You're definitely on the right track, but you're omitting the factor which binds the value of money to the value of labor: taxes. Taxes force (upon pain of inp

You're definitely on the right track, but you're omitting the factor which binds the value of money to the value of labor: taxes. Taxes force (upon pain of inprisonment) people living within the territory of an issuing authority to offer their output for sale in that authority's IOU's (fiat). This allows states to provision themselves using their own credit (that credit then becomes the private sector's financial assets). I'm not as bearish on Bitcoin as a type of payments system, but it can never supplant traditional currencies (at least not without formal state endorsement, and subsequent deflationary problems).