USD is backed by the fact that IRS only accepts it for taxes...

[FreeMoney]

Another aspect not mentioned so far is that one of the purposes of taxation is to reduce the purchasing power of producers so as to leave some real goods for the government sector to claim.

In Economics 101 there is often a baker who produces 100 loaves of bread every day. If the baker exchanges those 100 loaves for other goods or money and pays no taxes all the benefit of their labour goes to them. There are no 'spare' loaves to be claimed by the government sector.

By imposing, say, a 10% 'loaf tax' the baker can only consume/ exchange 90 loaves of value every day. The other 10 real loaves are then a surplus that the Loaf Tax Collector can pick up every morning and redistribute as they like. Whether the loaves are handed over directly or a fiat amount corresponding to their value is taken does not matter.

Government does not actually need tax revenue (it could burn all taxes collected and simply print more) but it needs to prevent producers consuming 100% of the fruits of their labour or there are no spare real goods for them to claim.

They don't need to tax to do that. If they get people using a money they can make then they can just buy what they want, stopping others from consuming it. Taxing takes the pressure off of the currency.

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[jim618]

Agreed - they do not NEED to do it.

Your phrase "Taxing takes the pressure off currency" is the key one. Without some "producer demand destruction" there would be overbidding for the real goods (i.e. the loaves in the example) from the existing money stock and the newly money printed. Classic demand pull inflation.

I think that is probably what is happening in the UK at the moment. The real inflation rate is about 10% per annum and the only reason for it I can see is the government/ central bank are printing but there is no proportionate increase in real goods. Also the tax take is going down so the "pressure valve" is not pulling enough cash out of the system to compensate for the new money going in.

[minorman]

Don't forget the Tally stick system which worked in England for nearly seven centuries:
https://en.wikipedia.org/wiki/Tally_stick

These were pieces of wood, that the king would "spend" into the economy and collect via taxes. Value was derived from (forced) taxation. I.e. you can "do your business" in any currency or barter you so want - but when the tax collector comes by you'd better have a tally stick for him! Hence, the sticks gain a market value.

To me, it is pretty logical that the same mechanism applies for fiat&modern taxation.

[Rassah]

Don't forget the Tally stick system which worked in England for nearly seven centuries:
https://en.wikipedia.org/wiki/Tally_stick

These were pieces of wood, that the king would "spend" into the economy and collect via taxes. Value was derived from (forced) taxation. I.e. you can "do your business" in any currency or barter you so want - but when the tax collector comes by you'd better have a tally stick for him! Hence, the sticks gain a market value.

To me, it is pretty logical that the same mechanism applies for fiat&modern taxation.

It does make the sticks be worth something, but it doesn't actually prop them up with any specific value. The king could "spend" 20 sticks in the whole economy, and each will be worth a fortune, or he can "spend" 2 trillion sticks, and you'll see them threwn about the streets like garbage. Plus, in our situation, the IRS is the government that collects the sticks, but the people who actually print the money, the Federal Reserve, is not actually government. Meaning the Fed, by controling supply, is the one actually maintaining and giving the USD some value. The IRS is just an entity that accepts payment in USD only, just like any other US shop (though it does *demand* the payment, because we owe it to them for the services they give us)

[cbeast]

Which USD? There have been many versions backed in many ways. Some are no longer legal tender. There was once a time when the US government was in the same position Bitcoin is now. Nobody was interested in a central currency. Getting a nation to accept a currency is not a matter of authority, but the will of the People.

[benjamindees]

Actually, it is backed by a much larger and more important entity that only accepts payment in USD.  But, same concept.

[Rudd-O]

The U.S. dollar is "backed" by threats of violence and ruin against anyone within the land mass called "United States" who disobeys orders given by the mobster rulers who control that land mass.

[J-Norm]

If the USD was only backed by the fact that IRS only accepts it for taxes then why do other nations use it for their reserves?

[Rudd-O]

If the USD was only backed by the fact that IRS only accepts it for taxes then why do other nations use it for their reserves?

As I just said, threats of violence and ruin committed by the same rulers -- except they are genocidal-level threats to foreign people rather than individual-level threats to domestic people.

[2_Thumbs_Up]

Government does not actually need tax revenue (it could burn all taxes collected and simply print more) but it needs to prevent producers consuming 100% of the fruits of their labour or there are no spare real goods for them to claim.

Actually they can't do that. If you are not forced to use their currency for at least some transactions (such as for tax payments) there is no incentive to use their currency at all. Such printing can only exist when the threat of violence forces you to aquire dollars for tax day, or noone would demand dollars at all.

[Rassah]

The U.S. dollar is "backed" by threats of violence and ruin against anyone within the land mass called "United States" who disobeys orders given by the mobster rulers who control that land mass.

But that's exactly my point. That threat of violence doesn't back it at all. It makes it so you need to acquire it at some point, which does give it some value, but it doesn't actually support that value any more than a 7-11 down the street only accepting USD for munchies supports that value. If the printers were turned on full force, and new USD in circulation was increased by 100% every day, no amount of "threats of violence" will keep the worth of USD from quickly going into the toilet.

In fact, we already have plenty of historical evidence of such. Russian Rubles were backed by their own tax organizations and threats of violence (and Russia had 70 years of practicing extreme violence), but that didn't help with the backing any when the Ruble went through hyperinflation in the 90' and had to be scrapped. Ditto for any other currency inflated into oblivion. The best the people who have the power to threaten violence could do is watch in despair, along with every other merchant, and wait for some other currency to come along. The only thing that backs it is our collective trust in it (and "our" includes those who can threaten violence, who also have to trust that they can use what they collect to pay those who dole out violence on their behalf).

[Rudd-O]

Exactly, hence the scarequotes around the word "back".

[nybble41]

Look at the bigger picture here. We live under this government, the government renders services for us, and then charges us with a bill. If we do not pay the bill, it comes after us. If you live in an apartment or a resort, the business renders services for you, and charges you with a bill. If you do not pay the bill, they can come after you.

False analogy. The apartment or resort has a contract; you agreed, voluntarily and without duress, to pay a certain amount in exchange for their services. If you render services which were not requested, the recipient has no obligation to pay. The government chooses which "services" it renders, and the amount of the "bill", and does not accept "no" for an answer.

Don't want to do business with the IRS? Don't live on their "property."

It's not their property. It takes more to make something your property than simply laying claim to it. The government claim over the land is backed only by force--the assertion of a thief--and not traceable to any legitimate act of homesteading.

[Rassah]

^^ I don't disagree with this, but that doesn't really have much to do with currencies being government-backed. In fact, privately-run militias that control territories in Somalia and provide protection against other warring tribes or passing criminals/thieves work kind of the same way. They render their services for you whether you want them or not, and they will come after you if you don't pay them (same as mobs). Yet they don't claim any political power, and entirely privately run like a business, and are perfectly fine with you choosing not to use their services by moving elsewhere.