to prison for tax avoidance thus creates demand for dollars.
- whatshisface 4y ago
  You don't owe $10 in tax, you owe 10% in tax. 10% could be anything and doesn't fix a value for the dollar. The system you're describing is a dollar quota, not a tax, and I don't think that system has ever existed in a western democracy. Seriously, just try to calculate the idealized value of $1 based on a single tax, perhaps a tax you pay. There's no way to come up with anything. The theory being advanced here does not stand up to even the simplest attempt to apply it! (There might have been a cruel feudal lord that demanded one gold coin per annum on threat of imprisonment, but I haven't heard of him if there was.)
  - jqgatsby 4y ago
    It's an interesting point you are making about percentages, and I'm trying to decide if you are confused or I am. We seem to be in agreement that a dollar quota would create dollar demand, is that correct? It seems to me that once the pump starts moving, it doesn't matter whether the government charges a percent or a fixed amount. But I think I agree with you that you can't start the pump by asking for a percent. Makes me wonder if way down in the kernel code of the monetary system there's some kind of dollar quota, or alternatively if the current system booted off a dollar quota. Makes me think of a stamp tax or something like that.
    - whatshisface 4y ago
      There was never a dollar quota. They represented amounts of gold until Richard Nixon finished a process that had begun during the great depression and fully stopped honoring the right to exchange one for the other. That was the end of this system: https://en.m.wikipedia.org/wiki/Bretton_Woods_system https://en.m.wikipedia.org/wiki/Bretton_Woods_system Since everyone was already exchanging in dollars at that time their value didn't drop to zero, although it has fell a lot since then for obvious reasons. Since people don't really use dollars as a store of value on a large scale anymore (Bill Gates does not own billions of dollars, he owns billions of dollars worth of stocks land etc.) it's not as bad as it sounds.

staticautomatic 4y ago

I had no idea that barter was taxable.

toomuchtodo 4y ago
https://www.irs.gov/taxtopics/tc420 https://www.irs.gov/taxtopics/tc420 https://www.irs.gov/publications/p525#en_US_2021_publink1000229343 https://www.irs.gov/publications/p525#en_US_2021_publink1000...
Invictus0 4y ago
If it weren't then it would be quite easy to avoid taxes.

jkhdigital 4y ago

It's basically correct if you peel back a few abstractions: Taxes must be paid in dollars in accordance with federal law. Federal law is established through elected representatives. The legislative process is a democratic republic's mechanism for coming to agreement on rules that affect society at large. In other words, at some point in time a bunch of elected representatives agreed that the dollar would be worth something and codified that in law.

throwaway12245 4y ago
Congress shall have power to coin money, regulate the Value thereof, and of foreign coin, and fix the standard of weights and measures. ~ Art. I, sec. 8, cl. 5. Congress shall have power to provide for the punishment of counterfeiting the securities and current coin of the United States. ~ Art. I, sec. 8, cl. 6.
- jkhdigital 4y ago
  Yes, and the Constitution gives the legislature the power to make such laws :-) Always traceable to the societal root of trust

deleted 4y ago

[deleted]

porknubbins 4y ago

Currency is a social phenomenon that has emerged in many places without a central goverment requiring tax payments though. I think the value of fiat money is more based on the overall strength stability of the government that says it is legal tender for all debts, rather than tax payments narrowly.

gamegoblin 4y ago
Yes, the Chartalist [1] view espoused by OP only applies to fiat currencies. The basic chartalist money story is: - Local warlord/chieftan/strongman wants to get government-type things done, e.g. build a road - Warlord says "I will pay anyone 5 dogecoin per day for working on my road" - The people say "who cares, we don't want your worthless dogecoin" - Warlord says "Anyone who does not pay 20 dogecoins in tax by the end of the month will be killed" Suddenly you have people working on the road. But not everyone wants to work on the road, some people need to do other things like farming food. So the farmers trade food to the road workers in exchange for dogecoins so that the farmers can pay their tax. And the farmer trades some extra dogecoins to the blacksmith for a new shovel. Now the blacksmith can pay his tax. Etc. The imposition of the tax has created a Schelling point where dogecoins now function as a medium of exchange, unit of account (5 dogecoins == 1 day of manual labor), and store of value. i.e. a currency. Another major (and not mutually exclusive) theory of money is that of credit. Let's say the farmer says "I'll give you a bushel of grain now in exchange for 100 dogecoins by the end of the month". Now the road builder has a debt to the farmer, and the farmer has an asset worth 100 dogecoins modulo the creditworthiness of the road worker. The farmer could trade this IOU to someone else as if it were dogecoins (again, modulo default risk), etc. You can build up the whole financial system from here. [1] https://en.wikipedia.org/wiki/Chartalism https://en.wikipedia.org/wiki/Chartalism [2] https://en.wikipedia.org/wiki/Credit_theory_of_money https://en.wikipedia.org/wiki/Credit_theory_of_money
- jkhdigital 4y ago
  > Schelling point Any explanation of money should be required to refer to this concept

ndm000 4y ago

I agree that taxation is part of money’s value, and there are also other factors. If money is backed by a commodity (i.e. gold) then part of its value comes from the value of the commodity. For fiat currencies where new money is mostly created as debt, the common refrain is that its value is based on common trust. I think it’s more than that. Debt is an obligation between two entities regarding future outcomes - namely, the repayment of the loan plus interest. When looked at this way the value of money comes from humanities ability to affect future outcomes. If I take out a mortgage, the bank trusts me to repay based on evidence I’ve demonstrated, and I trust the bank due to the bank’s reputation, the laws that govern banking, etc. I am not an economist and wouldn’t be surprised if these concepts are already in some theory I’m not aware of. I do think that the sentiment that money created out of nothing is not really correct - rather it’s money created out of expected future value.

Aunche 4y ago

This is wrong. Every country has taxes, but some money is more valuable than others. Argentina's currency devalued even though they raised their tax rates. When McDonald's agrees to sell their Big Mac for $5, they're backing the US dollar. When you agree to work 40 hours a week for a predetermined salary in dollars, you're backing the US dollar. It's the same when you pay for taxes, but it's not different from the previous examples.

bluedays 4y ago

This is a specious argument. Using your logic I could say that this is because everyone agrees to use it to pay taxes. Then further conclude that the government is only legitimate because people think it is and they have not deposed of it. Therefore both the dollar and the United States only exist with the consent of the people. ie, because people agree that it provides value. However, what money actually represents is debt. This is the same with any asset class, but especially with a country's currency. If I have a goat, and you have a cow, and I want milk but you're not interested in what you have to trade I could issue an IOU, if for instance I have excess feed for my goats that I could trade in the summer. This sort of arrangement could be made in smaller communities, because breaking the social contract could have dire consequences. However, when you scale that up on a societal scale you begin to create a currency. The name of the currency doesn't really matter, honestly, it could be the dollar or bottle caps, as long as it's a currency that represents value to everyone. In a small community a hundred bottle caps could be worth the value of a pound of wheat, or 100 pounds of wheat. How do you decide? Well it all comes down to the person who is buying the product, but then again, not really... It's also a social contract that people are making. The value is defined by making comparisons both by how useful the asset is, how rare the asset is, the demand for the asset, but how much people agree the asset is worth collectively and in order to make such a decision the people have to decide how much value a currency has when exchanging goods and services. The same with any fungible asset - all value is created because people collectively decided to assign it this value. You can see this actively playing out in any asset class from housing, stocks, and cars, to things as trivial as magic the gathering cards, to things as important as the value of one's labor. When you're done at the end of a job someone will say to you "how much money do I owe you?" not "how much taxes do I pay you?" because therein lies the real value of a currency. The labor, and the asset that is being provided is the value, not the taxes. Without a common collectively agree upon asset that people can exchange then there is no way to exchange services without a bartering system. The dollar's power is that universally everyone agrees that it has value. However, the dollar can still have power outside jurisdictions that don't pay taxes to the United States government. How does that square with your argument? Why does it have value? People in France are not paying taxes to the Government but they can freely trade Francs in exchange for Dollars. So it can't be taxes. If there is no currency that everyone agrees has a common value how do you pay taxes? How do you even decide what a fair tax value is? If I say tomorrow that the new currency is bottle caps, what is the fair tax rate? Well, the first question you would ask yourself is what is the value of a bottle cap? And thus you return to the beginning of this post, and society has to begin again to make another unspoken agreement about the value of a new currency. The value of a currency is again will be decided relative to the perceived value of the goods and services provided, and the agreed upon value of said currency. In my imagination milk is worth 100 bottle caps, but you may disagree. Thus we barter, and therein lies the value of all currency. Bartering isn't gone, it's just invisible, or symbolic nowadays. So when you're in a business meeting trying to sell your next startup imagine how much milk you can buy, or whatever.

recursivedoubts 4y ago

A dollar is worth something because the largest military in the world stands behind it, declaring that it is good for all debts public and private, and you better damned well take it. It is incorrect to say the dollar is backed by nothing. It is backed by the threat of violence from the US government, and the US government is very good at violence.

gasull 4y ago

Arguably not enough. You needed Zimbabwean dollars to pay for taxes in Zimbabwe, yet the currency collapsed.

narrator 4y ago
The hyperinflation situation, like in Argentina or Zimbabwe occurs because the money floods into foreign exchange to buy imports from people who demand dollars. The exporting countries demand dollars because the dollar can be used to buy oil. Oil being priced in dollar, or the petrodollar standard is due to America providing protection to various OPEC countries who in exchange keep all their reserves in dollars. This is somewhat of a more informal arrangement, but is the reason that countries that stop selling oil in dollars usually get in wars with the U.S (e.g Iraq, Libya, Russia). Also. capital gains in foreign currency are not normally taxed. That and Argentina and Zimbabwe are horrible at collecting taxes.