There was no deal, except maybe initially the promise to exchange for gold that the government defaulted on.

The government said pay taxes in USD or go to jail. They pay their contractors and employees USD (some of which can essentially be "eased" out of thin air). After those people get it, they can say "jump bitch" and you or someone you want to trade with will do what they say, because without those USD you won't be able to settle your tax debts.

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throw0101a 12 hours ago | parent | next [-]

> There was no deal, except maybe initially the promise to exchange for gold that the government defaulted on.

Gold came into the "money" game quite late. The earliest forms of money we have are with credit, on tablets dating back to Ur III (>3000 BC); gold came later (Lydians in 700 BC).

Credit has been part of many societies, even that had gold/silver floating around (because for most of the folks who were near the bottom, they didn't have enough to lay claim to any precious metal):

* https://en.wikipedia.org/wiki/Debt:_The_First_5,000_Years

Even the much-vaunted Gold Standard was only really a thing for ~50 years:

* https://en.wikipedia.org/wiki/Gold_standard

And it's not like it provided price stability:

* https://archive.is/https://www.theatlantic.com/business/arch...

In some circumstances the use of gold as the base of currencies caused problems:

* https://en.wikipedia.org/wiki/Panic_of_1857

* https://en.wikipedia.org/wiki/Long_Depression#Causes_of_the_...

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mothballed 12 hours ago | parent [-]

We've gotten sidetracked somewhere. I replied to this:

>but we decided it's 2.5"x6" paper with ink on it.

It was clearly referring to USD, not whatever the David Graeber of the IWW was saying happened 5000 years ago while talking about "everyday communism."

Since ~1792 up until, depending on when you want to argue, some time in the 20th century USD was backed by or defined by gold or silver.

Price stability has gone down the toilet since the 70s when the government defaulted on its gold backing. Prices were remarkably more stable under the gold standard. https://images.squarespace-cdn.com/content/v1/50060e33c4aa3d...

As for gold standard an 50 years or some such (IDK about those numbers, but lets take in on face for a moment), sure but it was a direct drop in for silver standard which lasted "from the Sumerians c. 3000 BC until 1873." [0] The idea there was a precious metals backing, not that the PM has to necessarily be gold.

[0] https://en.wikipedia.org/wiki/Silver_standard

	▲	reactordev 11 hours ago \| parent [-]
		It’s about the fallacy of putting our faith into something as simple as a piece of paper, or a stamped piece of metal, or a bead on a string.

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JumpCrisscross 15 hours ago | parent | prev [-]

> without those USD you won't be able to settle your tax debts

In countries where people don't want to hold the local currency, they exchange whatever for local currency when they need it.

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mothballed 14 hours ago | parent [-]

That's where "or someone you want to trade with" comes into play. It turns out it's highly useful to have the currency that ~300M people with the largest tax debts in the world need. There's no other currency backed by that much violence.

You can always be assured there is some American who desperately wants to stay out of jail, and someone will want to buy their stuff.

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JumpCrisscross 14 hours ago | parent | next [-]

> it's highly useful to have the currency that ~300M people with the largest tax debts in the world need

The drivers are consumption and investment. Not taxation.

If you want to sell to the richest consumers in the world, you get dollars. If you want to finance something from the deepest financial market in the world, you accept (and repay with) dollars. (Both of which drive demand for, and thus deepen liquidity around, dollar-denominated financial assets.)

Demand for currencies and the level of taxation are barely correlated.

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mothballed 14 hours ago | parent [-]

I'm not sure why you would expect linear correlation with taxation. Sitting in a jail cell is just as bad whether it's because you owe $1M in tax evasion or $1B. You're conflating backing of violence (which isn't well correlated with actual tax rate, so long as it's above zero so that people have to pay taxes in USD) with backing of nominal taxation.

USA provides more goods and services in nominal value than any other country. The people providing those goods and services have the threat of jail for not paying taxes. Even if you pay them in something like gold they have to account for the USD value and then pay taxes plus taxes on any appreciation vs USD, so there's too much friction for them whether taxation is 10% or 30% not to just accept dollars. Many would probably like to be paid in gold or something but they still have to get USD to settle the debt so you end up with "other thing" + "USD" no matter what, forcing USD as a lingua franca when all those "investments" and "financial markets" settle.

Taxation is the underlying "backing of violence" that helps makes USD so attractive. It's not the level of non-zero taxation but the level of mass potential violence against a large body of relatively productive people for not paying taxes. The IRS will raid someone just as easily no matter the tax rate, so I wouldn't expect raising taxes to do much to raise global demand for USD because the level of violence backing it doesn't change much.

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JumpCrisscross 12 hours ago | parent [-]

> Taxation is the underlying "backing of violence" that helps makes USD so attractive

It really isn’t. If the U.S. shifted to a system of tariff-only taxes, the dollar would still be in demand. If the U.S. let income taxes be paid in the currency of the payer’s choice, most Americans would pay in dollars and irrespectively the dollar would be globally demanded.

There simply isn’t much empirical proof for the taxation hypothesis of the value of money.

	▲	mothballed 12 hours ago \| parent [-]
		Every single taxable US transaction having a non-zero component that must be settled in USD seems like a pretty strong empirical piece of evidence as to why the transaction would settle in USD. You can point to back when US funded itself mostly on tariffs, but I don't know what that would prove, because at that time USD was backed by gold (or silver).

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reactordev 14 hours ago | parent | prev [-]

Storage Wars exists for this