Through Hans Sennholz, I was pointed to the appendix of Menger’s Principles of Economics. I didn’t know about the statement he makes there before, so I’m happy to have found it. Note that the following is in complete contradiction to Rothbard (who followed Mises on money):

Menger recognizes that indirect trade is forward looking, and is a speculation on the future direct uses by individuals. Apples go bad rather quickly, whereas metals do so at a far lesser rate, therefore it makes sense to trade apples for some metal. I will be easier able to exchange the metal for something later, because the metal will still be in a good state, doesn’t lose it’s value if cut in parts, and so on. I am also able to easier exchange it than apples, because people recognize these properties and will therefore also accept it for non-direct use themselves. But the whole scheme relies on the fact that someone in the future actually wants to use the metal directly.

Most Austrians today believe that demand for a good as money raises its demand and thus raises its price. But demand for indirect exchange is not the same as demand for direct use. When you accept something as payment to trade it away later, you are not just a buyer, you are also a seller of the good.

So what happened with Mises and Rothbard to come to such a different conclusion? Related to this, Sennholz points out that Menger was worried about his observation that the purchasing power of the legal tender in his country was higher than the purchasing power of the metal it contained:

That was in 1889. In his Principles of Economics (1871) in his chapter on the origins of money, he was quick to point out the influence of government over money:

When something is legislated into being a legal tender, it gives that item value in direct use. At certain specified moments and times, people must be in the possession of it. This explains why those items rise in exchange value over and above what the materials they contain provide in exchange value.

Menger was born in 1840, Mises in 1881 and Rothbard in 1926. Paper currency became much more free-floating in the lives of Mises and Rothbard. They sought to explain the value of pieces of paper by referring to the past, but forgot to think about legal tender laws, which operated in Austria then and to this day.

People can just mine silver and make a profit.

Bitcoin has no intrinsic value and it trades above the price of nothing. Presently $6. As soon as people think something is real and valuable they will try and collect it. Soon it becomes a commodity in itself. As for the U.S. dollar they inflate it to the edge of revolution. With bitcoin they can't inflate it however has its technological flaws. It is the limited supply and use as medium of exchange that gives it value. Just like pokemon cards.

I agree a lot with what Menger said. I think he's right to point out that it is an "illusion" by people that people might one day no longer believe. But this illusion is as powerful as a person's belief in the State.

It seems like Menger is clearly contradicted by the existence of various forms of fiat money as a half-decent store of value long after they stopped being backed by anything tangible. It's not that such situations can't blow up in hyperinflation, it's that the trigger obviously isn't knowing the money is inherently almost worthless, it's believing that it's an awful store of value on relevant timescales.

Rothbard seems like it could make sense, although I don't know if history bears him out. Are there instances of fiat arising naturally that weren't backed/convertible at the outset?

China issued paper notes. Worked pretty well until the emperors started printing a crap ton of it (leading to hyperinflation)

The middle east (babylon and sumeria) issued clay coins as tax credits (proof you paid) that ended up as currencies.

Copper and elementium coins also had very little intrinsic value and were essentially fiat.

Then the stone coins, sea shells, so on and so forth.

Goldbugs like to pretend gold has been the standard currency through out human history; it has not. Not even in recent history.

Do you have links better than wikipedia for any of those?

I don't think finding examples of such is as easy as you think it is.

For example, people may cite situations in Somalia or Iraq, but the legal situation there are not so clear. Occupying forces can uphold a legal tender regiment, and legal tender enforcement can even be upheld for some time by culture itself.

The sentence in here isn't restricted to non-legal-tender money.

Offhand, I don't see why legal tender status is more than a signal that something inherently worthless will continue to have premium value. Even when something is legal tender, if it isn't thought to hold value well enough, it hyperinflates.

Every major superpower in the world over the last 500 years has backed their currency with gold, all the way into the 20th century.

Over a dozen developed countries currently issue gold coins from their mints today.

Except when they didn't. The British, French, US, Dutch, and basically every other country in Europe has suspended convertibility at one point or another.

No ****. What's your point? You didn't contradict anything in my post, but you're coming off like you did...

You implied that they based their currencies on gold for 500 years. There was no mention in your post to the fact that every last one of them suspended the convertability of their currency repeatedly. Obviously that makes saying 'they were on the gold standard' highly suspect.

Gee I'm going to have a gold standard, except for in the time period when you would really want a gold standard. That makes a ton of sense dude.

ITT we compare three irrelevant, forgotten pseudoeconomists, because we are too dumb to understand, or too lazy to learn modern econ.

yay 2+2

my next suggestion: lets just discuss Newton

seriously, WHY THE **** WOULD YOU CARE ABOUT 100 OLD IDEAS THAT ARE IGNORED AND CONSIDERED STUPID by every single one sensible economist in the world*??

are you guys paid by Koch bros too or smth?

lol, could have chosen a more dis-analogous old physicist than newton? probably not.

yay modern economics! As a result, the U.S. and Europe are doing amazing financially and no countries have defaulted or are at risk of defaulting.


... wait