Re: Incomes and Exchange rates; part 2

["Maria Laura Segura" <msegur@xxxxxxxx>]

John,

Here are some comments:

>Any taxation, not just that of "incomes" [A concept peculiarly
defined
> by U.S. courts that is part of the government practice of obfuscation
> that confirms the tendency to mistrust government.] can establish value
> of a fiat currency. Other methods can also  establish value for a
> currency, but one is enough. And, even with a method of giving currency
> value, there is still a need for a method to give it a particular value.
>
> In logical perception, taxation is sufficient but not necessary to make
> a currency valuable. It is not sufficient [It lacks the ability to
> respond sufficiently quickly to changes in value.] to maintain a
> reasonably constant value of the currency.

I meant that only when taxation represents something to society it
can give value to fiat money. No matter what you tax, if people don't
pay taxes and the government spends in such a way that people feel
paying taxes is not worthy money won't maintain its value. Especially
once government starts financing its expenditure via inflationary
tax.

>
> There are fools everywhere who trust government but we can be grateful
> the sentiment is not universal. The only reliable external insurance to
> constrain the misbehavior of government is the power of the mob when the
> mob is willing and able to exercise that power. [We can hope that the
> threat is sufficient and governments do respect that possibility, but
> they also push the frontier as far as they can without inciting
> rebellion.]
>

When you say mob, are you talking about something like Maffia. If
that's the case, I must tell you that it won't represent any threat
to the government actions once the mob is in charge of the situation.
It comes a time when the government and the groups that put pressure
on the government achieve a good relationship and all of them (the
government, the unions, the businessmen, the companies, the
deputies and senators and the mob) make profits.

> There are many other procedures [Gold standard, etc.] that may appear to
> be "insurance" against the misbehavior of governments, but since
> governments can and have throughout history engaged in one form or
> another of coin clipping, these other methods only appear to be
> insurance. We may all wish it were simpler but the price of freedom and
> security is still vigilance.
>
I agree with you that the backing is a virtual insurance, it's just a
promise of well behaviour and only if the governments acts
correspondence with its promise the mechanism will work. You said
that vigilance is necessary and having a fixed exchange rate and a
fixed convertion rate makes the vigilance easier.


Laura