Purely fiat currencies can go effectively to zero within a period of a few years—particularly if they are backed by a weak government that isn’t reliably able to force people to accept and use the currency.
Which governments force people to accept and use their currency? If I hire a plumber to clear my drains, I can legally pay him with whatever we can both agree on. If I have something to sell, no law obliges me to state a price or accept offers in money. Money is just the most convenient way to do these transactions. My country uses pounds, but there is no law stopping me from opening a bank account denominated in dollars, and shops in London often accept euros. The Truck Acts are the closest thing to a requirement on anyone to use money, but were enacted for the protection of workers, not the support of the currency .
Someone linked to this article, which links to this article describing how bottles of Tide detergent are being used as money. The people involved are committing many offences, but using Tide as money is not one of them. It is also clear from the latter link that the claim in the former that “all currency is fiat currency” is wrong. Tide is not fiat currency. It only gets to be used as a medium of exchange because it is valued as detergent. The subjectivity of value has nothing to do with the concept of fiat currency.
Which governments force people to accept and use their currency?
All of them. Try paying your taxes in anything else other than pounds.
All governments force people to use their currency for certain transactions, but most allow the use of other currencies (or other methods for settling transactions) as well.
If taxation is all you can find to support the idea of governments forcing their fiat money on the people, it’s not much of a case.
I don’t see any need for a case. Looking at the world empirically, I see governments everywhere having a lot of success in “forcing their fiat money on the people”. Even in the third world where not infrequently there is a parallel currency (like USD or EUR) in circulation, the local currency is still being actively used. For one, the government pays in it so if you work for the state or you’re a business which sold something to the state, local currency is what you get.
What else would I use anyway? Tobacco? Farm produce? Old Master paintings? Oh, actually, all of those have been used at various times and places.
You’re certainly right that some governments, some of the time, allow payment in-kind and don’t impose a currency. Most modern governments, however, do require you to pay your taxes in the national currency. Can you pay HMRC in anything other than UK pounds?
(Edit: As gwern notes below, this was repealed about 40 years later; my point was that the government can de facto stop you from using Gold or Silver as a medium of exchange, if they so wish)
Such gold clauses were intended to protect against the United States devaluing the dollar. When the Emergency Banking Act of 1933 and the Gold Reserve Act of 1934 outlawed the use of gold, such contracts became sources of controversy. In the gold clause case Norman vs. Baltimore & Ohio Railroad Co., 294 U.S. 240 (1935), the U.S. Supreme Court ruled that gold clauses were invalid. However, Congress later reinstated the option to use gold clauses for obligations (new contracts) issued after October 1977 in accordance with 31 U.S.C. § 5118(d)(2). The 2008 decision 216 Jamaica Avenue, LLC vs S&R Playhouse Realty Co.[3] established that a gold clause in contracts signed before 1933 was only suspended not erased, and under certain limited circumstances might be reactivated.
The limitation on gold ownership in the U.S. was repealed after President Gerald Ford signed a bill legalizing private ownership of gold coins, bars and certificates by an act of Congress codified in Pub.L. 93–373[6] which went into effect December 31, 1974. Pub.L. 93-373 did not repeal the Gold Clause Resolution of 1933, which made unenforceable any contracts which specified payment in a fixed amount of money or a fixed amount of gold. That is, contracts remained unenforceable if they used gold monetarily rather than as a commodity of trade. However, the Act of October 28, 1977, Pub.L. 95–147, § 4(c),[7] amended the 1933 Joint Resolution and made it clear that parties could again include so-called gold clauses in contracts formed after 1977.[8]
Yes. I didn’t mean to say anything about their current legal status—my point was just that if the government doesn’t want you to use something as a medium of exchange, they can make it extremely inconvenient.
Which governments force people to accept and use their currency?
The US government and most other Western governments, impose their currencies whenever there are transactions with the government. You typically have you pay your taxes in the national currency. Likewise, the government will pay its employees in the local currency, it will pay its debts in its currency, and when it exercises eminent domain, it can force you to take currency in exchange for property.
If you look at a dollar bill, it says “this note is legal tender for all debts, public and private.” As you note, you can contract to be paid in anything you like, but that only gets you so far. When there is a debt, the debtor has the right to pay in dollars. This limits your ability to opt out of the national currency. If you go to court in the US to enforce a contract, the court won’t typically require “specific performance”—instead, the court will impose money damages, which are a debt, payable in dollars. You can agree to pay the plumber in silver, but if you don’t, the plumber will have to accept dollars.
Which governments force people to accept and use their currency? If I hire a plumber to clear my drains, I can legally pay him with whatever we can both agree on. If I have something to sell, no law obliges me to state a price or accept offers in money. Money is just the most convenient way to do these transactions. My country uses pounds, but there is no law stopping me from opening a bank account denominated in dollars, and shops in London often accept euros. The Truck Acts are the closest thing to a requirement on anyone to use money, but were enacted for the protection of workers, not the support of the currency .
Someone linked to this article, which links to this article describing how bottles of Tide detergent are being used as money. The people involved are committing many offences, but using Tide as money is not one of them. It is also clear from the latter link that the claim in the former that “all currency is fiat currency” is wrong. Tide is not fiat currency. It only gets to be used as a medium of exchange because it is valued as detergent. The subjectivity of value has nothing to do with the concept of fiat currency.
All of them. Try paying your taxes in anything else other than pounds.
All governments force people to use their currency for certain transactions, but most allow the use of other currencies (or other methods for settling transactions) as well.
What else would I use anyway? Tobacco? Farm produce? Old Master paintings? Oh, actually, all of those have been used at various times and places.
If taxation is all you can find to support the idea of governments forcing their fiat money on the people, it’s not much of a case.
I don’t see any need for a case. Looking at the world empirically, I see governments everywhere having a lot of success in “forcing their fiat money on the people”. Even in the third world where not infrequently there is a parallel currency (like USD or EUR) in circulation, the local currency is still being actively used. For one, the government pays in it so if you work for the state or you’re a business which sold something to the state, local currency is what you get.
You’re certainly right that some governments, some of the time, allow payment in-kind and don’t impose a currency. Most modern governments, however, do require you to pay your taxes in the national currency. Can you pay HMRC in anything other than UK pounds?
By the way, it’s not quite true that ” If I hire a plumber to clear my drains, I can legally pay him with whatever we can both agree on.”
If you agree to pay in cocaine, no US court will enforce the contract—it is void as against public policy. Likewise, starting in 1934, the US government declared Gold clauses in contracts unenforceable.
(Edit: As gwern notes below, this was repealed about 40 years later; my point was that the government can de facto stop you from using Gold or Silver as a medium of exchange, if they so wish)
https://en.wikipedia.org/wiki/Gold_Reserve_Act
https://en.wikipedia.org/wiki/Gold_Clause_Cases
Yes. I didn’t mean to say anything about their current legal status—my point was just that if the government doesn’t want you to use something as a medium of exchange, they can make it extremely inconvenient.
In an amusing bit of synchronicity, it seems that Satoshi Nakamoto picked a fake birthdate for his P2P Foundation profile which references both the original executive orders banning gold and the relegalization: http://www.reddit.com/r/Bitcoin/comments/229qvr/happy_birthday_satoshi_nakamoto/
The US government and most other Western governments, impose their currencies whenever there are transactions with the government. You typically have you pay your taxes in the national currency. Likewise, the government will pay its employees in the local currency, it will pay its debts in its currency, and when it exercises eminent domain, it can force you to take currency in exchange for property.
If you look at a dollar bill, it says “this note is legal tender for all debts, public and private.” As you note, you can contract to be paid in anything you like, but that only gets you so far. When there is a debt, the debtor has the right to pay in dollars. This limits your ability to opt out of the national currency. If you go to court in the US to enforce a contract, the court won’t typically require “specific performance”—instead, the court will impose money damages, which are a debt, payable in dollars. You can agree to pay the plumber in silver, but if you don’t, the plumber will have to accept dollars.