Sunday School: Regression Theorem
Last Sunday, I began the explanation for why a piece of paper that says “United States of America” and “One Dollar” has value.
Kooks would say the only reason is because it did yesterday. And the day before that. And the day before that. And then If you go back enough days, it was backed by something with actual value.
That “something” is gold and silver, and throughout time gold and silver have been considered money. And even though gold and silver aren’t money now (thank goodness) the fact that merchants accepted paper for their goods yesterday (when it was backed by gold) means that they still do so today (when it isn’t backed by gold).
This is the regression theorem and it is nonsense.
The dollar has value because the United States government says that it does. It pays all of its debt in dollars. It can print as many dollars as its wants in order to do so.