“But there may be another solution to the backwards induction problem. I’m going to show that the market establishes the value of modern fiat money under a CPI standard in the exact same way that it establishes the value of a very familiar instrument; the standard corporate bond. Since corporate bonds are not subject to the backwards induction critique, then by analogy neither should fiat paper. What follows is a gradual progression from the one to the other with the aim of showing that if you can value a bond you can value a Federal Reserve note.”
This is in response to a David Glasser post on the backwards induction problem for money. The final value for many types of money is zero, so the current price should also be zero. JP slides around this problem by providing an example of corporate bonds which gradually comes to be a near perfect analogy to fiat currency even without any built in demand from taxation.
Interesting post and it would be worth it to publish this in a more formal venue and manner.