I don't get this at all. It makes me think of Professor Pangloss in "Candide" who says that noses were created to hold up eyeglasses.

"Contrary to most conventional economic thought, whereby people think we pay taxes to create revenue, in fact, it works the other way around under a fiat currency system. The government doesn't need money to spend, but in fact uses tax to manipulate aggregate demand, not raise funds to "pay" for government. The tax is what gives the currency its value insofar as taxes function to create the demand for federal expenditures of fiat money, not to raise revenue per se. Value has been given to the money by requiring it to be used to fulfill a tax obligation, but the money is already in existence, not "created" by the revenue."

Yes. It works because it works. If it didn't work anymore, it wouldn't work. If you didn't work anymore, it wouldn't work before, but now it would work. So why are you working?

Sort of. Taxes aren't the only demand for currency. You've also demanded your boss pay you in dollars (not sheep), your car loan is to be repaid in dollars, the grocery store wants dollars for cereal and milk.

It just all works :)

People would just invent some other representation of debt if it wasn't for needing to pay taxes.

I'm not sure I understand what you are asking.

As to the quote, it makes perfect sense. The only thing that gives any "value" whatsoever to fiat currency is the fact that we are required to use it for the payment of taxes.

Obsidian the idea you stated also applies to civil contracts you engaged in, loans to be exact, that demand payment in dollars. There are far more of those and defaulting on one of those often has you losing hard assets (collateral).

In fact, the above items are what gives fiat currency its value. The outstanding collateral is hard assets that are actually backing the dollars because every loan made this way creates that much demand for dollars to pay back that loan (to fully own the asset). This is why gold backed money is not necessary (as different than actual gold coinage) because anything can back currency if the web of interlocking dependencies is set up this way.

Money created against hard assets, loaned into existence this way, is a good financial technology.

You agreed to pay for your house in dollars. Don't like fiat currency? Buy the house in gold! (Oh, you don't want to part with your gold? Ah, well, now we understand that fiat currency benefits both the population, and the central bank).

Bozonian,

I would posit that loans being made in dollars, wages being demanded and paid in dollars, ultimately derive from the original demand of dollars being mandatory for tax payments. The whole house of value being ascribed to the dollar wholly rests on this.

Take away the tax payment mandate, and the value of the dollar will return to that of any other smudged piece of paper.

Obsidian I recognize the chartalism in the quote. It can be a useful tool. The American Colonies used it quite effectively and its ban by Parliament caused great hardship.

It's the rest that is hard to swallow. It seems to imply not only that you can't have an economy without the government but that the government IS the economy. How perverse.

This is obviously just my opinion, as are the previous comments of mine in this thread, but I don't think it implies that one cannot have an economy without a government.

My point is that the basic "value" of a fiat currency rests on it being mandated for tax purposes. This is enforced by the the threat of violence against anyone who tries to avoid paying taxes. The effect of this is that a competition to obtain the fiat currency is created, which then permeates all aspects of the economy.

A fiat currency is just one form of money. Without it, something else will take on the function of money. Economies will form just fine regardless of what they use as their preferred money.

I agree that it will help establish value of the currency to a certain degree but it's not 100%. Theoretically all I need to do is obtain enough fiat money to pay my taxes and then I'm left to do whatever I want for my other transactions. However, once you get the ball rolling it's easier to just the currency for everything.

I imagine something like this transpired in Zimbabwe (or could have). People would pay their taxes in the country's fiat money but for the "real" economy they were using $USD.

The rest of it seems to be a rehash of MMT, which to this educatd layman seems like a brilliant intellectual tour de force that is based on a post hoc ergo prompter hoc logical fallacy.

Taxation has been used to permeate the economy with Dollars and enforce the necessity of acquiring them.

Try to BUY Anything without paying taxes.

Energy?
Food?
Clothing?
Lodging?

In some way almost everything is permeated by Taxation leading to the daily necessity of acquisition of them.

Sure, You can live in a cave or sleep in the street.
But, even Panhandlers beg for Bucky...

Money really is about choices or specifically the ability to store and increase choices. Annaly Capital Management did a good piece on this on pragcap.com . Ultimately in a pure fiat currency system like what we have now, the US dollar is an accounting mechanism more than what we typically think of as money. Given this understanding and that the US government is the sole owner of the US dollar with the ability to spend those dollars with no limit, the only thing that would stop the US government from over spending is inflation. The private sector savings (in dollars) is a US government deficit. IF the US government do not spend enough dollars into the economy, the private sector will then experience a deficit (high debts) because our current account is also a deficit. In this sense, when the government is running a surplus, it is actually forcing the private sector into deficit spending unless our current account balance is also in the plus column. Now taxes are just a way for the government to control the money supply. When you pay your taxes, the government destroy that portion of its deficit. Now goverment spending directed toward the wrong sectors based on government's policies could and usually result in malinvestments, i.e., banking policy that result in our best and brightest talents migrating to the financial sector or an over investment in housing. The government also spend on good policies like water protection, food safety, etc...It all boil down to faith in the dollar coming from a 300+ million strong and productive economy. If you are betting on a US default a la Zimbabwe then you are betting the the US economy will collapse. Unlike zimbabwe, we denominate our debts in US dollars not euro or yen or yuan. Zimbabwe died because its economy collapse. Argentina did not collapse even though it defaulted because its economy was/is still very productive.