Great Leap Forward

Founder of PayPal Says Taxes Drive Money

OK, file this in the “I never thought I’d live to see the day” category. Yes, Virginia, Taxes Drive Money.

Peter Thiel, founder of PayPal understands his business model. He’s leveraging currency. His PayPal money is denominated in Uncle Sam’s money (and 24 other national currencies). Ultimately, USA demand for PayPal money is driven by Uncle Sam’s taxes. He knows that BitCoin is not a rival. BitCoin is not denominated in US currency, and has no taxes behind it. BitCoin is driven by drug dealers and speculators. That doesn’t mean it doesn’t have value. Remember, tulip bulbs once had tremendous value!

Here’s John Carney at the WSJ’s MoneyBeat:

In a recent interview Web site Vox, Mr. Thiel linked the value of money to the requirement that taxes be paid in the government’s currency. “You will not be able to pay your taxes in Bitcoin. You have to pay them in dollars. If you don’t pay them with dollars, there will be people who will show up with guns to make you pay them,” Mr. Thiel said.

The idea that taxes drive the value of money—known as chartalism—goes back at least as far as German economist Georg Friedrich Knapp’s 1905 book “The State Theory of Money.” Its proponents contrast it with the view that money gets its value from either its link to a commodity or from its acceptance as a medium of exchange.

Oh, I know, someone will comment that PayPal is not using sovereign currency–it is e-money, all electronic. However, PayPal essentially operates as an intermediary between banks and recipients, with PayPal accounts funded by debits to bank accounts or advances through credit card accounts. Uncle Sam does not protect PayPal, but it does stand behind the banks that provide accounts and credit cards.

And Uncle Sam’s taxes ensure there will be a demand for “that in which taxes can be paid”.


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