Fiat Money
Discussion
Fiat Money is not backed by 'nothing', but it is backed by 'everything'
(in an interview conducted by Evgeny Morozov)
"EM: The whole new field of “cryptoeconomics” seems to ignore the macro-level and just focuses on getting the Homo Economicus to behave through better-designed incentives… If one were to write an intellectual history of cryptoeconomics, it’s going to be almost exclusively dominated by mechanism/market design and game theory, its non-existent macro-economics stuck in denial somewhere between the extremes (all on the far-right) of someone like Murray Rothbard and his libertarian opponents who preach Free Banking. This ignorance of the macrofinancial is premised on what seem like wrong-headed ideas about the nature of fiat money and it not being “backed” by anything… Could you briefly tell us why in your opinion the standard crypto critique of fiat money makes a mistake in ignoring the ways in which the structures of macrofinance actually do back, say, the US dollar?
AT: Well it is a vertiginous realization isn’t it? That money is not backed by “anything.” I’ve shocked year after year of smart college students by forcing them to face that reality. There are always a significant minority who cling to some version of the gold standard. They actually do believe that when you “take the note to the central bank,” you will get “something” in exchange. It’s not an easy idea to give up. It’s not unlike the vertiginous feeling that is engendered by realizing that language is not “backed” by anything. We are familiar with solutions to this problem. Create a physical object that can be used as a reference for a word, a definition, a standard, etc.
But then I also find that it is not difficult to reverse the flood of skepticism and nihilism and simply reply: "No. Money is not backed by 'any one thing.' It is far better than that. It is backed by 'everything.' What backs money is the entire gigantic apparatus of macrofinance. It is backed not just by 'everything' but by 'everybody,' or perhaps one should put it more precisely, by 'everyone who is anyone.'" Or, if you are headed towards state theories of money, you can add and what really matters is that it is "backed by the one power that matters," i.e. the people with coercive power.
That generally induces a sense of relaxation. "Ah, yes…"
But if this is a fair account of the emotional politics of money, it is also diagnostic. In the background of true believing cryptothought is some kind of model of societal collapse brought on by irresponsible politics, either democratic or authoritarian. This is a line of thought that goes back at least to the 18th-century theorists of modernity, Hume et al."
(https://the-crypto-syllabus.com/adam-tooze-on-macrofinance/)