Why does America money have value

[smiling_bandit]

@cainxinth

That’s not entirely correct:

Money - Wikipedia

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.

@CalD

And employees accept money because they know they can use it?

And businesses accept employee money because they know they can use it?

You’ve returned to the realm of circular reasoning.

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.

[Tom_Tildrum]

@smiling_bandit

Money has no value and never did.

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.

@CalD

And employees accept money because they know they can use it?

And businesses accept employee money because they know they can use it?

You’ve returned to the realm of circular reasoning.

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.

[Exapno_Mapcase]

@Tom_Tildrum

This is too strong a statement. Among other things, money has value because it lowers transaction costs.

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.

[CalD]

@Furious_Marmot

So if we don’t pay taxes, then we don’t have to value money? How does that work? How would I buy food or shelter without it? Why would a drug dealer accept money, considering that he does not pay any taxes on his illegal trade?

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.

[CalD]

@Exapno_Mapcase

Either I have to carry around a large variety of items that people might want or I have to find a series of middlemen to trade with to get that item. It’s much better to have a form of middle barter, a standard trade item that everybody will take because they know that they can trade it off to anyone. We call that middle barter item “money.”

Money does not get its value from being a more convenient way to trade goods compared to bartering.

[smiling_bandit]

@Exapno_Mapcase

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.

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.

[CalD]

@mazinger_z

Not really. Your comment on Zimbabwe proves the point (against that thing with the taxes). Smiling Bandit is still mostly correct. Money is an medium of exchange. Others may value it for different reasons, but the fundamental fact is that it used so that Person A can exchange goods and services with Person B. In proto-civilizations/economies, people used money, they just didn’t call it such. It wasn’t currency either, be it rocks, shells, flowers, wheat, salt, gold, etc. Whatever it was, it behaves as currency does today (to an extent as such conditions permitted at the time).

This doesn’t answer why money has value.

[cainxinth]

@smiling_bandit

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.

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.

[kniz]

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.

[Furious_Marmot]

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:

@CalD

But with only a (somewhat shaky) requirement that people “must” pay their taxes in US dollars backing the currency, the American dollar has powered on ever since.

In post #44 you say:

[QUOTE=CalD]
The requirement to pay taxes in US dollars is the “best” thing currently backing the dollar.
[/QUOTE]

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.”

[Little_Nemo]

Maybe I am stupid, but non of this makes sense to me. Money has value because the government says it must be accepted for payment. But the government does not back it with anything. Why do worthless pieces have value? Why supply affect the value if the demand is just based belief of value? What causes people to believe a Euro is worth more than a dollar today,but tomorrow the dollar.might be worth more?

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.

[CalD]

@Furious_Marmot

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.”

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!

[Furious_Marmot]

[QUOTE=CalD]
Well, another thing backing the dollar is that the US court system will enforce debts, payable in US dollars.
[/QUOTE]

OK, that’s a reason too. Why is the tax reason the best, instead of this one?

[QUOTE=CalD]

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.
[/QUOTE]

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.

[QUOTE=CalD]

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.

[/QUOTE]

I’m with you here.

[QUOTE=CalD]

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!
[/QUOTE]

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.

[CalD]

@Furious_Marmot

OK, that’s a reason too. Why is the tax reason the best, instead of this one?

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.

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.

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.

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.

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.

[Kent_Clark]

Another way of looking at it…

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.

[Elendil_s_Heir]

@cainxinth

That’s not entirely correct:

Money - Wikipedia…

Bolding mine.

No, it isn’t. There’s no bolding at all! :dubious:

Nice link for the Zimbabwean $100 billion (!) note, CalD. =Whew!=

[Exapno_Mapcase]

@CalD

Money used to have an intrinsic value - people traded in actual coin-shaped pieces of gold.

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.

[smiling_bandit]

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.

[CalD]

@Exapno_Mapcase

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.

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).

[Furious_Marmot]

@CalD

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).

What intrinsically valuable quality does gold have?