Bitcoin Forum

Pascal-Emmanuel Gobry wrote yesterday for Forbes that “all money is fiat money.” He mentioned Bitcoin, lumping it in with government paper, and tide laundry detergent, claiming every form of money is, in fact, fiat, because all money is "valuable because we agreed upon it."

I think this is a long-standing myth about the nature of money, so I addressed it at our blog:

Gobry's Forbes article...
http://www.forbes.com/sites/pascalemmanuelgobry/2013/01/08/all-money-is-fiat-money/ (http://www.forbes.com/sites/pascalemmanuelgobry/2013/01/08/all-money-is-fiat-money/)

And our response...
http://blog.bitinstant.com/blog/2013/1/9/all-money-is-not-fiat-money.html (http://blog.bitinstant.com/blog/2013/1/9/all-money-is-not-fiat-money.html)

...Awesome

Reading.. will update!

EDIT: Excellent and as usually spot on. Sophistry pisses me off as well and it makes me feel very good when there's someone out there tirelessly pointing it out! Keep it up Erik.

He confuses a currency with a store of value. Value is, indeed, almost always agreed upon. It's a completely subjective term, as for something to have value there necessarily has to be an entity that values it in some way.

But he then takes the leap from value to currency, and that's where the fallacy occurs. In fact, the ability to store value is probably a desirable aspect of any currency. But to be a currency requires that, aside from being able to store value, it also be easily transferable, fungible, scalable and so on.

Given the amount of power required to find one, a neutrino or a Higgs Boson would be remarkably valuable, but as a currency it would suck. One has to do with agreement, the other with what's practical.

where is the contradiction?
the only thing evoorhees adds is that the qualities of gold make it a good candidate for money. otherwise, "common agreement" and "most bartered for" seems to be pretty similar.

Holy Jesus. That is painful to read.

OMG. What an idiot. Yes, Erik, you are right in correcting him. Fiat needs to be defined (as you did) for people to understand how to use the word. The definition of "fiat" is specifically:

1 A formal authorization or proposition; a decree.
2. An arbitrary order.

So the term "fiat money" is commonly understood (or at least should be) to mean money which becomes money because of decree (most logically by government).

That means government can theoretically make anything money even if it isn't ideal. As Erik points out seaweed never became money, but governments could make it so. A tyrannical government could, for example, isolate their citizens from the sea and declare any seaweed in circulation in the village to be money. The people would then value seaweed as money because the value of it would be guaranteed by the edict or decree. The problem is without that governmental authority the seaweed would be as valueless as it would normally be in a free market.

This example illustrates the deficiencies and potential hazards of fiat money. A better form of money is understood to be commodity based money. Again with definitions, commodity means specifically: "a useful or valuable thing". So money which is already deemed to have value by the free market with or without any government decree is better for people to use for, what should be, obvious reasons. Gold is a type of commodity money. So is Bitcoin.

Last, is a great misconception Erik addresses, which is "money by agreement". I agree this needs clarification. The word "agreement" should be replaced with "acceptance". Then it would be accurate.

i think it would have been more effective and appropriate to attack his central assumption from the beginning; that Tide is a fiat currency.

does anyone in their right mind think this is a true and accurate statement?  of course not, it's just a fad.  i don't even have to know if drug cartels are accepting it or not for the time being.  all i know is that they won't in the long term b/c it fails at most accepted good definitions for money in general.  and that is a fixed supply, fungibility, store of value, unit of account, transportability, etc.

what struck me is that you were arguing from a position that gold bugs argue from and that is the Regression Theorum.  that was not the best angle to come from as we, as Bitcoin advocates, argue against the need for that Theorum all the time.

I think there regression theorem is excellent. It demonstrates how money tends to come about. It doesn't mean that money can't come about in other ways... fiat is one other way, and spontaneous usage due to extreme usefulness (like Bitcoin) is another way.

i understand that.  but you, as an advocate for Bitcoin, could've killed 2 birds with one stone by undercutting the Tide supposition primarily and thus positing an argument that would've explained Bitcoin as well w/o resorting to the Regression Theorum which we always argue against here.  

keep in mind its easy for me to be critical since i didn't take the time to get off my ass and write what is in essence a good piece that is helpful for our cause.  :D  good job.

"Common agreement" infers that people agreed with each other what to use as money. This never happened.

It is not "common agreement" but a harmony of "individual preferences" which is almost the opposite of common agreement, and I think this is a very important distinction.

Achieving common agreement among disparate people is very difficult, and often leads to squabbling. Markets are amazing in that through the differences in individual opinion, exchange ratios (prices) are arrived at, without anyone having to agree with anyone else beyond the specific individual trades and trading partners they deal with. "Community consensus" is not required, only narrow self-interest between two individuals.

The magic of money then is that it might appear as though an entire society has agreed to use it, when nothing of the sort ever occurred. They use the specific money not because they agreed on it, but because their variant, disparate disagreements led to a distillation of bartering objects toward one or two narrow objects which are then called money.

Maybe I'm being nitpicky, but I think it's important to see the difference here.

Good point.


Yes, this happens for the evolution of money in a free market. The other way money becomes money is by fiat or decree.

imho you are either overly nitpicky or just wrong. the "individual preference" for gold for example, is largely a result of the fact that its universally accepted. for example, i have not much reason to prefer euro over dollar, except that i can pay with euro everywhere but not with dollar. of course, when gold developed from money candidate to money, its qualities were important. i think being shiny added a lot to its perceived value, too.
but once you picked a reasonably suitable candidate, its qualities are not the reason for those individual preferences, but the fact that its universally accepted, which, in my opinion, is a community consensus. if the regionally accepted coins are fnurg, spengel and woot you accept fnurg, spengel and woot, because if you dont you cant sell anything.

Really well written rebuttal Erik. I particularly liked these quotes

Wasn't too well received (http://polimedia.us/trilema/2013/forbes-now-with-a-little-extra-esl-and-a-whole-lot-of-extra-stupid/), Mr. Gobry.

That does not an agreement make.

It does however mean that for YOU individually euros are a more marketable commodity than dollars because past experiences have taught you that people in your area are willing to trade them for other stuff, plus a small gang of thugs (also knows as the government) demands you hold euros when they want to rob you (also known as when you have to pay taxes). It could happen and it probably will happen very soon that this will change and the preferences of people around you will drastically change where they will not want to exchange their stuff for your euros anymore and they wont break any agreements doing so.

oh, come on. thats like saying for ME INDIVIDUALLY shaking right hands is more useful than shaking left hands because past experiences. the consensus is what shapes my individual experiences. and if thats no consensus, what is?

Once again, thanks to yet another excellent evoorhees article (and the built in Mac dictionary) my vocabulary has expanded by two words.

I prefer this response,  There wasn't a need to write this long to point-out how stupid this Pascal-Emmanuel Gobry can be.

Isn't there anyone reviewing article at Forbes ??

I quite enjoyed the Gobry article.  It's interesting to me to look at something from a different angle.  And whilst I could also see straight away why others would get their knickers in a twist over it the reason it didn't ruin my dinner is because of my acceptance that people use the same terms to mean different things.

If we take a second to deduce what both Gobry and evoorhees mean by the words 'fiat', 'money' and 'agreement' it can be seen they are not the same.  If we then read both pieces bearing in mind what each meant by these terms then I'd argue that we end up with something that is very far from the 180 degree argument it at first looks like.

I have no arguments with the use of the word 'fiat' as is used as common currency on this forum.  Whether from derivation or dictionary definition the 'by decree' use seems to me to be the most sensible.  I can also understand that some might say this is the only way in which the word should be used.  But Gobry, by acknowledging and pointing out 'our' preferred meaning in his footnote implies that that is not how he is using it in the body of the article.  So why read it as if it was and make accusations of untruth and sophistry on that basis?

Whether we like it or not the word 'fiat' is commonly used by those with a background in economics as a currency not backed by a commodity.  We can cry foul, that this is an incorrect use, and be as dismissive as we like about professional economists and about economics as a profession but it won't change the fact that it is used in this way.  Forbes is not bitcointalk and it is not unreasonable to assume a substantial number of the readership will have understood what was meant by the word as used in the article.

Two people can be said to be in agreement if i) they have independently and unbeknownst to the other come to the same conclusion; ii) one has persuaded the other such that they are both now of the same opinion on something or iii) they negotiated and shook on a deal - and these are just three meanings.  Only if we take the word in one particular, narrow sense does 'Never was there an agreement that gold was superior as money' make sense.  Every single time gold has been used as a medium of exchange both parties were in agreement that it was superior to the available alternatives in that moment.  Why they agreed it was better than salmon is not relevant to Gobry's argument but I would venture to suggest it would be for more 'because others do' than 'because I considered all the options and...'.  When it comes to trading with the baker, our employer or girlfriend there is an an implicit consensus in each case on the medium of exchange as well as the explicit agreement on price that may have come out of negotiation.  Of course we can say each has come to his/her own conclusion as to why the medium of exchange to be used is acceptable but as Bitcoiners understand, we may have the best currency in the world but we can only use it if the other side of the trade also agrees that it is acceptable.  I know those of us that tend to hang out here value independent thinking and reasoning and individualism but frankly I think it's silly to deny that agreement has a critical role to play in determining the medium of exchange of a trade.  Not everybody who uses the word 'common' is a statist/communist/anti-idividualist!

Likewise with the term 'money'.  We can evaluate entities as to their potential usefulness as money by objective standards and conclude what money is or isn't but even as a store of value it is only worth something if at some point another will trade something for it.  It requires that they too have concluded independently or otherwise (they share the opinion or have a view 'in common') that it is money.  Gobry calls this preparedness to trade by use of a particular medium 'an agreement' whilst evoorhees prefers 'barter'.  But aren't they essentially talking about the same thing?

Is there actually an argument here at all?  Please someone point it out if there is because I can't see it?

What Gobry did was to give the Forbes readership a reason to question their current possibly deduced, more likely unquestioningly accepted understanding of what money is and what is meant by fiat.  Surely that's a good thing?  I know we are each in love with our own paradigms but is there a need to be so sensitive as to lose sleep, to have ruined meals or to write so scathingly over a well-meaning article just because the author sees the world and uses terms differently than we do?

Yes, the argument here is that it's a terrible waste of one's time to do what you just did above.

Obviously with a lot of effort expended into sophistry any idiocy can be temporarily made to appear as "just another point of view". This exercise is not either useful or something you can be proud of. All you've done is made the idiot a little less obvious to all those not willing to match your effort and undo your sophistry. Consequently, he's now a little more capable of continuing to be an idiot, secure in some false representation of "being misunderstood". This isn't a service to society, and it isn't a service to the idiot, even if - I guess - it serves your intellectual vanity somehow.

Well meaning idiocy is the most damaging globally strategic issue (or was it strategically global issue?).

gobry appears to be an extreme lightweight who has just demonstrated that he is well out of his depth commenting on anything to do with monetary economics with that article ... i wouldn't have wasted any more breath on it that, but there, I did.

I do not know what Forbes do to vet their writers but someone dropped the ball with this guy.

+1

OK, I just did a quick Google search on this in case it was represented a meme or something and first result was this thread!  I'm impressed at the speed with which this turned up in a Google search - but none the wiser for now about what it may mean or what was intended by it :)

Surely. Under the reservation that all clues may ultimately just be useless, but surely.

Of course the Forbes guy is wrong on his headline. But:


.. and therefore agreed upon accepting it as money.


I agree. And so does everyone using Bitcoin. And nobody not agreeing would accept Bitcoin.

Nothing can be used as money without this agreement.

[quote from Forbes article]
Actually, properly understood, no currencies are “fiat” currencies, since the word “fiat” refers to a government decree that makes money money, but in reality, while the government fiat matters, it is useless without the consent of the currency users.
[/quote]

He's even technically correct on this.

But what he completely fails to see is the fact that the 'agreement' or 'consent' has totally different reasons for different kinds of money.

In some cases it comes from reason, experience, knowledge, understanding (as for PM or BTC). In other cases it comes from decree and force and, most importantly, from belief (government fiat).

Maybe it is time to stop distinguishing between 'fiat' and 'non-fiat' money, commodity backed or not. In regards to Bitcpin I can argue both, that it is a commodity and that it is not, that it has intrinsic value and that it has not. But in no case I would call it fiat money even though even with Bitcoin someone, somewhen, was the first one who said 'It shall have value' (the pizza-guy maybe?).

Joe

This patently retarded argument works something like this: all sex is rape and rape is just ordinary sex and therefore we should stop referring to it as rape and distinguish it from ordinary sex because the woman eventually agrees as proven by the eventual consummation of the act. Or how would it be possible for intercourse to occur without agreement, especially if we posit aforehand that all intercourse only occurs through agreement? Therefore we have clearly proven through this sleight of contorted mind that...we're stupid.

Something like this?

The key is whether the act flows from agreement or agreement flows from the act, not whether some patently ridiculous Panglossization of reality could be constructed in which agreement "is present". I hope you make more sense during the sessions of w/e that thing in your signature is, tho it has a definite flavour of Taakism (http://polimedia.us/trilema/2012/amir-taaki-has-done-and-continues-to-do-huge-disservice-to-anyone-serious-involved-in-bitcoin/) and Global Strategic Issues.

No, nothing like this.

Since I seem to be capable of distinguishing between consent and force when it comes to money, what makes you think I would not be capable to do so when it comes to sex?


Why are you so focused on sexual metaphors? I really don't think they work when discussing the nature of money. Nevermind.

Neither brute force nor Pangloss' lies qualify as the basis of consent for me. While the first is easier to identify, I can argue that the second is based on agreement though. Paquette did not resist physically but got tricked into the act. In this case, which is your example, the act flows from agreement which was based on lies though, which is as unfair just less violent.

And of course there are conditions in which agreement "is present".

You will understand that once you fall over and someone like me comes along who feels that an unoutspoken agreement "is present" between you and me and the rest of all humans that makes me help you back up again without needing a law that forces me to do so. And even without being sure that you would feel the same agreement if it was the other way around and it was me who is down on the ground.

Joe

Yes, well, once you manage to untangle your head from your own ass you might be able to use it to think rather than to stroke. How did you get so fixated upon yourself anyway?

Because the existence of idiots like you is proof of my own brilliance to me.

Sorry could not resist ;).

Other than that I will not discuss this with you any further. You seem to merely want to exchange insults so please troll someone else into that.

Joe

 

http://www.gardenofexchange.com/FAQs.html#money


If I were to pen a similar article, I would seek out, then source, the above, because it has to be true, for it's on the internet and Google indexed it.

Improper usage - begging the question is a logical fallacy:

http://www.nizkor.org/features/fallacies/begging-the-question.html

It invokes the question above.

Freudian slip? Perhaps he meant "beg an answer".

Thus: If we use certain money merely because long ago we agreed upon it, doesn't that beg answers as to, “when, why, and how did we agree on it in the first place?” I argue that no such agreement, nor even a discussion, ever occurred.

I can't think of a question that does not beg an answer?

Joe

Bullshit. The hell he is.

If the fiat or decree doesn't matter then why make it at all?

Could it be that left on its own the free market would pick something else as money? Yes, that is it.

Fiat overrules the market, plain and simple.

If government threatens you with fine or imprisonment for some infraction, and the payment must be made in fiat you don't consent to going to jail because you opt out of using that money. That is force.

Great. Bullshit makes the flowers grow and that's beautyful.


I agree, even though I start hesitating to use that word ;). But I really don't think your and my views are far apart, if at all.

Maybe my English is not good enough. Let me try to detail.

Yes, the Forbes author is technically correct when saying 'while the government fiat matters, it is useless without the consent of the currency users.'

Maybe I can clarify that by distinguishing between 'consent' and 'consensus'.

I have never discussed with anyone if I want to drive on the right or on the left side of the road. Nobody has ever asked me or anyone around me for our consent, yet there is a clear consensus amongst us in which side to drive. It makes sense to anyone and I am happy that almost all people stick to it most of the time. It is also enforced, if not by the state then by the laws of physics.

Just like there is a consensus amongst the populations of modern countries to accept fiat currencies. Some of the people believe that this has even been 'discussed' by their representatives and therefore the best thing to have ;), others know that there are much better alternatives and that brute force is what is behind fiat. Most don't even realise the force due to ignorance / belief / wrong information and are being tricked into the consensus just like Paquette.

Doesn't change the fact that if the people would not a-fucking-gree to the use of fiat then we as societies would would not use it.

But this is really going totally off topic into a discussion on democracy and state alltogether, because once the belief in democracy and the state is gone, the enforcer and the unagreed upon consensus on using fiat will be gone too while the one on which side of the road to drive will stay.

Take my word for that.

Joe

Okay. So it comes down to semantics. Let's get to it then. Here are Google's definitions:

consent

Noun
Permission for something to happen or agreement to do something.

Verb
Give permission for something to happen: "he consented to a search by a detective".
----------------

consensus

Noun
General agreement.

Synonyms
accord - agreement - unanimity
----------------

agree

Verb
1. Have the same opinion about something; concur: "I completely agree with your recent editorial".

2. Approve of (something) with regard to its moral correctness: "I'm not sure I agree with abortion".

Synonyms
consent - accord - assent - concur - tally - accede
----------------

If you study 'consent' and 'agree' you find that approval must happen. When you consent you give permission. When you agree you approve.

Consensus is trickier, because it is "general" agreement. Well, the word 'general' is injected in there which gives wiggle room to the meaning. However, the word 'agreement' is still present, which as I indicate means to approve or give permission.

So I disagree there is consensus about which side of the road to drive on. Did you ever give permission or approve of things being set up that way? Or did you simply not object. Because that's NOT the same as giving permission.

Earlier in this thread I suggested to Erik the need to replace the word 'agreement' with 'acceptance' when referring to how people give value to money. Erik suggests his comments may be nitpicking, but I think he's right. Look at my example about going to jail for not having fiat money to pay the fine. Do you give permission to go to jail? Or do you accept going to jail?

You don't give permission or approve of going to jail. However, you accept it (you don't object or resist) because the alternative is being beaten likely to death.

I don't think you'll have much trouble understanding if I put it in class struggle terms.

Step 1. You are part of the socialist academia. You've lived your entire life supported by taxes, which makes you consider taxation benign if not outright necessary, and it also clouds the principle at work in favor of the practicality of it all: no matter how much of a prison the gold bars make, the fact is that they tend to keep the loud smelly barbarians out more than they tend to keep your damselly flesh in.

Step 2. Bitcoin is a new technology, and the socialist academia tends to imagine it has some privileged connection to technology (or science, if you want to think in 1800s terms, or philosophy if you'd go before that). This is only true in the practical sense that most everyone else is too busy doing something useful to have time to consider things in principle.

Step 3. Bitcoin happens to be the "socialism killer". It's not even killing anything, it's making the fundamental bankruptcy of that ideology finally unavoidable in practice. Be it Soviet socialism, French socialism, Maoist socialism, Castro socialism or whatever the hell else, it strictly depends on money being owned by the state and used by the people under license rather than money being owned by people and used by the state under license.

So there's the conflict: we don't give two farthings (brass) for your entire collected troop of whatever you think you all are, and neither is this "we'd halp you too!" bullshit here or there. You never before met people who actually don't, and also have the tools with which to bludgeon you into a pulp.

This divide isn't bridgeable in any way, even if you understand what the problem is, there's never going to be anything you can do about it. The term is Stockholm Syndrome.

The latin translation for fiat is: "Let it be done."
 
It is the present subjunctive of "facere" -- to do.
 
That it why it was used to mean an order or decree in former times.

But it does not necessarily have to require government to decree that "it be done".

When a new block is solved and 25 BTC are distributed, you could say that the Bitcoin protocol itself is saying "let it be done". Thus issuing currency via fiat.

The question is, are people willing to accept the decree of a protocol of equations and numbers as opposed to by government decree.

Then there is the idea that all 21 million BTC have already been created, they just have not yet been distributed.

Can I say:

"I consent to you paying the bill for my goods or services in fiat-currency but I do not agree upon fiat being a good idea, I do not approve it at all."

or:

"I agree upon you paying my bill in fiat-currency and I approve that but that does not state my consent to the fiat system nor my approval to it."

or ...

?

Joe

For the exact same reason you were talking about racism. Those are the two cries de guerre in this political struggle, I took your use of it to mean you intend to limit yourself to discourse in that paradigm.

This is the magic of words: they control the context in which they are to be interpreted. This is why words are important, and this is also why the article you dislike is warranted on the basis of the paragraph it cites, and also why the misuse of "fiat" is a point of import, not something to be brushed aside.


Neither does the "racist" foul-mouthed outpouring guy. Funny how that works.

I agree that the term fiat is somewhat hollow at the moment. I see three factors that supports the fiat term for modern paper money:

1) It is used in accounting. Could a foreign fiat be used? Probably, but there is a problem with the floating value. Say a company buys something for 100 in the beginning of a year, sells it for 120 mid year, and then calculates a profit of 20 at the end of the year. If this was done with dollars in a euro country, this would be for instance
  bought : 100*1.3 = $130
  sould    : 120*1.35 = $162
  profit :                       $32 converted back to dollar at 1.4 = €22.85

The difference of 2.85 have to be decided upon, is it taxable profit or is it something else?

2) Some transactions like taxes and considerations decided in courts, have to be made in the fiated currency.

3) The alternatives, commodity moneys, like gold, are opposed in diffent ways, by confiscation, consumption tax, and lack of retail services for storing and connection to debit cards. Large amounts of gold are stored in central banks, effectively taking the gold out from the gold money supply. In the recent letter from the treasury (USA) alerting the Congress (USA) of the debt limit, selling the gold was considered, but rejected, because it would dangerously disrupt the markets (read: The public might grasp what is going on with the money).

The current regime of free floating currencies contradicts the fiat decree, but this could quickly be retracted, which we routinely see in countries where trust in the local fiat dwindles.

So I think the fiat term is still relevant, and bitcoin is not fiat, rather a commodity money.