The value of money is …?

I stumbled upon this thought provoking sentence in an otherwise flawed comment at the Telegraph considering the value of the Bristol Pound versus that of sterling:

Money has no inherent value, it is a means of exchange and a tool. What gives it value, is the acceptance by Govt as tax.

An interesting idea.

To elaborate slightly, I’m used to the idea that only government-fiat gives a fiat-currency value, and this is backed by your future earning potential and the Government’s unique capacity to confiscate it. I am also used to arguments that government borrowing and money printing, and the creation of electronic money in the loan ledgers of banks, will eventually overwhelm even that special form of backing. The comment above provides a different more practical perspective, that anything could be accepted as currency but because only fiat-currency is accepted for tax purposes in practice you must deal in the fiat currency.

This is real in at least one case, Bitcoin, where users are advised to keep enough state-money handy to pay taxes.

It is worth observing, of course, that since tax is only imposed by force then in this interpretation fiat-money is imposed by force.


  1. What gives a currency value is that people are willing to exchange it for goods and services, irrespective of government interference. If people are willing to exchange cats for goods and services, cats are a form of currency…

    Even if the taxman won’t accept cats, so long as other people will, you will always be able to find someone who will be willing to exchange cats for a currency the taxman will accept, rendering the commenter’s point, above, moot.

    Governments have at times outlawed gold as currency (e.g. the US in 1933) or dollars (e.g. the USSR) – that doesn’t make it any less of a currency, merely a black market one. They will probably outlaw bitcoin, too (I think I read recently that Germany is looking into it) — but it will remain a currency, albeit an underground one.



  2. Carl Menger “Principles of Political Economy” (by the way, contrary to the propaganda of Russian Television there is no contradiction between Menger and Mises – and NO, one can not “extend credit”, beneficially, to the “limit of human creativity”).

    As Menger pointed out – money must start as a commodity and WITHOUT GOVERNMENT INTERVENTION would remain a commodity.

    Of course all economic value is “subjective” (but as Ayn Rand was fond of pointing out) “subjective theory of economic value” does not mean “anything goes” – the preferences of other people for certain commodities are OBJECTIVE facts.

    The present fiat currency is a “store of value” (people forget that money has to be more than a “medium of exchange”) only because of legal tender laws and tax demands.

    I doubt this system will last much longer – no more than a few years (years of utter horror as the economy collapses – for various reasons). Then money will be a commodity again.

    Let us hope it this commodity is gold – not lead.



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