Cryptocurrency and Fiat Money – Stephanie Kelton

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Deficit Owls Published on Dec 23, 2017 Professor Stephanie Kelton, economic adviser to Bernie Sanders and leading light of Modern Monetary Theory, on the David Pakman Show discussing bitcoin and cryptocurrencies, and contrasting with what MMT has to say about fiat money. In MMT, the catchphrase is “taxes drive money.” That means that demand for government money, like dollars, is generated and maintained by enforcement of taxes: if the government declares that you owe $100 in tax, and that it will do something very unpleasant to you if you don’t pay, then you had better go out and get $100 somehow! It is the government’s ability to enforce taxes that prevent fiat currency from being abandoned (and when government loses this ability, the result is usually hyperinflation). By contrast, cryptocurrencies, at least the models we’ve seen so far like Bitcoin, don’t have any sort of demand or price anchor. There is nobody forcing you to pay taxes in Bitcoin, so participation is purely voluntary, and if people change their minds about using it, its value could drop quickly to zero.