Fiat Money
Daniel C. Burton (dan@autobahn.org)
26 Mar 1998 17:17:31 GMT
Kevin Dempsey Peterson <peterson@ocf.Berkeley.EDU> wrote in article
> Most of what I've heard about "fiat money" is about it being valuless.
> Fiat means that it has no inherent value; it has value because people
> say it does. Legal tender is government ordered money. When dollars
> were backed by gold, they were legal tender (official, required money),
> but they weren't fiat. In a well developed anarchy, we may see fiat
> money that isn't legal tender (more CitiBux being issued than the
> deposits at CitiBank). These would be money because someone says they
> are, and people agree to use them ("fiat moneta", "let's call this
> money")
This idea of "no inherant value" is a meaningless concept reminiscent of
some faulty theories of economic value. All value is inherantly
subjective. If people value a quantity, then it has value. If people
think some form of money is valuable, then it is, because subjective value
is the only truly useful notion of value.
True, most of the value of dollars may arise from the fact that they were
once backed by gold (but aren't any longer) and that the government demands
that they be honored, but this doesn't render them valueless. People use
dollars because they value them, but the main thing is that most of this
value comes by order of the government, for the purposes of the government.
Your CitiBux would not be inherantly valueless, nor would they be
arbitrarily ordered into existence. Having banks hold partial reserves is
a common practice. This doesn't make your bank account valueless. This
just makes it slightly less valuable than the full balance because of a
small risk that you won't be able to redeem it all.
If you were smart, you'd use some sort of currency from a bank that
explicitly has some level of minimum reserves and has some scheme for
deferred payment in case of a bank run.
Of course U.S. dollars aren't redeemable at all, which is what makes them
fiat money. (They're also a massive form of theft from all those people
who deposited their gold to give the money its value.)