On Tuesday, October 7, 2003, at 06:38 AM, Danny Van den Berghe wrote:
No solution is perfect, but ultimately I think the idea of fiat currency is
superior, if it is used responsibly.
Doesn't bother me if it's not compulsory. Any group of individuals can trade amongst themselves using any combination of goods, services, or notes payable in goods and services that they choose. One of that group could even introduce fiat tokens into that mix and let them compete freely with other media of trade. The rest of the group are free to accept or reject the fiat tokens as they see fit, just as they are free to accept or reject any other goods, services, or notes as they see fit.
The problem with this little hunky dory free market scenario is that the history of fiat tokens is more brutal than this. History seems to suggest that the only way to get a large group of individuals to trade in fiat tokens is to coerce them into doing so by brute force. After the force is applied, the individuals will later rationalize the situation and convince themselves that the whole system is voluntary -- everyone trades in fiat tokens because everyone else does. But one can apply Menger's regression theorem to demonstrate that the true cause of the widespread use of fiat tokens is the original application of brute force many decades before.
So it is clear that a small powerful group of individuals can apply brute force to cause a very large group to trade in fiat tokens. It is also clear that the resulting state of affairs is what you might call in physics a "stable equilibrium point" -- the system tends to remain at that point in perpetuity until a major force comes along to knock it away. Perhaps this explains why systems of fiat tokens end in disaster if they end at all -- there may be no way to evolve away from fiat in a gently continuous way. Maybe DGCs and the like will help, but probably not. Ultimately there will always be taxes to pay in fiat tokens, and everyone who pays taxes will thus be forced to liquidate some real asset in exchange for fiat tokens. Property taxes alone will ensure this -- pay up in fiat tokens or we kick you off your property. Renting doesn't help because the landlord pays the taxes and passes them onto the renters. So it will be fundamentally impossible to refuse fiat tokens altogether unless one is willing to become a homeless vagrant.
Yes there are safe havens such as gold, but issuers of fiat tokens may take steps to depress prices in that market, and in any case in a serious crisis they can always issue an outright ban on gold possession, as the US did for about 40 years recently.
Between these grim and ideal scenarios there are many degrees of freedom, and some of us are opting for more freedom.
-- Patrick
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