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, 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.

> 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.

> The simple truth is that every government is at its core the biggest, baddest gang in the land.

Were.

I don't know if you subscribe to the political analysis of Adam Curtis but in the past two decades governments have been passing their power to private banks, corporations, QANGOs and "non majoritarian" think-tanks like it's a hot potato. The new breed of politicians are not statesmen but revolving-door temporary managers who would sell-off and outsource the whole country for personal convenience.

Other than a monopoly on violent power (which is vanishing fast in the USA as private cops and prisons take over) it's hard to locate the power of government sometimes. Even the military is dissolving into a loose collection of defence contractors. In the UK our intellgence services were more or less sold to Amazon.

The OP article seems dead set against anarcho-libertarianism but it is by no means pro-government, or explicitly pro-democracy. With regard to money and economics, from my moderately pro-government/state stance I see the great mistake governments are making is giving up on cash.

Physical currency is an absolutely vital component of a stable economy. Its very lack of instantaneous fluidity (it relative inconvenience) means it acts like a capacitor to stabilise markets if you can manage circulation and interest. Moreover, governments have a strict monopoly on that, and physical currencies can take on many new guises with modern cash technology. Abandoning that would be suicide.

If governments get into a battle to take the ground of purely digital currencies against crypto, they will lose. They are making this mistake in an attempt to gain legibility (surveillance). Ultimately they will have to choose between surveillance and economic control. And since the value of surveillance is massively over-rated I am optimistic we'll pull out of the Orwellian misadventure in time.

Anyone genuinely interested in defending against the "ideology of crypto" (as this article posits) should be investing in new cash technologies (some of which I have mentioned in earlier comments here). They should be promoting a plurality of diverse cash equivalents (many of which can be implemented using cryptographic technology - not necessarily block-chain).

> Physical currency is an absolutely vital component of a stable economy. Its very lack of instantaneous fluidity (it relative inconvenience) means it acts like a capacitor to stabilise markets if you can manage circulation and interest.

Based on this statement, the currency need not be physical. It sounds like all that’s really necessary is to moderate the money supply (something that is already done in a federal reserve banking system).

What am I missing? Is there some other aspect of physical currency that makes it advantageous?

> Physical currency is an absolutely vital component of a stable economy. Its very lack of instantaneous fluidity (it relative inconvenience) means it acts like a capacitor to stabilise markets if you can manage circulation and interest. Moreover, governments have a strict monopoly on that, and physical currencies can take on many new guises with modern cash technology. Abandoning that would be suicide.

Governments are made of individual actors, in the US these are often buying cryptocurrency. Their friends have invested in and built cryptocurrency companies. They hold investments in cryptocurrency companies.

Cryptocurrency IS the capacitor you're talking about, the policy of the US is showing this more weekly.

Curious, do “modern” cryptocurrencies (aka not bitcoin) still tightly couple money creation and transactions? I feel like this would be a blocker to being able to use a cryptocurrency as an automated economic manager directly (although perhaps this could be mitigated by using derivative currencies backed by the primary cryptocurrency).

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.

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.

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.

> 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.

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.

> This idea is at odds with the concept of the modern nation state.

Good.

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

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-employe...

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).

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.

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.

Gold was based on trust. Trust that the next merchant you deal with will want it.

The same was true for salt, and many more local kinds of money that existed.

It's also the same trust you need for fiat money. This, and trust that your government won't create a huge lot of it in an instant (slow rates of money creation are fine). Turns out that governments have a lot of leverage to enforce the first, more relevant kind of trust, so the total trust required decreases.

The idea of cryptocoins was to remove the trust on nobody creating a lot of money very fast. But in doing so, they also lost the leverage to enforce that people will accept it.

With Cryptos you need to trust that you can convert it to fiat. Crypto trust is still a reliant on fiat trust. Any business accepting crypto, even drug dealers, need to convert their cryptos to fiat, because they need to pay the bills, pay their mortgage in system reliant on government enforced property rights.

> 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.

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.

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.

The central tenet is the underlying intrinsic value. There are many fungible concepts that operate on a valuation that seems like it is being bought and sold solely on the basis that others think it is valuable too. However, usually there's a seed of intrinsics, something fundamental whose value will always be there.

For 'fiat currency', it's the fact that the state has a monopoly on violence and has decreed both [A] that they will accept the fiat currency for fulfillment of tax obligations, and [B] that they will not enforce a claim of debt if you have offered to pay it in fiat currency and the debtee didn't accept your offer.

For gold it's the fact that gold is considered intrinsically pretty by some, and has industrial uses.

The same can be said for iron, wood, or even air - but those are far less rare. Wood has value just as gold does - it's just that folks tend not to trade trailers full of wood as a fungible because it is unwieldy.

Stocks have intrinsic value too: It's a tiny voting share, and gives the right to enjoy a share of dividends.

Bitcoin has __nothing__. Whatsoever. It's real easy to look at the ridiculous price of stocks in companies that make it incredibly difficult to use your vote and which never pay out any dividends, or the sheer unfathomable levels of business done in terms of USD or EUR and how it seems to dwarf the intrinsic, and conclude that the intrinsic is just not important...

But is that a jump you can make?

As you said:

> I accept 100 euro bills for my labour because I believe I'll continue to be able to trade them for food and shelter.

You sure? Maybe it's 1% 'because I have absolute guarantees I can pay my taxes with this, and I have a guarantee that I can trade them for food and shelter because if I pay my bills with dollars and the recipient no longer wants them, they have no legal recourse to force me to make good in any other way'. Presumably you have certain outstanding debts that work like this (if not just simply your tax bill, which is inevitable, then your power bill, your rent or mortgage, etc), so that euro bill __already has value__ the moment you receive it. You can take your mental bookkeeping of 'oh yeah the month is halfway through so I absolutely do, unambiguously, owe my bank half a month's mortgage at the very least', and immediately reduce that amount by €100,-, given that you are holding a €100,- bill in your hands and the state has decreed that they will tell the bank to get fucked if they decide they no longer want to accept your euro for paying off that mortgage.

Well, in my country my taxes are deducted from my salary before I receive it, so the psychology of that is a bit different. But I think we agree, what I'm saying is fiat money is valuable because of the stability of the institutions that order our society/ies, and because there is an unspoken agreement that most of us want things to stay roughly as they are and believe that they will. If too many cracks appear there, people start acting very different.

As for Bitcoin, the original Bitcoin paper talks about replacing trust with code, and I just don't buy it. Sure, you can trust that Bitcoin aren't spent more than once and all that, the maths take care of that. But it fails to consider all the institutions that integrate the Bitcoin world with the rest of social/economical reality, and all that arises there like price volatility, transactions taking forever, exchanges getting hacked, and that Bitcoin-as-a-casino, excuse me, object of speculation, has a far bigger impact on its day-to-day than for e.g. the Euro. The paper doesn't consider that reality at all, but those things mean that 1000EUR worth of Bitcoin is a lot less useful than a stack of fifties.

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

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.

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)

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).

Edit: Oh, gotcha, failed/ing states with currencies that hyperinflated despite being the only accepted currency for taxes.

—

What are some of the counterexamples?

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.

It's not taxes but salaries.