Ladies, what’s with all the gold jewelry you’re wearing? Why did you spend time, energy and resources seeking to acquire it?
This is a psychological answer. All I can do is observe what I see -> people are valuing gold for what it is.
There’s only one thing you can do with money - give it to someone else. It has no intrinsic value.
Even Milton Friedman disagrees with you.
Gold being considered valuable is not an intrinsic quality. That it’s a “psychological” answer shows why - you need a brain there for it to be worth anything, and simply having people around doesn’t guarantee that they’ll value it.
I’d say the value of American money is in that people have chosen to value it, no more, no less. It, in and of itself, has very little value (depending on what its made of), but people are willing to treat it as though it has value, and so it does.
Which part of that do Friedman and I disagree?
Women want gold for personal use, ie jewelry. That is an intrinsic value of gold.
People also accept gold as payment for trade, because they know women want it for jewelry. That is an extrinsic value of gold.
This doesn’t explain why people are willing to treat otherwise worthless pieces of paper as having value.
But if your explanation suffices you, so be it. I’m with Jesus Harold Christ - “because that’s the way it is” is insufficient explanation for me.
I think we’re confusing the question of why money has value with the question of how that value is determined.
No. No one is forced to accept currency. Each participant may specify by contract how a debt is to be paid.
No, it isn’t. That gold is nice and shiny is intrinsic. That it also has a use in electronics because of some interesting chemical reactions is. That people value it for either is not; because it requires people. Before there were humans on the planet, gold was not wanted for jewellery. Before electricity, gold could not be valued for its anti-oxidisation qualities. In the future, perhaps it will no longer be valued for either of those things. Being wanted is not an intrinsic value of gold.
Yes, it does.
Before money, we had bartering. I keep chickens, you make some nice swords, and if we want what the other has then we can make a swap, eggs for a sword. But what if you don’t like eggs? You’d need to trade them to someone else, for something I would like, before you trade them to me. Or perhaps I might take them anyway, in the hope that I could trade them on - though I might not be able too. It’s very tricky. Thus, we have bartering with a commodity that everyone agrees to give value to - money - so that I can get what I want without having the very thing that you want, because instead I can give you something you’re guaranteed to be able to trade on. Because we have money, you can have eggs without going to the bother of finding out exactly what individual shop owners want in trade.
Ok. Reading this thread has gotten me completely confused about things I “knew” just a few hours ago 
I won’t even try to untagle it in my head, to jump in again.
But I do hope that Jesus Harold Christ has gotten closer to understanding why the Dollar has value
He’s saying, as I do, that it is wrong to claim that because someone wants an item therefore it has an intrinsic value. He says that the notion there is a fundamental difference between commodities and what I called tokens and he called credit money is false. The value of money lies in its value in barter. The source of its value is not meaningful.
You know, I had a good post detailing why your little story above how governments decided to use fiat money is inaccurate at best, and really just adds confusion, but the hamsters ate my post damnit, and I’m too damn lazy to try and recreate it.
The short answer is that people value gold as a medium of exchange because for whatever reason, that is what they agreed to. They know that when they have to buy or sell stuff, that if they don’t have the requisite amount of chickens or wheat, they know that they can use gold.
Paper money stems from letters of credit that stems from merchants (the early forms of banks) and from there from shipping merchants. Governments observed that these markets were behaving on what is essentially faith. Yes, these letters of credit were backed on gold, silver, lumber, agriculture, etc., but then they started to become backed by promises of new found wealth in the new country. Derivatives off of this then started and that was the prototype for fiat currency.
Paper money didn’t stem just from western countries. They’ve existed in form or another for some time now. It’s when government print a lot of it for whatever reason, like paying taxes, that it becomes inflationary, then hyper-inflationary then worthless. Governments allowed paper money because it was easier to trade for stuff than make it themselves, and it allowed them to finance their European excursions (wars).
People now a days use paper money purely on faith. They know that they can more efficiently exchange their goods and services with one another because someone will accept it. That’s it, pure and simple. If enough people stopped believing in it, then yes, society would collapse.
I simplified it for ease of understanding, the core concepts are solid.
Obviously the story of today’s money doesn’t begin with two dudes going “Hey, would this work?”… “Dunno”.
But the concept of removing the gold backing from money being a risky, untested proposition is true.
And just as the OP’s obvious frustrations are indicating, he wants to know what the “whatever reason” is.
Other than goldbugs, who thinks this is true?
Perhaps we are just disagreeing on terms.
I am saying that people value the intrinsic properties of gold, for the many reasons that you listed. If I start saying “people value gold’s intrinsic properties”, would you disagree with that?
Because that’s all I mean when I say gold has intrinsic value.
Ok, so you’re determined to believe that we all just “agreed” to give money, backed by nothing, a value, because it’s easier to trade with.
Can you give me the date that everyone agreed to this? Was there a vote of some kind?
Different dates for different countries. But it was when we left the Gold Standard.
Ah, then you’re right, I would agree with you on that.
It’s certainly backed by something now, and that’s our continued ability to trade. If you, tomorrow, decided you weren’t going to hold with money anymore, and instead you explained to all and sundry that from now on you were only willing to trade for and with gold, I suspect the day would not end with shops happily taking your gold off of you for food or anyone offering you gold for the job or services you provide. For one thing, we simply don’t have enough gold. For another, not everyone values gold to the extent of being happy to use it as the basis of a currency. And I am not “determined” to believe it; provide evidence otherwise, and i’ll be happy to look at it.
And no, I can give you no date, nor records of a vote. Why do you ask?
From wikipedia:
"Through much of the 20th Century until 1971, the US dollar was ‘backed’ by gold, but from 1934 only foreign holders of the notes could exchange them for metal.
Since 1971 the US dollar is not backed by anything. It is pure fiat money. The promise was quietly withdrawn and currency notes no longer carry that pledge. The same is true of all major currencies in the world today."
Ok, firstly, when economists talk about currencies being “backed” by something, the ability to trade with it doesn’t count.
Well I don’t disagree with any of that, this doesn’t explain why money has value, though, which is the point I keep returning to.
Because no such date exists, and no such vote took place.
Historically, the first widely accepted forms of money were gold, silver, salt in some places, etc. People did not “choose” or “agree” to use these as trade, they arose naturally through a series of positive feedback loops within a market, which almost always results in something (always a durable commodity that retains value when broken in to smaller portions) being accepted by everyone. The world over, it soon became gold and silver, which started getting fashioned in to coin-shapes for ease of counting, weighing and carrying… then to paper notes that represented the gold (or promises of land as mazinger_z has indicated)… then at some point, governments decided to back it with no commodity at all, and lo and behold, it worked (in most places).
There was no “agreement” or “decision” to start using paper or commodity-less money because it’s just darn easier than bartering. None, nada, zilch.
Of course they do. When they talk about something being “backed” by something, that something has to have the ability to be traded, otherwise it wouldn’t back anything. The gold standard relies on the idea that the gold itself is accessible and can be moved from one owner to another, otherwise it would have no worth.
Not formally, no. But at some point, people became willing to do it. They accepted it. They agreed to it. There’s certainly no big contract written up and signed by everyone, though, if that’s what you mean. I’m simply saying that people have accepted commodity-less money.
Yes it does. They’re either talking about the ability to trade goods and services in that country, or the ability of the government to accept the currency (for goods and services).
Are you using value in a way that other people are using it? Money has value because it is a form of a medium of exchange. Why? The same reason why gold became a standard.
Your next question probably is, (something to the effect): “Well, gold is at least tangible, and nothing is nothing.” People believe that they can trade goods and services for it. It’s intangible, but it’s not nothing. Put another way, government fiat is not nothing. It’s the honor and the word of the government backing it. Intangible yes. Nothing? No, it’s not.
The same with gold. What is your point?