The Value of Fiat Currency

Fiat is Latin for “it shall be.” Fiat currency is money that has value because the state says it shall have value. This is the opposite of a commodity backed money. Commodity backed money is money that is backed by a good, which is said to have intrinsic value. Intrinsic means belonging naturally. Intrinsic value means the value of a good is held within the good itself.

Thus people, including myself, often claim that fiat currency has no actual, or intrinsic, value. After a great deal of consideration I believe that statement is wrong, fiat currency does have intrinsic value under the state. Under United States code:

United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.

In other words one must pay off their public changes and taxes in government issued money (technically you a debt holder must accept fiat currency in payment on the debt but you could use other forms of payment if both parties agree to it so that’s a separate case).

We must now consider what happens if one fails to pay their taxes or other charges brought about by the government (fines, etc.). If you fail to pay your taxes, fines, etc. you will generally be kidnapped by a state agent and brought to a court. At the court it will be decided what is to be done with you, usually it involves a jail sentence, garnishing of wages, or other form of punishment. If you refuse to comply with your kidnapper you will have force brought against you, and deadly force may be used if you resist sufficiently. Ultimately the result of not paying taxes, fines, etc. is force bring brought against your person.

Under United States law the only form of payment that the state will accept for taxes, fines, etc. is government issued money, which is all fiat currency issued by the Federal Reserve. In order to avoid violence being brought against you by the state you must hold their issued fiat currency, ergo people desire fiat currency as a means of avoiding violence. In effect fiat currency is similar to firearms, many people buy firearms to protect themselves from violent individuals.

Avoiding violence, like anything else, has a subjective value. Some people will go to greater lengths to avoid violence than others. Most people facing the option of starvation or violence will take violence as it is still preferable than death. Thus a person may spend their last dollars to buy bread while knowing it means they will be unable to pay their taxes tomorrow. Other people value the principle of not submitting to tyranny so highly that they won’t pay taxes, instead they will subject themselves to kidnapping and imprisonment. To such a person fiat currency may have no value at all.

Thus I believe saying fiat currency is without value isn’t entirely accurate. Under a state fiat currency contains within it the ability to avoid state violence and thus it can be said that fiat currency does have an intrinsic value under specific conditions. It would seem technically accurate to me to say fiat currency is the value of avoiding violence.