07 Jan 2015

Fiat Money and State Power

Money, Shameless Self-Promotion 12 Comments

In my latest FEE article, I clarify the definition of “fiat money” and I also explain that the State doesn’t have the power to make something money “by fiat.”

On social media, people have been pushing back against me, citing (e.g.) legal tender laws. I specifically addressed this in the article, but let me be clearer here: Of course such regulations are relevant (otherwise the State wouldn’t implement them). But they aren’t sufficient. In the historical episodes where a State-issued currency collapsed (like Weimar Germany or modern-day Zimbabwe), it wasn’t because the governments foolishly repealed a pre-existing legal tender law.

12 Responses to “Fiat Money and State Power”

  1. Major.Freedom says:

    The state can throw people in jail for victimless crimes, but force against a person is not an intellectual conviction in the mind of the prisoner that what they did was wrong. They must choose to think it so.

  2. LK says:

    Mises’ extreme views on how something can become money are unconvincing and so are yours.

    If the state demands some object like units of some thing it creates or prints as taxes, then eventually people will need to acquire them and the units will acquire exchange value, as has been pointed out by Warren Mosler in evidence from European colonial history

    Moreover, Menger also made this admission:

    “It is not impossible for media of exchange, serving as they do the commonweal in the most emphatic sense of the word, to be instituted also by way of legislation, like other social institutions. But this is neither the only, nor the primary mode in which money has taken its origin.”
    Menger, C. 1892. “On the Origin of Money” (trans. C. A. Foley), Economic Journal 2: 238–255, at p. 250.

    • Major.Freedom says:

      I find your extreme views on money unconvincing.

      Extreme: far away from some un-stated standard. Is the standard LK’s opinion? Lol

      Unconvincing: not convincing according to some un-stated standard. Is the standard again LK’s opinion? Lol

      Look out Murphy! You’re saying things that LK wants to say are extreme and not convincing him!

      Shake in those boots!

      “If the state demands some object like units of some thing it creates or prints as taxes, then eventually people will need to acquire them and the units will acquire exchange value, as has been pointed out by Warren Mosler in evidence from European colonial history”

      Eventually? What exactly is the mechanism by which the very first people acquire said “units”?

      The state can only tax from people what people have first accepted.

      Suppose you were thinking about taxing me in something never before created or accepted in exchanges prior. You are the very first owner of some new commodity.

      How in the hell can you tax me in that same commodity that only you have created and only you have a monopoly in reproducing? Suppose I say OK, I will pay you the tax as soon as I…what? Create it myself? But that would be illegal counterfeiting. Trade for it? Nope, you’re the only one who has it, and you’re not trading it, you’re taxing it.

      The only conceivable way I can come into ownership of it would be if you gave it to me. But then I would have to accept it through valuation. If I knew you would tax me of it, then I would just tell you to go take a long walk on a short pier. So would you then have to force me to become owner of it? How in the hell would that work? And if you announced to everyone that you will hereby start to tax people in it, before any of them have it, how would you be able to tax everyone?

      Clearly what is necessary, is for people to first value and own what it is you want to take from from by force.

      “Moreover, Menger also made this admission:”

      “It is not impossible for media of exchange, serving as they do the commonweal in the most emphatic sense of the word, to be instituted also by way of legislation, like other social institutions. But this is neither the only, nor the primary mode in which money has taken its origin.”

      Menger is talking about already owned commodities, including wood pulp, cotton, linen, and other commodities that physically constitute the commodity that is instituted by way of state laws.

      • LK says:

        ” What exactly is the mechanism by which the very first people acquire said “units”?”

        Print them and distribute them.

        Or pay people employed by government in them. Or pay for goods bought by government in them. And the list goes on and on. The thing demanded as taxes acquires exchange value and spreads as a new money. These things happened in African colonies, as Mosler documents.

        But of course empirical evidence is probably of no interest to an-cap trolls.

        • Bob Roddis says:

          For almost four years I’ve been trumpeting Warren “Hut Tax” Mosler’s celebration of British imperialists imposing a hut tax to be paid in British coins on their less advanced victims to force them to pick cotton in order to earn the coins needed to pay the tax. I’ll bet if you kidnapped their toddlers and threatened to kill them, the parents would pick cotton in exchange for cow dung to save their children’s lives. What a lovely bunch of folks you guys are.

          Meanwhile, LK has discovered that banks create money out of nothing.

          http://socialdemocracy21stcentury.blogspot.com/2014/12/who-knew-banks-create-money-out-of.html

          • LK says:

            “For almost four years I’ve been trumpeting Warren “Hut Tax” Mosler’s celebration of British imperialists imposing a hut tax to be paid in British coins on their less advanced victims to force them to pick cotton in order to earn the coins needed to pay the tax. I’ll bet if you kidnapped their toddlers and threatened to kill them, the parents would pick cotton in exchange for cow dung to save their children’s lives. What a lovely bunch of folks you guys are.”

            Only a deeply dishonest individual would imply, as you do, that Mosler or modern MMTers, Keynesians, etc. morally support imperialism or “celebrate” it, rather the just relate facts about it in relation to money and taxes.

            • Bob Roddis says:

              Your Keynesian and MMT monetary schemes are the moral equivalent of imperialism since they are based upon the immoral initiation force. I’ll admit that I used to be amused by you not grasping that simple concept. However, your non-response to that obvious fact and the similar non-response of your brethren has gotten old.

              • Bob Roddis says:

                Typo: immoral initiation OF force

          • Bob Roddis says:

            Further, I have been urging for decades and since 2009 in these comments for the Austrians to stress the inherent theft of purchasing power from average people to the wealthy and powerful that results from funny money loans and emissions. It’s just plain old theft and it is deeply immoral. I also repeatedly pointed out that Piketty fails to grasp this process. (Recently, I have noticed David Stockman pounding this point which I think is absolutely mah-velous.)

            But the brilliant thinker Joseph Stiglitz believes he just discovered it in his critique of Piketty:

            “But this lending has not gone for creating new business, not for capital goods. Disproportionately it has gone to increase the value of land and other fixed resources (buildings, real estate, etc). And that’s what everybody was worried about. So in that sense, in that discussion that occurred with quantitative easing—NOBODY LINKED THAT WITH INEQUALITY….”

            http://www.salon.com/2015/01/02/joseph_stiglitz_thomas_piketty_gets_income_inequality_wrong_partner/

    • Harold says:

      Since there is a blurred line between limited medium of exchange and money, it seems theoretically possible that people could acquire the required tax material, but not use it for other things. This could then fall short of being money. It seems very likely that people would use it for other things, so the Govt. requiring tax in this unit would be a huge push towards making it money, but it still cannot make everyone use it for something else.

      As MF says, Govt cannot make anyone pay taxes in a particular form, but only in so far as it cannot make anyone pay taxes at all.

    • Richard Moss says:

      LK wrote;

      “Moreover, Menger also made this admission:”

      Hold on – Menger is not ‘admitting’ that, as you wrote,

      “If the state demands some object like units of some thing it creates or prints as taxes, then eventually people will need to acquire them and the units will acquire exchange value.”

      Menger said it is possible that a state can make a ‘thing’ money through legislation and such, but that is not sufficient for the thing to become money. You are saying it WILL become money because the state commands it. Menger never ‘admitted’ this.

      Bob also says this in his post (“But they aren’t sufficient…”) And in the article Bob wrote he quotes Mises saying the same thing as Menger;

      “In order to avoid every possible misunderstanding, let it be expressly stated that all that the law can do is to regulate the issue of the coins and that it is beyond the power of the State to ensure in addition that they actually shall become money’…

      That colonial powers established money through force does not alone prove Mises and Menger wrong – they never said this couldn’t happen, they admitted it was possible, but that force alone is not sufficient.

      And, as Bob pointed out, states have tried to keep their currencies from collapsing through force, but in some cases at least this didn’t work..

  3. LK says:

    “Govt cannot make anyone pay taxes in a particular form, but only in so far as it cannot make anyone pay taxes at all.”

    LOL! So governments have no power to compel people to pay taxes?! It “cannot make anyone pay taxes at all”?! I wonder why tax evaders sometimes end up in prison? Is Irwin Schiff’s trial and prison term just a figment of the imagination?

    This is a remarkable volte face in the usual libertarian winging, whining rants that “evil” governments are constantly forcing people to pay their taxes!

    The depths of stupidity to which M _F will plunge just to be a troll truly boggle the mind.

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