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That's not my reading; I believe what he is getting at (similarly brought up in Graeber's book) is that when the government controls a large enough share of the economy, the sine qua non of "money" is that you can pay taxes with it. That doesn't require anything about the historical origins of money.

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I should probably read Graeber's book, though based on what I see here I might find it a bit exhausting. I hear this argument a lot in discussions about bitcoins, and I ask, but have not yet received, a good explanation.

Let me ask you if you can summarize the reasoning for why paying taxes in a currency helps a currency? It seems very obvious that the opposite is true -- if you don't have to pay taxes by working in an alternate currency, then you would obviously want to use that. Which is why tax law always requires arcane provisions to allow the taxation of barter and foreign currency transactions so that the loophole can be closed.

It seems that if the ability to pay taxes in a currency were sufficient to support a currency, then laws dictating how to handle non-local-currency transactions would be unnecessary.

"Debt" really is good, especially if you disregard what he writes about >1950 where he messed up a few factual assertions.

It's not so much that "paying taxes in a currency helps a currency" - it's that forcing people to pay taxes in a particular currency or go to jail creates demand for that currency, which percolates through the economy (especially if they're concurrently giving it out when they're obliged to pay someone).

Consider what would happen if the US declared "you can pay your taxes in BTC, and only in BTC". There being ~21M bitcoins, and ~$2.5trillion of federal taxes, the price of BTC massively spikes. It's also suddenly much easier to pay people in BTC and not futz with an effective forex trade every paycheck (especially since that's what the government is paying all of its contractors and pensioners in).

> forcing people to pay taxes in a particular currency or go to jail creates demand for that currency

This is true. But, I don't think it backs up your original point:

> the sine qua non of "money" is that you can pay taxes with it.

Reworded to non-latin, I believe this is saying that without taxes there can be no money. That just seems completely ludicrous. Sure, taxes increase demand for money, but that is a far stretch from saying money can't exist without taxes.

what he really means, despite the use of "sine qua non", is that the vast vast majority of people really don't like dealing with more than one currency, and if their government uses a given currency, most people will use it because they have to pay taxes with it.

> Sure, taxes increase demand for money, but that is a far stretch from saying money can't exist without taxes

it really depends what you mean by "money". prior to government meddling in markets, most historical evidence points to economies relying on ad-hoc, non-denominated credit systems (aka, i can drink at the tavern all year because the barkeep knows i'll give him some of my grain come harvest time). these tabs were, notably, not denominated in an abstract currency. it wasn't "you've spent 16oz of gold at the bar this year", it was just "you've had a lot to drink, you better give me a good portion of your harvest".

you only really start seeing professional merchants and money-based trade after currency has been standardized by axial age governments for the purposes of funding their armies. to fund the armies, governments would mint money out of precious metal reserves, pay the army, and require the coins back from the population at large. all of a sudden, the whole population is now legally required to, in some manner, economically service the army (as they are the vehicle through which all coinage enters the market). the armies would then take over neighboring countries, enslave their population, and the slaves would mine more metal for coining. a nice little feedback loop.

anyway, sorry i got a bit off track there, but my real point was: currency was, by all historical evidence, definitely an invention of/majorly promoted by the state.

> if you don't have to pay taxes by working in an alternate currency, then you would obviously want to use that

Unless you want to legally live and do business in a country, in which case you're going to have to pay the taxes that country levies in the legal tender currency.

The value of the US dollar, in essence, is the value of being able to live and do business in the US plus the avoided cost and risk of doing so illegally (which is generally quite high).

You may have misunderstood me. Barter transactions and foreign currency transactions are perfectly legal. At that point you have no dollar income, so you wouldn't have to pay taxes _except_ for the fact that you do have to pay taxes on the dollar equivalent for those transactions.

Provisions like those (together with legal tender laws) are necessary to prevent people from abandoning the "official" currency wholesale. Thus it seems that denominating taxes in a currency is a huge negative for a currency _in and of itself_.

Edit: after reading further, I think I see the disconnect. I was thinking purely in terms of income taxes and sales taxes/import duties. For taxes in absolute terms, like property taxes or luxury taxes, then the government demands a certain number of dollars, which does mean I need to get that money, even if in my day-to-day life I don't use it, which creates a demand for the finite resource of US dollars. Still, the federal government in the US, anyway, does not demand any taxes of this nature, so it doesn't seem to follow logically that the taxes relate to the value.

The example in Graeber's book was the government pays soldiers in some currency it invents, and then taxes the non soldiers in the economy the same amount. The soldiers need to eat (which is important as they might otherwise just give the coins to the civilians). So the transaction of food for money makes sense, and the civilians can pay their taxes and the soldiers can eat, and the arbitrary currency has a measurable value.

Ah - this makes sense, at least historically. With a tax that is more of a levy rather than something proportional to receipts or income, then it makes sense. But like the Mises Regression theorem, this seems more to relate to the historical origins of money as opposed to current usage.

The author of the Article summons Graeber in an abysmal way. In 'Debt' Graeber proposes two main ideas, that the State is by no means necessary to have a great economy (he is an anarchist, with small 'a'), and that our current debt-based monetary system is a mess. Bitcoin is debt-free because no one needs to take loans or create bonds since bitcoins are mined. I think Graeber would be (is?) fascinated by them.

"Bitcoin is debt-free... since bitcoins are mined"

That's not true. Debt is perfectly possible with a fixed currency base, and mining or grabbing transaction fees is not a substitute for debt in any way. In fact, you can have a whole expansionary currency system on top of a fixed asset like BTC, in the same way that the USD was once convertible in and out of gold.

No, it is true. To describe a currency as 'debt-free' means that it is not created through the process of creating new debt. The way modern currencies like the dollar are emitted is through the generation of new debt (government bonds are government debt, and banks create new currency when they 'loan' money). The negative consequences of not paying what you borrow (forclosure, etc.) are ultimately what backs debt-based currencies. Graeber argues (and I agree) that it is therefore the threat of violence from the state what gives value to currency in the modern era.

Bitcoin is fundamentally different because new currency is created through mining. Yes, you could create a secondary market on top of Bitcoin that handles loans, but not new Bitcoins, therefore it is debt- free currency. When Nixon decided to decouple the dollar from gold in the seventies, what he did was effectively to move from a debt-free currency to a debt based currency. The move had huge implications in shaping the world until today, because it meant that the US became free to print dollars endlessly. The external market for dollars was solid because of the world reserve status, enforced through the US military. In this way the US could print away AND keep internal inflation very low in relation to the amount of circulating currency.

Breaking this cycle, which is what feeds the US empire, is why I think Bitcoin will in the end provide a great service to mankind.

I think you may have misread Graeber. He is NOT advocating for commodity/debt-free currency. His whole point is that money started as credit - only later was it viewed as commodity, and only occasionally.

Money effectively is both commodity and an IOU. Attempts to force it into one category or another eventually leads to social breakdown.

The key question for our time is how to craft a stable monetary system that is decentralized. We don't know how to do this yet, and Bitcoin is not likely the answer BECAUSE it is finite (which would be catastrophic, as gold was). Crypto currencies can and should grow in experimentation but this one has a fundamental flaw.

http://www.theguardian.com/culture/2011/dec/16/note-worthy-n...

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