I have no problem with a lot of the specifics in this post by Demelza Hays (who’s my friend), but she is aghast that economists might classify Bitcoin as a fiat currency.
I don’t this is mere pedantic quibbling over definitions. I think many libertarians give the State too much credit when they say that it causes the dollar to be money “at gunpoint” or some such language. Here is me, discussing a quote from Mises:
Finally, we should guard against a mistake that is all too common in libertarian discussions of money. The term “fiat money” sometimes leads critics to declare that the State can turn something into money “by fiat.” At first glance, this assertion seems to follow naturally enough from Mises’s definition of fiat money. But accompanying his definition in The Theory of Money and Credit, Mises also wrote:
“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 is, that they actually shall be employed as a common medium of exchange. All that the State can do by means of its official stamp is to single out certain pieces of metal or paper from all the other things of the same kind so that they can be subjected to a process of valuation independent of that of the rest….These commodities can never become money just because the State commands it; money can be created only by the usage of those who take part in commercial transactions.” –Ludwig von Mises
To illustrate Mises’s point we can use the modern case of the US dollar. The US government can announce rules telling Americans which pieces of paper are and are not authentic US dollars. For example, there are rules (that the tellers at banks know very well) governing how much of a paper dollar can be ripped off, and periodically the dollars are redesigned to stay ahead of counterfeiters.
Even though the US government can tell Americans which pieces of paper are dollars, it cannot tell Americans that dollars are the money that they will use economically. The existence of legal-tender laws and other regulations complicates the issue, but nonetheless it is possible that next Tuesday, nobody will want to hold US dollars anymore and so their purchasing power will collapse, with prices quoted in US dollars skyrocketing upward without limit. This has happened with various fiat currencies throughout history, and these episodes did not occur because the State in question repealed a regulation that had previously ensured its currency would be the money of the region. Instead, the people using that currency simply abandoned it in spite of the government’s desires, resorting either to barter or adopting an alternative money.