I wouldn’t agree with that desciption at all. Money doesn’t store value at all, it is a record of value already earned. Which is a small but important distinction.
And the problem is what? Money works because a lot of people says it does, and no other reason. If they say it doesn’t, then it doesn’t, and that varies a lot from person to person and place to place.
Go to a large city bank and you can probabaly deposit Euros, Yen, whatever. They can take that and trade it into dollars for an account (some places can have foreign-denomerated accounts, but most countries don’t allow this). But go to a small-town diner, and they probably won’t accept Euros, Yen, or whatnot. In that location and place, it isn’t money. It’s just worthless paper.
On the other hand, if you convince people to accept it, it instantly becomes money. Doesn’t matter if it’s gold coins, half-ton stone wheels, or beads on a strong.
You can’t complain about circular reasoning, because the reasoning is not circular. But it is cultural. Money is a cultural artifact, and like all cultural artifacts is always partly arbitrary.
This is too strong a statement. Among other things, money has value because it lowers transaction costs. If you own a shoe store and agree to accept payment in money, you’ll be able to charge higher prices than a competing shoe store whose owner insists upon being paid in canned goods, bricks, or small electronics, because most customers will prefer to carry money rather than those other goods.
Not circular so much as multilateral. We all have agreed, as a society, that money will serve as an exchange and a store of value. Just like we have all agreed as a society that our language will serve as an exchange and a store of ideas.
This is correct, as I argued earlier. The problem is that most people confuse that with the incorrect notion that some things have intrinsic value, a set worth. Money’s value is a variable, just like any other barter good.
A drug dealer accepts money because it has value. The next question is, why does money have value? Which I’ve answered.
The requirement to pay taxes in US dollars is the “best” thing currently backing the dollar. You couldn’t, however, “begin” a currency like this, it would have to have evolved from a commodity based currency (like gold). Which is what happened.
Ah, that’s bad logic. You and Tom here are mixing multiple definitions of the word “value” together, in a way which is…dubious.
Money certainly does make things more efficient and easier all around, but that gives the concept MONEY (all caps, now) value to society as a whole. It doesn’t money (no caps) value, intrinsic or otherwise.
Personally, I’m inclined to agree with you, but the point is you can’t say difinitively that money does or doesn’t store value when reasonable minds disagree.
Why does the question ask about “American” money and then the question is really where does any currency get its value? I guess possibly Bush is behind the problem.
Is the requirement to pay taxes the only thing or the “best” among several things that backs the US dollar, and all similar currencies?
In post #27 you say:
In post #44 you say:
If the latter, what are the other things, how do they rank in “goodness”, and how do you evaluate them against each other to determine which is best? Without a way to evaluate and rank the dollar-backing power of things, anybody can claim that anything is the “best thing currently backing the dollar” and then dismiss all further arguments with “No, you are wrong. This one is the best.”
The value of money is based on collective belief. The majority of people believe money has value so it does. If people believe the Euro is worth more than the dollar, that collective belief makes those relative values true. When people stop believing that the Weimar mark or the Hungarian pengo or the Zimbabwean dollar had value, then the value of those currencies dropped.
Well, another thing backing the dollar is that the US court system will enforce debts, payable in US dollars.
It’s important to understand the history of money to really appreciate why we are at where are today. Money used to have an intrinsic value - people traded in actual coin-shaped pieces of gold. It then evolved in to paper that represented real gold stored in a bank vault. Then western goverments said “Hey, what do you reckon would happen if we removed the gold that is backing our currency, would that work? Then we can print all the money we like. We’ll then just re-inforce that taxes must be paid in US dollars. Would it work?”
“Dunno, try it”.
So they tried it, and yes it worked. People kept accepting money, mostly because it had become so entrenched in their psyche.
In some places, it failed badly, and people started bartering (like in Argentina, as well as being very common in modern day Zimbabwe). In fact, money has become so worthless in Zimbabwe, that you can jump on eBay and purchase a genuine $100 billion dollar Zimbawean bank note for about 15 US bucks. Here’s an example, just look at all those zeros!
OK, that’s a reason too. Why is the tax reason the best, instead of this one?
Why was gold valuable to people back then, besides it’s utility as a means of trade? Are you saying that people valued gold for its own sake and not for its ability to be traded for things they could use? What good would gold be to the average person, back in the day? You can’t eat it, it won’t keep you warm, a pile of gold that would purchase a house is far too small to live in.
I’m with you here.
But, you say the best thing backing money is the requirement to use money to pay taxes. Are you suggesting that the primary reason money becomes essentially worthless in situations like these is that people realize that their money is no longer useful for tax paying? I would have thought that the reason that money loses value and barter becomes prevalent in a hyperinflation scenario was a loss of confidence in its ability to pay for stuff you need to live, like food.
Well, I’ve taken some personal liberty by declaring the requirement to pay taxes in US dollars as the “best” thing that is backing it, because more US dollars are spent paying taxes than they are on any other legally required expenditure.
Not everyone needs to appreciate the intrinsic value of a commodity for it to have value. As long as enough people who are accessible to you place value on it, then you can use it for trade. For example, a Michael Jordan rookie card probably has no intrinsic value that you appreciate, but I bet you would accept it as trade, simply because you know that some people, who are accessible to you, will accept it as trade. You could also trade that card to someone else who doesn’t appreciate its intrinsic value, for the same reason you accepted it.
That’s correct. When times get very economically hard, and food/clothing/shelter become difficult to acquire, people place more value on securing food/clothing/shelter than they do on money. People would rather be paid in food than in money - very desperate circumstances. In these situations, money starts to lose its value. Some people will still need it to pay tax, but a lot of people won’t be working, or will be working for barter, hence, aren’t paying tax.
Of what value is an inch, a kilogram, an angstrom or a watt? None, except that they are universally agreed-upon ways of measuring something. If I buy a kilo of bananas, both the seller and I have agreed on a set amount of bananas.
Likewise with money. I know that if one seller offers me a kilo of bananas for one dollar and another offers me a kilo of bananas for $1.50, I have a point of reference which I can judge the “value” of both the seller and the bananas.
We could barter for the bananas – I could trade, say, 20 minutes of work for a kilo of bananas. But then what if the merchant decides my work was substandard, and I only deserve a half-kilo? Or what if I work very hard but the merchant gives me a kilo of rotten bananas?
The “value” of money is that we all agree on what it means, in terms of the price of products, the value of our labor and the debts which one owes another.
Nope. Those coin-sized pieces of gold had a value that changed from day to day and from place to place just like every other form of money ever devised. (Did a $20 gold eagle buy the same amount in every place and in every time? Obviously not. Therefore it couldn’t have had an intrinsic value.)
That’s where your argument falls completely apart.
Saying that gold ever held a real value, rather than an arbitrary agreed-upon value just like any other underlier, including faith in the economy, is a tenet of the goldbugs. But there is no evidence at all that backs it up. In fact, all the evidence we have for all of history is just the opposite. It’s the Creationism of economics. Not only it is wrong, it’s anti-thought because you can’t use it in any way to further your understanding of any other economic issue.
You can insist upon it if you choose, but you have to understand in advance that no one who is not already a True Believer will accept the notion. Everything we know about money says the opposite.
Side note on “legal tender for all debts” yada yada bit.
That’s much more limited as a legal principle than you might think. I don’t understand all the ramifications, but first and foremost, you don’t have to accept currency in any given denominition. You can’t force someplace to accept pennies by the ton just because you’re pissed at them. Likewise, if your contract says they owe you 100 pounds of bananas and they welch, you can take them to court to demand your bananas. Of course, the court may find they can’t give you the bananas and then fine them the value of the money, or revoke the contract, or something.
We need a lawyer to come in an explain this in more detail.
Forgive me if I’m wrong, you don’t seem to understand what intrinsic means.
Intrinsic doesn’t mean a fixed, unmoving value. It means the item itself has a value of its own accord (Eg people want food for what it is, so they can eat it. People want water for what it is, so they can drink it and wash in it). If something has no intrinsic value, it needs to be ascribed a value through artificial means (eg, money, carbon emission credits, etc).
