Thread by @GeorgeSelgin

I agree 100% with Steve's take on fiat money. It's value doesn't rest upon it's being a redeemable claim to anything. The mere fact fiat can purchase things at varying prices, including "get out of jail" cards from tax authorities, doesn't make it a "claim" to anything.

https://twitter.com/interfluidity/status/1418370144632414210

Because the U.S. government can decide at any time to alter the # of fiat dollars it takes to satisfy tax obligations, those dollars are not "claims" to any pre-agreed upon amount of "get out of jail" cards (or gov't services or whatever you choose to call what tax payments buy).

In contrast, a commercial bank is not free to say to its depositors, "We regret to inform you that we've raised the price of Federal Reserve notes, so that it will now take $2 of your credits with us to purchase a $1 bill."

A "claim" is a debt is a fixed-price commitment.

The old-fashioned distinction between a "redeemable" and a fiat money exists for a reason, and the reason isn't that all those who made it were just too blind to notice that fiat money's are no less "redeemable claims" or "IOUs" or whatever, say, old banknotes.

When, for example, the Fed quit paying out gold in 1933, it didn't just switch to some more vaguely defined redemption medium. like "get out of jail" cards, or "government services," because it didn't commit itself to exchange any _particular_ quantity of that medium for each $1.

(I know: it did retain genuine redemption in gold for foreign central banks for some years. But let's abstract from that for the sake of argument.)

Those who want to erase the distinction between redeemable paper money and irredeemable fiat money, are guilty of a category mistake, that instead of enhancing our understanding of money does away with a meaningful distinction that's a valuable contribution to that understanding.

To be clear, this isn't a defense of the term "fiat money." There may be a better name for the stuff. But "redeemable" money isn't it! Nor am I making an argument either for or against the stuff. I am just insisting on what I consider to be an important analytical distinction.

BTW, many of the opponents of the distinctions I'm insisting upon a "chartalists" who insist, not only that fiat money owes its value to the fact that it is a redeemable claim to government "goods" (to call them that), but that this is, at bottom, what makes anything money.

@threadreaderapp, kindly unroll.