Wow, you really have to hand it to Paul Krugman. In the quick snippet below, he talks to Joe Weisenthal about Bitcoin. Krugman reiterates his surprise that it has lasted this long, but admits that it’s theoretically possible for an asset not backed by anything to chug along because of a self-fulfilling prophecy.

However, Krugman is quick to remind the viewers that (government) fiat money is not susceptible to such an uncertain fate. (Phew!) This is because people have to pay taxes in government-issued fiat money. Krugman actually says, “Fiat money, if you like, is backed by men with guns.”

Krugman is here echoing the theory of money advanced by Abba Lerner and today’s MMT (Modern Monetary Theory) camp. For a full understanding of why this view is mistaken, you should read Mises’ Theory of Money and Credit (my study guide here). But for a quick point: Fiat currencies can collapse. And it’s not because the governments decide to abolish taxes in those countries when it occurs. So there’s obviously something fishy in Krugman’s glib remark, beyond the creepiness of his nonchalance of having money backed up by “men with guns.” (Note he said it in the same impish tone with which he discussed death panels as the way to fix health care costs.)