Skip to main content

Why do people still value fiat money? Part I

Image result for Guillermo A. Calvo

Why haven't we gone to barter? Or adopted systems such as bitcoin much more widely?

Few people really trust the fiat money created by governments, their printing presses, and their captive central banks. The distrust has been growing in intensity ever since people came to understand that  the official money isn't backed by anything and isn't going to be backed by anything. So ... why haven't people abandoned it?

Because the government forces us to use its money?

No, it doesn't not really. We must be able to convert some of our wealth into its money at tax time. just as you must be able to pay for your trip on the subway with a subway token. But you can make that conversion just before your subway ride.

So other than that: why do people still value the US dollar and other examples of fiat money?

One thinker who offers a provocative answer to this question is Guillermo A. Calvo, a former chief economist with the Inter-American Development Bank.  The institutions of central banking are these days generating their own critics from within.

Calvo, whose spectacled face you see above these words, says if I understand him that the chief reason people value fiat money is stickiness. They value it because and to the extent that both prices and wages tend to be sticky. This stickiness in turn is critical to Calvo’s discussion of how the works get gummed up, that is, to his understanding of the boom-bust cycle.

More of this tomorrow.


  1. On Take Free Bitcoin you can get free bitcoins. 8 to 22 satoshis every 5 minutes.

  2. If you're searching for the #1 bitcoin exchange company, then you should know Coinbase.


Post a Comment

Popular posts from this blog

Great Chain of Being

One of the points that Lovejoy makes in the book of that title I mentioned last week is the importance, in the Neo-Platonist conceptions and in the later development of the "chain of being" metaphor, of what he calls the principle of plenitude. This is the underlying notion that everything that can exist must exist, that creation would not be possible at all were it to leave gaps.

The value of this idea for a certain type of theodicy is clear enough.

This caused theological difficulties when these ideas were absorbed into Christianity.  I'll quote a bit of what Lovejoy has to say about those difficulties:

"For that conception, when taken over into Christianity, had to be accommodated to very different principles, drawn from other sources, which forbade its literal interpretation; to carry it through to what seemed to be its necessary implications was to be sure of falling into one theological pitfall or another."

The big pitfalls were: determinism on the on…

A Story About Coleridge

This is a quote from a memoir by Dorothy Wordsworth, reflecting on a trip she took with two famous poets, her brother, William Wordsworth, and their similarly gifted companion, Samuel Taylor Coleridge.

We sat upon a bench, placed for the sake of one of these views, whence we looked down upon the waterfall, and over the open country ... A lady and gentleman, more expeditious tourists than ourselves, came to the spot; they left us at the seat, and we found them again at another station above the Falls. Coleridge, who is always good-natured enough to enter into conversation with anybody whom he meets in his way, began to talk with the gentleman, who observed that it was a majestic waterfall. Coleridge was delighted with the accuracy of the epithet, particularly as he had been settling in his own mind the precise meaning of the words grand, majestic, sublime, etc., and had discussed the subject with William at some length the day before. “Yes, sir,” says Coleridge, “it is a majestic wate…