2 ms·

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 mo

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

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