Unboxing a fiat dollar, or, the financial nihilism of a ‘balanced budget’
October 2, 2016 § 40 Comments
I don’t watch many YouTube videos, because in general I find video to be a waste of time for anything other than entertainment. I can absorb vastly more information in a much shorter time via text and pictures. But two exceptions are occasional ‘how to’ videos which instruct in real time while fixing or assembling something (even there text and pictures are often better if available), and ‘unboxing’ videos for products when considering a purchase. Unboxing a product can tell you quite a bit about it, even after you’ve read high level descriptions and reviews.
This is a blog post not a video, but in it we are going to unbox a fiat dollar. I’ve explained the nature of fiat dollars at a high level before; and I’ve given descriptions of what securities are more generally and how that relates to fiat dollars specifically. So we know that the sovereign ‘owns’ (regulates, taxes, and defends) the marketplaces over which he is sovereign, and we know that fiat dollars are a security issued by the sovereign granting rights in his marketplaces: a kind of coupon which authorizes a transaction in those marketplaces. For each taxable transaction, the parties transacting must surrender a certain number of fiat dollars to the government.
When the sovereign takes in fiat dollars, from a financial perspective he is simply retiring them he is not storing them away somewhere. When the sovereign spends dollars, from a financial perspective he is simply issuing new ones. Financially, securities held on the balance sheet of the very same institution which issues those securities cancel themselves out. Substantively there is no ‘treasury’ of Google stock at Google which represent claims against anything other than Google itself.
So the very idea of the sovereign who issues dollars ‘balancing the budget’ in dollars is malformed: it is like calling it a ‘balanced budget’ when Google issues and retires the same number of shares of capital stock in a given year. This is financially meaningless, and focusing on ‘balancing the budget’ in this way is if anything fiscally irresponsible, the prioritization of the meaningless: financial nihilism.
What I hadn’t given yet though, before prompting by commenter Alex in a previous thread, is a concrete picture of the relationship between tax law and the real value of a dollar. This unboxing of a fiat dollar is worth elevation into an easily referenceable post, so here it is.
Part of the problem is that tax law is so complicated. But consider a simple fixed-percentage sales tax on just one particular product. A 5% sales tax on widgets doesn’t care how many dollars you charge for your widget. It just requires you to take 5% of the sale of the widget, convert it into fiat dollars, and surrender that number of fiat dollars to the government. So if a 5% tax on widgets were the only tax, fiat dollars would represent a government claim on 5% of the value of every transaction in widgets in sovereign marketplaces.
The percentage-of-widget paid to the sovereign for each (new or used) widget transaction is the sovereign’s economic claim. The sovereign ‘owns’ 5% of every widget transaction under this example tax law. When the sovereign ‘spends’ fiat dollars (say by paying employees), he is selling ‘5% of widget transaction’ vouchers.
Of course in reality tax law is horrendously complicated and pervasive. But conceptually you can think of the tax percentages levied against transactions (including payment of wages) and property as the price paid to the sovereign for transacting in sovereign marketplaces.
Now, I haven’t developed a system of accounting to track this specific area, let alone to track government finance more generally taking into consideration its undefined balance sheet (or equivalent) in a way that accurately reflects the structure of its wide variety of fiduciary duties. But a metaphysically realist partial accounting for the security we call ‘fiat dollars’ or ‘sovereign currency’ in particular does seem possible in principle.
 Property taxes are of a different character. A property tax is not a tax on a particular transaction within sovereign markets: it is a tax on the mere existence of property, or its ‘ownership’ by an ostensible owner, within sovereign markets. ‘Property’ which is subject to property tax is not really owned by its ostensible owners: it is owned by, and leased from, the sovereign.