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Folowing my previous post about Bitcoin not being fiat currency, I would like to address this issue from the perspective of L.M. Mises. For this purpose, let’s extract his definition of fiat from his book Theory of Money and Credit — Chapter III section 3 (emphasis is mine):

We may give the name of commodity money to that sort of money that is at the same time a commercial commodity; and that of fiat money to money that comprises things with a special legal qualification. A third category may be called credit money, this being that sort of money which constitutes a claim against any physical or legal person.

At the end of the same page Mises made a very interesting consideration about The feasibility of fiat currency.

It can hardly be contested that fiat money in the strict sense of the word is theoretically conceivable. The theory of value proves the possibility of its existence. Whether fiat money has ever actually existed is, of course, another question, and one that cannot off-hand be answered affirmatively. It can hardly be doubted that most of those kinds of money that are not commodity money must be classified as credit money. But only detailed historical investigation could clear this matter up.

When Mises said that it can hardly be doubted that most of non commodity money must be classified as credit money, he was on the right path from which unfortunately he later deviated as I will explain later in this post. We are today in the position of demonstrating by theoretical arguments and not by historical investigation what Mises pointed out thanks to Carlos Bondone’s monetary theory, which departing from Carl Menger proposes the following monetary taxonomy:

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Extracted from Capitalism and Currency (p. 19 Bondone, 2009)

On the basis of the above definitions, it is clear that fiat currency does not specify the quality nor the quantity nor the due date of the future economic good¹ with which the arising liability will be canceled… But wait, what liability? The liability is the obligation of the issuer of fiat currency to deliver a good in the future. And what future good? The future good is the relief of debts upon receiving its own currency.

The fact that fiat currency is not redeemable for gold or any other tangible good does not change its liability / claim nature. It is more than obvious that if the issuer of fiat currency does not oblige itself to accept its own currency, that fiat currency is doomed to fail.

Against what I stated in the above paragraph some may bring the examples of Lincoln greenbacks on late XIX century or Somali shilling after 1991. And my answer to this would be that if those currencies did circulate — at a fraction of its value — despite the issuer hardly obliging itself to anything (Greenbacks) or despite the issuer disappearing (Somalia) it is because the market gave a chance that the issuer or any other entity would pick up that obligation in the future. This is no different than Lehman Brothers Bonds trading at a fraction of its former price years after Lehman’s bankruptcy. It is not strange at all that liabilities might trade at a low price in light of a possibility of recovery. The fact that a defaulted liability is still traded at a fraction of its former value means that it is not a liability anymore??? Definitely not.

Now that we have demonstrated that fiat currency is credit, a liability from the issuer, let’s dive into Mises deviation I mentioned at the begining of this post. This deviation is considering currency always as a present good, no matter if it is money or credit. See page 266 of Ludwig von Mises 1953, The Theory of Money and Credit, Yale Univiersity Press (emphasis is mine):

The peculiar attitude of individuals towards transactions involving circulation credit is explained by the circumstance that the claims in which it is expressed can be used in every connexion instead of money. […] For everybody they therefore are really money-substitutes; they perform the monetary function in the same way as money; they are ‘ready money’ to him, i.e., present, not future, money.

Considering Mises defined credit as an exchange of present goods for future goods, qualifiying credit currency as a present good leaves his theory in an extremely inconsistent situation because as for his definitions, it could be possible to generate infinite amounts of credit as you could generate new credit using credit currency instead of present goods. This is Mises’s concept of Circulating Credit, which is a concept that does not explain the reality. The reality is that any amount of credit is limited by the availability of present goods in the economy, and that the holder of credit currency is always a creditor and the issuer of credit currency is always a debtor because credit currency is always a liability, and being a liability is incompatible with being a present good.

Present economic goods are not anyone else’s liability. Present economic goods and credit (i.e. debt) are indeed opposite entities. Claiming otherwise would be like talking about gaseous vacuum or a living dead.

Bitcoin does not comprise any legal qualification at all, and it is not anyone else’s liability, so it makes no sense qualifying it as fiat. Bitcoin is a present good no different from gold or an mp3 file.

¹ For a more detailed explanation between the difference of present and future goods see


  • Carlos Bondone, he provided me with extremely valuable feedback while writing this post.

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