> it only became worth something because the government says it is
That's the only nitpick I have against your otherwise excellent comment: it's not that government says it is, it's the societal consensus that it's worth it.
Of course, government is usually a pretty big entity it the country's economy, and since it uses the currency for all of it's transactions, currency acquires some value at least from these transactions alone; however, if the society as a whole loses trust in the currency, government will not be able to define it's worth. And when it tries, it just leads to black market, barter-based economy and even deeper economical collapse.
That’s where the term legal tender comes from. Society is legally mandated to accept whatever is determined by the government as legal tender for the settlement of debts. However, this does not include everyday transactions, only the settlement of debt. A trader can accept or deny any currency or form of barter as long as it is not for the settlement of debt.
This is why the Scots are wrong to get in a fuss about shops not accepting Scottish bank notes, as shops are not legally obligated to accept them as legal tender does not apply in this case. Also, Scottish bank notes are not actually legal tender anyway.
>That’s where the term legal tender comes from. Society is legally mandated to accept whatever is determined by the government as legal tender for the settlement of debts.
This entirely depends on the legal framework in a given country. Some countries have legal tender but no necessary obligation, absent a contract, to accept coins or notes in general as payment of the contract.
Moreover, in the context that a person is likely to not accept the government mandated currency as payment, they're not likely to accept debt either. Such situations are common in times of hyperinflation for instance.
If governments could legal mandate that their fiat currencies have value, there would be no such thing as hyperinflation. There is such a thing as hyperinflation. Therefore, governments cannot legally mandate that their fiat currencies have value.
But they can make them highly valuable by demanding and collecting taxes. If you have to pay 20c in tax every time you buy a chicken for a litre of milk (because the government values a chicken at $1 and charges a 20% GST), then you're going to need some source of dollars - even though all your private transactions are denominated in litres of milk (or bitcoins or whatever).
As for Scots getting into a fuss, they are right to get into a fuss if they're treated less equally than other British people. You can say "oh, but the legal situation is thus" but that doesn't make the legal situation _or_ the social situation right. It merely means it exists (not, I suppose, that a person who attacks Scots could understand the is-ought distinction).
No English person would be hurt if every English person accepted Scottish notes at par; as you observe, the Scots are not hurt. Therefore, by putting up a barrier to free trade, they hurt their neighbors for no beneficial reason.
> No English person would be hurt if every English person accepted Scottish notes at par;
This is true up until the point one of the banks goes bankrupt, especially if they were found to have printed a whole lot of notes not backed by central bank reserves.
In practice, I strongly suspect the government would step in and accept the notes directly if that ever happened.
> If governments could legal mandate that their fiat currencies have value, there would be no such thing as hyperinflation. There is such a thing as hyperinflation. Therefore, governments cannot legally mandate that their fiat currencies have value.
I think you may be getting confused between legal mandate and confidence. Governments certainly can, and do legally mandate the value of money in the form of fiat currency, that is the very definition of a fiat currency. However, society and the market can lose confidence in said currency thus triggering hyper inflation.
I’m not familiar with the legal situation in all countries, but certainly the UK, USA, and EU define legal tender as what one must always accept as settlement of a debt. That allows one to refuse payment if a prior debt does not exist, that’s why it’s legally acceptable to for shops to refuse high value bank notes for example.
> it's not that government says it is, it's the societal consensus that it's worth it.
Disagree. The government only accepts their preferred currency for payment of taxes. This is, in my opinion, its initial source of value. Secondly, they may literally stop you from using an alternative currency if they can't figure out how to tax it.
> The government only accepts their preferred currency for payment of taxes.
By "transactions" I also meant tax collection, yes.
> Secondly, they may literally stop you from using an alternative currency if they can't figure out how to tax it.
Usually, at the point where society as a whole loses confidence in government-issued currency, it no longer has resources to stop you from using alternative currencies.
I think you’re receiving a strange response because people think you’re advocating some sore of crypto-anarchist freeman position, and HN as a community is very much weighted against that point of view ...
I can identify with what you’re saying and there are some very well known examples of local currency being subverted. You can see Bolivia in the news recently, or Argentina or everybody’s favourite trillion dollar note the Zimbabwean kwacha. Funnily enough, all have been using dollars ...
That’s what I thought but HN can be a strange church. Often just phrasing can get people’s backs up. Your comment was going grey so I guess you were on your way to getting flagged!
That's the only nitpick I have against your otherwise excellent comment: it's not that government says it is, it's the societal consensus that it's worth it.
Of course, government is usually a pretty big entity it the country's economy, and since it uses the currency for all of it's transactions, currency acquires some value at least from these transactions alone; however, if the society as a whole loses trust in the currency, government will not be able to define it's worth. And when it tries, it just leads to black market, barter-based economy and even deeper economical collapse.