What Gives Money Its Value?

I had a discussion with my boss many many years ago - the company with its salary ranges and job categories could not give me enough of a raise to make a difference. Money doesn’t mean that much - in my wildest dreams, a 10% raise (way higher than guidelines) for $50,000 is about $5,000 or $100 a week, minus marginal taxes, so about $55 a week. Nice but not earth-shattering. His reply, “that’s true, but money is a good way to keep score.”

That’s the essence. My tech support work or hobby ceramics might be enough to barter for a week’s worth of food, but the dairy farmer and the tropical food importer don’t want half a ceramic mug set, nor do they need a half-hour of tech support regularly each week; and tracking all those reciprocal obligations is a nightmare, not to mention adequately valuing them. Thus the need for something that everyone agrees is a fair means of “keeping score”.

Fiat currency works because the government(s) agree (usually) to limit the supply to ensure there is not so much that it is not worth much (takes to much to buy anything of value) and not so little that people cannot get some in a fair way to trade for what they want. Before governments were that trustworthy, currency like gold was worth something because the difficulty of increasing the supply kept it stable. (There’s whole books written on how declining Rome debased its currency, mixing copper and lead with gold until coins were worthless; or how the sudden influx of Inca and Aztec gold changed the economy of Spain and the rest of Europe).

Barter only works in small communities where everyone can value each other’s input. As soon as you have to deal with strangers, you need some form of currency.

This could be a note from someone that both parties trust that guarantees the transaction. A letter of credit or something issued by a government, but the essential thing is that both parties (who may not trust each other) trust the issuer of the note/letter.

Pretty much this. Money is more of a place holder for goods/services. The value of which is determined by the billions of combinations of ratios of these various goods and services to each-other. One hour of unskilled labor is represented by x. One gallon of gas is now x/5. A car battery is 7x.
The x by itself means nothing until you attach it to a good/service and start looking at these ratios.

That’s what goldbugs say, but debasement of the currency was quite common. Henry VIII’s debasement is a good example. It wasn’t just the Romans.

That’s also the foundation of Gresham’s law - good currency drives out bad. If there are good coins known to be debased, and some that aren’t, the savvy merchant will pay debts with the poor coins and keep the good ones. That’s debasement in action.

Then what accounts for the value of things that are not (practical) goods and services? 160ac of land with no resources or a Monet painting?

Trying to calculate the “true” value of even a carton of milk or a bottle of vodka ab ovo from general principles sounds like an important exercise that might be feasible, but good luck. Let alone a Monet.

The “value” of anything is exactly equal to the price someone is prepared to pay for it at any given moment.

Your 160 acres may be worth $millions or nothing, depending on whether there is a demand for it. A valuer might tell you that it is “worth” $xxx, and a lender may advance you some coin based on that valuation, but that is all speculation (albeit based on local history) and you will not know the true value until someone comes along with a bag full of coins and exchanges them for your land/painting/whatever.

I don’t think the utility of gold in electronics is actually strongly tied to its value - of course demand is always a factor, but it’s almost like we use gold in electronics despite its cost.

The amount of gold needed in any electronics is incredibly small and the utility is quite high, so although something else might work almost as good and be cheaper, gold is the best choice.

Yeah, I feel like it’s more a case of ‘we gotta use this expensive thing’ than ‘this thing is expensive because we use it’, although of course the two things can never be completely uncoupled.