Sean Roach on May 13, 2010, 02:55:37 pm
I've been thinking about currency and barter.
I've long considered currency, be it precious metals, (which typically aren't all that USEFUL, won't hold an edge, rather heavy, about the only thing good about it is it doesn't corrode,) fiat currency, (only good so long as people trust the government can and will back up the "all debts, public and private" bit,) or sea shells.

Barter has no place in a modern economy.
If I have bread, you have chicken, and a sports car, and want to trade for bread, a transaction doesn't happen unless you value a little bread for your sports car, or I happen to want chicken...

But it could...
With Modern Technology, we could keep a database of goods for trade, and services offered, along with a second list of goods and services desired.  Have a computer churn the list looking for two-party, and multi-party combinations that satisfy everyone involved.
Say a third person wants chicken, and is offering cheese.  If I have cheese on my want list, I can trade that person my bread, and that person can trade for the chicken.  A computer could set up the transaction quickly.

The only two glitches I can see are these.  ALL transactions would have to be cash on the barrelhead to avoid that "all debts" bit.  All transactions would have to involve trades and goods that the parties don't normally sell to avoid having a "fair market value" to tax.
So long as everything was traded at the same time, the "fair market value" for a good or service could be set at a ridiculously low rate, ("I'll mow your lawn for a dollar, if you'll fix my lawnmower for a dollar",) but the moment someone decides to default, if they have already received the good or service, they could just hand over that small sum and be legally free and clear.  (I figure such systems would need a third list too.  Persons who bought out without fulfilling obligations, so they could be blocked from further transactions through the exchange.)

We could, theoretically, have a practically taxless exchange...until the IRS got wise and changed the tax rules, (probably by setting the value of services to minimum wage per hour consumed, and market value of goods to the nearest equivalent goods on the cash market.)

terry_freeman on May 14, 2010, 04:26:44 am
We can have taxless exchange, but a totally money-less economy is unlikely to be practical. There are many advantages to having some "medium of exchange." This is not rocket science; nothing has happened in modern years to improve upon Aristotle's observation that money should be portable, divisible, durable, recognizable, and valuable. Money has been defined as "the most tradable good", and arises naturally from ordinary barter systems.

I produce eggs; you produce shoes. Let's say that a pair of shoes is worth six dozen eggs, just to pull a number out of my hat. What do you, the shoemaker, want with six dozen eggs? You can only eat so many before they spoil. Now, you want to buy a shirt. Maybe a pair of shoes for a shirt is a typical exchange - but you want five shirts, and the shirt-maker needs only two pairs of shoes. What to do? How about more complex trades, such as 1000 pairs of shoes for one house?

Money facilitates trade. There is nothing magical about gold and silver, it's just that they are portable, durable, divisible, recognizable, and valuable. This is why they worked so well for thousands of years. Countries which used stable money prospered; countries which debased their money did not.

Money also facilitates decision-making. If you have to juggle so many hats, so many books, so many brooms, and so forth, it is hard to say whether you are making a profit or not. If you master double-entry bookkeeping, and are able to set down monetary values for these disparate items, you can get a fair gauge of whether you are doing well from year to year, or digging a hole for yourself.

Now, I am not saying that we should use only gold and silver. There is no reason not to marry today's debit cards with gold and silver, and transact in "grams of gold" or whatever we choose as units for barter.

However, these forms of digital currency must map 1:1 to something tangible, or run afoul of Voltaire's Law of Paper Money: Paper money always trends toward the intrinsic value of paper, which is zero. This is why intrinsic value is one of the characteristics desired in money - it is difficult to create more gold or silver.

There have been inflationary periods when gold and silver were the norm. They happened when a) the rulers debased the coins, or b) the rulers seized gold and silver by force. The collapse of the Spanish Empire is a notorious example; they enjoyed an initial burst of wealth, collected from South America by force, but then suffered inflationary consequences; this
eventually destroyed the Spanish Empire, reducing it to a shadow of its former self.

An important resource is Bank Credit, Money, and Economic Cycles; it goes into a lot of history, law, and economic theory.

Also recommended: This Time is Different, a study of 800 years of fiscal crises in 66 countries on five continents. Politicians and other dreamers and liars are perpetually trying to improve upon honest money, to make it more "elastic", and it always bites them in the end. They always think "This Time is Different."

Sorry to rain on your parade, but that's how it goes. The fiscal crises of today are not because of money itself, but because of the debasement of money.

Just recently, nearly a trillion dollars was created out of thin air to "fix" the Greek crises. This "fix", of course, is going to lead to increased prices and other problems for the rest of us. The only people who benefit are going to be central bankers.

Sean Roach on May 14, 2010, 07:20:48 pm
Oh, I agree.  I was just trying to game out a way to beat the central taxing authority.  By not using "money", I was theorizing a way to have zero, or very low, tax liability, on a technicality.

Unfortunately, it would depend on NOT being part of the outer economy, at least in the areas where one was using barter.  This, alone, would probably be enough to counteract the advantage of avoiding any but the most severe of taxes.

If you are a shoemaker, as a "hobby", and a factory worker by trade, you might trade shoes only in the barter economy to keep your taxes on shoemaking very low, but by NOT offering your salable skills as a cobbler on the general market, you would probably be shooting yourself in the proverbial foot, and making less than you could as a whole anyway.

If the taxes on dabbling in a business proved to be too much to make it worth doing anything with a hobby, so long as it stayed a hobby, it MIGHT be worth it.