On the right of government to mandate what we use as money

GoldMoney, an online service that allows consumers to buy, hold and sell bullion gold, recently announced a series of enhancements, including a debit card that will allow GoldMoney customers to make everyday purchases and cash withdrawals, anywhere in the world, using the gold stored in their accounts.

Similar to developments in the Bitcoin space over the past few years, GoldMoney’s announcement is another example of the progress of technology in allowing individual to choose alternate forms in which to store their wealth, and to conveniently use those alternate forms as “money” in their daily lives.

Unfortunately, however, there’s a force that acts to retard those technological advances—and that is government. Governments, for the moment, have the power to render impractical the use of Bitcoin or gold as money by mandating that the purchase and sale of anything other than one’s “functional currency”—which for US citizens is the US dollar—be tracked and treated for the purpose of taxation as “capital assets”.

As a “capital asset”, when you sell a house, you’re required to determine the gain you realized since the purchase of the house, based on its before and after value relative to the government’s functional currency, e.g. the US dollar. So if you bought a house for $100,000 and then sold it for $150,000 some years later, you are liable for capital gains tax on $50,000 (which in itself seems unfair, since the value of $150,000 today could well be below the value of $100,000 when you bought the house, due to the destructive effects of inflation.)

Similarly, the government places the same tracking and taxation burden on the purchase and “sale” of capital assets like Bitcoin and gold. And so when you use your GoldMoney debit card to buy a refrigerator for $600, you are required to determine the value of the gold used at that moment, in US dollars, and to report and potentially pay taxes on any gain you made relative to the value of that same gold in USD when you first acquired it.

This, of course, makes it completely impractical to use gold (or Bitcoin) as money, unless services like GoldMoney also offer a means to track and report cost-basis and gains.

And even then, I suspect things would still be legally murky in the area of small transactions. IRS Section 988 spells out the taxation consequences related to the purchase and sale of foreign currencies, and, while I’m not tax expert, it seems to specify an exemption on transactions that are both (a) personal (not business) and (b) less than $200. If Bitcoin and gold were considered “foreign currencies”, then perhaps capital gains tracking would not be required for transactions less than $200.

It’s incredibly inspiring to witness that, today, technology allows an individual in India to create an app that can be sold and delivered to millions in the United States. It allows a person living in Europe to hire staff in South America and sell services in California. It allows thousands of small investors to pool their money online to fund the development of an office building in New York. And it allows individuals around the world to choose alternative forms in which to store their wealth, and later use that wealth as currency in their daily lives.

In the face of such technological wonder, it feels incredibly archaic and frustrating to be held back by entities of state, organized around physical boundaries of geography, and exerting force upon residents and citizens through the application of laws which haven’t come close to keeping up with the rapidly evolving realities to which they are applied.


Un profesor de económicas en una universidad anuncio que nunca había suspendido a un alumno, pero que recientemente había suspendido a una clase entera. La clase insistió que el socialismo de Obama funcionaba y que nadie seria pobre ni rico, un formula magnifica para garantizar la igualdad.

El profesor entonces dijo, “vale, vamos a hacer un experimento en esta clase siguiendo el plan de Obama”…Se hará una media de todas las notas y todo el mundo recibirá la misma nota así nadie suspendera ni nadie sacara un sobresaliente (sustituyendo notas por dólares – algo cercano y fácil de entender).

Después del primer examen, se hizo la media de todas las notas, y todos sacaron un notable. Los alumnos que estudiaron estaban descontentos y los que apenas se esforzaron estaban muy contentos. Tras el segundo examen, los alumnos que apenas estudiaron en el primero, estudiaron aun menos y los que habían estudiado en el primero decidieron no estudiar tanto ya que su nota iba a ser una media de la clase.

La media del segundo examen fue un suficiente y nadie estaba contento. Después del tercer examen, la media fue un suspenso. A medida que se sucedían los exámenes, la media nunca mejoro, se empezaron a echar la culpa unos a otros, a insultar y nadie estaba dispuesto a estudiar y esforzarse para el beneficio de otros.

Sorprendidos, TODOS SUSPENDIERON y el profesor les dijo que al final el socialismo también fracasaría porque cuando la recompensa es grande, el esfuerzo para tener éxito es grande, pero cuando el gobierno quita cualquier recompensa, nadie intenta o tiene interés tener éxito.

No puede ser mas simple.

Estas son posiblemente las 5 mejores frases que puedes leer que son aplicables a este experimento:

  1. No se puede legislar a los pobres en la prosperidad, legislando a los ricos fuera de la prosperidad.
  2. Lo que una persona recibe sin trabajar, otra debe trabajar sin recibirlo.
  3. El gobierno no puede dar a nadie nada sin antes quitárselo a otro.
  4. No se puede multiplicar riqueza dividiéndola.
  5. Cuando la mitad de la gente tiene la idea de que no tiene que trabajar porque la otra mitad está obligada a hacerse cargo de ellas , y cuando esta otra mitad se da cuenta de que no merece la pena trabajar para el beneficio de otro , es el principio del fin de cualquier nación.

(Hat tip to Justin Menchen for pointing me to this.)

Politics, Society and Corruption

Hardly a day passes here in Spain that we don’t hear news of yet another case of political corruption. Whether it’s the left-leaning PSOE or the right-leaning PP, representatives from both the country’s main political parties are regularly caught in unimaginable schemes of corruption.

Continue reading Politics, Society and Corruption

Richard Feynman on knowing something

In the video The Pleasure of Finding Things Out I love this profound quote by Richard Feynman. He’s talking about pseudo-science, but it has broad applicability:

But I have an the advantage of having found out how hard it is to really get to know something. How careful you have to be about checking your experiments. How easy it is to make mistakes and fool yourself.

I know what it means to know something, and therefore I see how they get their information, and I can’t believe they claim to know something. They haven’t done the work necessary. They haven’t done the checks necessary. They have done the care necessary.

I think about this quote, when I see people making simple-minded, black-and-white statements on subjects like politics, economics, health and religion.