At 1:56 PM -0800 12/11/98, Wei Dai wrote: ...

This argument is based on the misconception that people have no reason to want to accept fiat money. But actually fiat money is valuable because it performs a service for those who use it, namely the service of a medium of exchange. It's value derives from the fact that there is positive demand for a medium of exchange, and the fact that its supply is finite and controlled by a sufficiently benevolent agency.

Think about it this way. In the case of commodity money, its value comes partly from the industrial/aesthetic value of the commodity and partly from the usefulness of the commodity money as a medium of exchange. In the case of fiat money and b-money, all of its value comes from its usefulness as a medium of exchange.

I believe _all_ forms of money, whether hard, fiat, whatever, come from the expectation that the money will be of the same value, more or less, in the future. Call it the "greater fool theory of money." All one cares about is that a greater fool will take the money. Whether the money is gold or funny bank notes or e-money, the Bayesian expectation of future value is what matters. Discounted appropriately for interest paid, etc. (Thus, one might be willing to be paid in gold coins or in E-Bay LEAPs, provided the terms were laid-out and could be calculated.) As always, reputation is critical. Repution = Belief = Expectation. --Tim May Y2K -- LMGALMAO -- Loading my guns and laughing my ass off ---------:---------:---------:---------:---------:---------:---------:---- Timothy C. May | Crypto Anarchy: encryption, digital money, ComSec 3DES: 831-728-0152 | anonymous networks, digital pseudonyms, zero W.A.S.T.E.: Corralitos, CA | knowledge, reputations, information markets, Licensed Ontologist | black markets, collapse of governments.