Anything can be taxed by the government. They tax you for owning a home, they tax you for owning a car, they tax you for having money, they tax you for making money, they tax you for spending money… I see no reason why they wouldn’t tax you just because the currency of choice changed.
And it would be unbacked. Which is why no one would ever use it.
Clayton -
People need to learn about the regression theorum before they start fancying this silly stuff.
Considering the name of this forum I am probably going to be screamed at for this but I’ll post anyway. Mises’s regression theorum correctly explains how money has always come into existance previously. However, it also tries to claim that it must always be this way in the future, which is where the flaw in the logic lies.
In order for a theorum to always hold true for all future situations you must account for all variables. This is not possible when dealing with macroeconomics (as Austrians should know better than others) and it becomes even less possible as technology changes with time since even if you could account for all the variables in the past, there are new variables now that didn’t exist in the past. Attempting to claim that because you correctly identified the origin of money in the past you can therefore predict all future origins of money is a fallacy because you have not accounted for every possible confounding variable. All the regression theorum can tell us is how money has always come about in the past and that it remains possible for the same thing to occur in the future.
A simple example of how a currency could come about without it begining as something of direct value is the good old 3 guys on an island. If they collude they can devise a system of currency based on pebbles and just all agree that some collection of pebbles (perhaps marked in a special way) is how they will trade amongst each other. The pebbles aren’t backed by anything in the traditional sense. After the 3 men have agreed to use pebbles for currency they will then set the prices for their goods and services so the pebbles aren’t starting with backing by any of the 3 men.
This is a contrived example but it works if you keep adding men as long as they continue to all collude. Eventually, once you have enough men on the island, not all of them have to collude. If 9 out of 10 men collude on using pebbles for currency the 10th man will eventually join them because that’s what is commonly accepted (even if he originally didn’t go in on it).
A more real world example could be a coercive government implementing a mandated form of unbacked currency. While I don’t agree with this method, the logic works out the same as the colluding men on an island in that as long as enough people use it, it’s use will spread.
These examples aren’t meant to show how BitCoins could make it to market, they are simple provided for the sake of proving that Mises’s regression theorum does not hold true for all future forms of currency. I do believe that Mises’s theory of the origin money is the most likely to spontaneously occur in a free market. It’s just not the only way a currency can be establish.
Rubbish.
Clayton -
Rubbish.
Very informative. I will need to ponder on this. Many thanks for your efforts.
The cryptographic aspect(and its applications for escaping law enforcement, for example, which are already completely usable btw) is the non-monetary value. Similarly to goventments moneys , nonmonetary value being trust of government,here its trust of the cryptographic environment
Micah, the difference that you are overlooking is that bitcoin’s taxability would be voluntary and up to the user. A voluntary tax system is ok for libertarians. Your other examples of taxing a house, a car, and a bank account all rely on the ability of the taxation authorities to determine and attribute ownership (or income) to an individual with a social security number, which is not the case with ‘careful’ bitcoin users.
Ah, so you are suggesting that BitCoin is similar to cash in that it doesn’t leave a paper trail because it is distributed, unlike today’s banking system which does. And if something doesn’t leave a paper trail it means you can lie on your taxes and, as long as an audit doesn’t show differently, you could get away with it. Is this what you mean by “untaxable”?
Well, it’s actually a little different than cash in that it does not require physical presence. The world has never had a mechanism for anonymous value exchange that did not require physical presence. I’m glad you point out paper cash, because cash is anonymous but yet so many people object to anonymity and cash-like properties when it is put into the digital realm. Those same people wouldn’t be in favor of fingerprinting and RFID tracking in $100 bills.
However, my main point in the previous post was that at least with bitcoin, users get worldwide digital value exchange without physical presence required or mailing paper cash. Then, with an honour system, it is up to each individual how much of their cash and bitcoin transactions that they would like to claim on their tax returns. Each individual will have a choice to make on how much bitcoin is reported and how much paper cash is reported. The main thing is that each individual has the power to make their own choice, without criticism. Also, you may be jumping the gun a bit, because bitcoin is just an intangible, reusable proof-of-work puzzle. Even if it did fall under barter transactions for taxation purposes, the authorities recognizing bitcoin would give it legitimacy. Taxing a puzzle?? Come on?
–Jon
“Digital cash is to legal tender as BitTorrents are to copyrights.”
It’s numbers on a computer. They can’t tax it because it’s secret.
The public doesn’t understand that kind of stuff. They don’t worry that their money isn’t backed by gold. They know they can buy stuff for it, that’s enough.
That’s the point. You people are being ideologues. You are asking what’s the perfect currency. But that’s not the challenge at hand, in the beginning we just need a preliminary solution. A cryptocurrency that can gain enough acceptance in the public to become money. To overcome that initial barrier, it’s fine to have a unbacked currency. Then, later, backed currencies will emerge. You’re trying to have it all at once, letting the perfect be the enemy of the good.
People are already accepting fiat money. What’s the challenge to accept fiat money on a computer?
Well, to rephrase Micah’s post in my own words, he’s basically saying, “Yes, there is Mises’s regression theorem but I don’t like it so, therefore, there are exceptions to it.” His three people on an island example violates every principle of a gedankenexperiment. If there’s something of great value in Micah’s argument that you think I’m missing, please point it out and I will rebut it in detail. In the meantime, I recommend that you take a look at Mises’s regression theorem itself:
http://mises.org/humanaction/chap17sec4.asp
And here’s a Mises daily directly discussing the subject of this thread (and saying precisely what I’ve been saying through this whole thread):
Clayton -
A voluntary tax is like a married bachelor or a square circle. It’s unintelligible gibberish. Taxation is coercive by definition.
Clayton -
They’ll never be able to buy stuff for it because no one will ever start using it because it’s unbacked. “Backing”, in the Misesean sense, does not refer to a vault with a pile of “reserves”. Rather, it has to do with the convertibility of the monetary medium back and forth into existing monies. The Somali schilling which was inflated to oblivion by Siad Barre is still in use today. It co-circulates in Somalia with foreign fiat currencies and even gold and silver coins for large transactions but it keeps on keeping on because it once had value and that value has been preserved by its incessant convertibility into other monies (30,000 somali schillings roughly equal to 1 US dollar when Benjamin Powell spoke on the subject in an online lecture I watched).
Clayton -
Look Clayton, I agree with you. I am merely pointing out that bitcoin as a medium of exchange in a parallel economy allows individuals the power to enforce the following quote from the IRS itself:
"Our tax system is based on individual self-assessment and voluntary compliance."
1975 IRS IR Audit Manual
Governments are not going to roll back taxes and create tax-free zones, because it’s more in their interest to grow and to expand. The forces on the side of liberty periodically attempt to rein in the government but it merely has the effect of only slowing its rate of growth. This is unfortunate.
The bitcoin economy will grow and prosper precisely because it has the potential to facilitate a parallel economy that can also operate beyond the scope of taxation. All types of transactions will be attracted to a taxation-free zone because throughout history no- to low-tax zones have always thrived against their counterparts (Hong Kong, US in the 1800s). This parallel economy will know no political borders so it will not even be clear which taxation authority has the jurisdiction over the economic participant(s).
Even if the proper jurisdictional taxation entity could be reasonably determined, they would still be faced with applying a tax to a reusable proof-of-work ‘puzzle’. Firstly, how do you tax a mathematical puzzle without giving it monetary legitimacy? How do you determine the political borders of the recipient key (if recipient is careful)? How do you determine the total amount to tax if bitcoin laundries and mixers are used? Today, an individual can work for bitcoin in anonymous fashion from an undetected geographic location and then spend bitcoin or anonymously trade out of bitcoin. I don’t really see that changing. I’d be more worried about an authoritarian shutdown of the IRC network.
You are right, but this implies that a “backed” currency does not have to be backed by actual commodities, just by the publics trust in it’s value. The problem is getting a cryptocurrency accepted enough so that you can use it to buy stuff. It’s kind of a vicious circle, nobody accepts the currency because it’s not a generally accepted method of payment, and it’s not a generally accepted method of payment because nobody accepts it. That’s the problem, that’s the obstacle that a cryptocurrency has to overcome to break the stranglehold of taxable government money. Now you see how creating the perfect currency from the beginning can’t work, it has to come in increments. First, we need an anarchist PayPal, a way to secretly wire the old government fiat currency without it being taxable, preferably on mobile devices. Once people are comfortable using that (and they will because it’s so efficient without taxes), these online credits will merge into new currencies that are more and more detached from government money. At first they are purely fiat, then currencies that are backed by commodities will emerge.
Edit: Or we need a rich libertarian institution that backs the cryptocyrrency by making it convertable into government money.
Which doesn’t mean what you’re trying to put it across to mean… (from the horse’s mouth):
www.irs.gov/pub/irs-utl/friv_tax.pdf
Clayton -
Point me to where I can buy a bag of potatoes with BitCoin, I would desperately like to know.
Clayton -
*sigh - no, that’s not what I was saying, I’m clarifying that “backing” does not mean a pile of stuff in a vault somewhere. The reason I’m pointing this out is that people commonly confuse money proper with money substitutes because fiat paper money is a money proper but looks like a money substitute. You can read about money substitutes here:
https://mises.org/humanaction/chap17sec11.asp
And how they relate to fiat money here:
https://mises.org/journals/rae/pdf/R72_3.PDF
Yeah, that’s the problem facing any currency. The answer is to produce what the market demands. The trouble with that answer is that there is no market for currencies, they are completely controlled by governments.
The problem with your thinking is that you’re jumping straight from the problem facing any currency and then assuming that “cryptocurrency” solves that problem just because you can imagine it being used as an exchange medium. I can imagine an economy where bottle-caps are used as an exchange medium. That doesn’t mean such a state of affairs ever can or will ever come about in the real world.
PayPal was supposed to be the anarchist’s PayPal. And look what happened to it.
No way. People will never start accepting fiat digital currencies in payment for real goods and services. I will tell you what people might start accepting in payment for real goods and services… virtual monies from MMOGs. These tokens have real value in the online gaming environment (can be exchanged with other players and the game operator for digital rights in the game). It is interesting that there were some news articles a while back with government leaders wringing their hands about the tax implications of exchanging online gaming tokens. In Zimbabwe, phone minute cards are used as a medium of exchange. Their commodity value should be obvious.
A money substitute is only valued as a medium of exchange by virtue of its free and instant convertibility into the monetary backing. A fiat money directly violates this principle, therefore, cannot be a money apart from the use of coercion.
Clayton -