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Wednesday, June 18, 2003

What Calpundit Taught Me About Taxes.

Kevin Drum had a post about WMDs with a throw-away line referring to several groups of cranks, including believers in the Gold Standard. I am here going to quote some of the comments I participated in, ignoring much, including a pointless flame war I should never have let myself get dragged into.

I wrote: Re: The Gold Standard. I just need to be convinced on this. I used to be a libertarian and supported the gold standard for ideological reasons. I am now a liberal, and am willing to be convinced otherwise. But I just can't help wondering, if money isn't a promise for something tangible, WHAT IS IT? Why exactly does this piece of paper printed by the government mean anything, if it promises nothing? This is not an argument, I sincerely want to know the answers. Plus, I am not a fan of Fed Chairman Allan Greenspan, but it seems extreme to call him a "crank", particularly on matters related to monetary policy.

Kevin responded: "Money is anything that the government accepts as payment of taxes.

This really isn't a joke. "Money" is a remarkably ephemeral concept, and this definition works pretty well."

I responded: "Wow, Kevin, now I know why I read you.

First, let me re-frame my question with an analogy. Government hires Bob to build a bridge. Bob builds the bridge, and then the government gives Bob a bunch of green pieces of paper. Bob says, what are these things, and why do I want them? Under the gold standard, the government says, "These are promises for a specific amount of gold. You can trade them with me for the gold, or with anyone who might want the gold." I was wondering, without backing, what does the government tell Bob? Why should Bob want these pieces of paper? What value to they have?
Kevin gave me the answer: "Well, Bob, these pieces of paper are things that people give us to prevent us from sending them to jail. You can give us some of the pieces of paper if you don't want to go to jail, and you can trade them with other people who don't want to go to jail."
Damn, THAT'S value. And I feel stupid not recognizing this before, being a tax guy myself.

The rest of you can cut it with that "facilitating the trade of goods and services and backed by the trust of the U.S. government" shit. Kevin gave me my answer. Paper currency has value because it is backed by the coercive power of the U.S. government.

I was a libertarian because I was afraid of coercive power and did not think that ANYONE should have such power, even the majority. I have become a liberal because I have come to realize that even capitalism and property require coercive power to operate, and the best solution is to put that power in the hands of an open, rule-based, democratic process. Kevin's answer is both brutally honest AND fits my current world view. Consider me convinced."

Later in another post, I wrote, "The fundamental truth of libertarianism is that everything the government does is backed by coercive power. The fundamental flaw of libertarianism is the belief that markets are or can operate free of coercive backing. Liberals realize the fundamental flaw, but many try to talk about their programs without acknowledging the truth. Although I am now a liberal, I struggle to continue to acknowledge the harsh reality."

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