Monday, January 28, 2013

You say Po-tay-to, I say Po-tah-to

Here's an intriguing thread at the excellent Bruce Bartlett on  the subject of fee-yat (or is it fye-yat) money.  Bruce, who is not always given to nuance, declares that "anyone who uses the term 'fiat currency' has been reading too much Ron Paul-type monetary nonsense."  I feel his pain, though I stick stubbornly to the notion that one can give intelligible content to the term without committing to the whole Paulie magilla.  Specifically I wonder if this is the case: isn't the problem that in some sense all money is fiat money--i.e., in the sense that money is what we agree to treat as money, and lives only on confidence and expectation.  I guess I can recognize one distinction: you can't print gold the same way you can print paper (or drop electrons into the intertubs).  But here's one thing you can do re gold: you can break the promise.  That is, any sovereign that commits to the gold standard can change his mind and choose not to honor its promise--dim voices remind me that this just might have happened once or twice in the past, not so?  The cry of "fiat money" seems to rise from the supposition that there is something inviolate about gold, and there isn't, is there?

Afterthought: probably another one of those days when I'm just as glad that nobody reads this blog.  I hate to think of the comment thread if they did.


Larry, The Barefoot Bum said...

Heh. I read every post. You are usually not too far wrong, albeit a bit conventional at times.

Ken Houghton said...

"Fiat" as in fiat voluntas tua--thy will be done. As I noted of Rogoff's perverse FT piece on Friday, the first thing you do before raising the gold exchange rate is close all the contracts at the old rate and void anything that's left. Because the gold may have a value that is independent, but you set the price.

See Noah Smith's blog for the Best Case of what happens when you mention gold.

Buce said...

Or fiat justitia ruat caelum.

Italians buy cars with fiat money oh tee hee.

Jimbo said...

A Fiat currency (as opposed to the car, which is now on our roads again after a hiatus of about 40 years) simply means one that is sovereign to the issuing country but you knew that, right?

So what's the issue? Obviously, we should be borrowing and investing in infrastructure and other economy stimulating initiatives. Our political system is broken not our monetary system.

We have one political party dedicated to destroying the post-WWII economy in order to replace it with a completely non-functional neo-feudal system. That's what lies at the heart of our political impasse.

Colin Docherty said...

"Afterthought: probably another one of those days when I'm just as glad that nobody reads this blog. I hate to think of the comment thread if they did."

You have some secret admirers out there.

Ebenezer Scrooge said...

I believe that our host has it backward. No money is fiat money: even frog pelts with dead presidents on them. Why? All money relies on social consensus. If the consensus breaks down, the money is not worth a Continental. Nobody cares about the rules (it was illegal to reject a Continental dollar); they care about the consensus.

What really bugs the Paul-fools is that the state is not only in the business of making social glue--but it makes the best glue in town.

Buce said...

Interesting insight, Scrooge. I wonder if we could both be right. I certainly agree that money is whatever we treat as money. Yet as long as we live in a world of sovereign states, the blessing (or "command") of the sovereign, does seem to add heft. Ir mattered when countries went off gold.

Maybe the mickey is in "as long as." It seems to me that libertarians are oddly uncritical when it comes to the metaphysical essentiality of the state--they assume they will always be there, performing some range of presumed essential state functions (like blessing gold).

--Wait a minute, your honor, they can't both be right.
--That's right.