You said, in reference to money that isn’t backed by a commodity:
“It’s certainly backed by something now, and that’s our continued ability to trade”.
If money is only backed by its ability to be traded, it doesn’t count as being “backed” by something.
Yes, but do you think “because we accept it as having value” is a satisfactory answer to someone who wants to know why society values pieces of paper?
Certain not to me, nor Jesus Harold Christ.
I can see why gold has value. People want it for its intrinsic properties.
I don’t see people wanting money for its intrinsic properties.
The OP didn’t ask “Why does gold have value?”. He can see why gold has value. He can see the uses people are putting it to.
In fact in that instance I wasn’t claiming ability to be traded, but ability to trade at all as being the backing. But you are correct; that does not count as “backing” as economists use it. I was using the non-economic term meaning that it is required for something to work.
Yes. That’s the reason. That’s why the gold standard works, too; because people accept gold as having value.
For entirely different reasons that people accept money as having value.
CalD, I’m confused by your posts. You quote the date when American currency stopped being backed by gold and then in your next post claim that no such date exists.
Keep in mind that we were off the gold standard before we got on it. American currency was originally fiat currency when it was established. It was put on the gold standard in 1873. And then taken back off in 1934 (or 1971 depending on how you look at it). Even if you go by the later date, it’s been 37 years since our money was on the gold standard - you can hardly claim it’s an untested idea at this point.
Incorrect. Gold is valued by people because it has value for people; either because they like to wear it or use it themselves, or because they can trade it to other people who want it. Money certainly has no use in and of itself along the lines of wearing, but certainly it has the worth of being a tradeable substance.
Yes, I can say without reservation that crazy people that espouse paranoid fantasies are crazy.
No, for exactly the same reasons. People have formed a collective opinion that gold has a certain value. They’ve done the same for dollars. The fact that some people may not agree with the consensus doesn’t mean that those values don’t exist. You can indivudally hold the opinion that gold is just a rock or dollars are just pieces of paper. But in finances, the majority rules. As long as people believe gold and/or dollars have value, they do.
This doesn’t, in the slightest, satisfy a curious mind who can see as plainly as the bright blue sky why gold has value, but not otherwise worthless bits of green and white paper.
Wrong.
Gold got its trading value off the back of its intrinsic value.
Money has no intrinsic value, hence, got its trading value some other way.
Hence, people do not accept the value of gold for the same reason they accept the value of money.
Something that seems different about gold or silver is that it is truly a limited supply. There is only so much of it in the world. If we could just make more gold it would be worth as much. With money as much as we want can be printed if we choose. We cannot make more gold.
I am not sure this means anything.
And what I really don’t understand is why the value flucuates apart from supply. Why does the health of the economy affect the value of money?
Why is a Euro worth more than a dollar? Please don’t say because the place more value on the Euro. Why do they place more value on the Euro? Why might the dollar become more valued if the relative supplies remain the same?
But not all people valued gold for what you call its intrinsic value. Not all people who were happy to have their money backed by the gold standard did so because they put value in how nice and shiny it was, or indeed any use for it. While some certainly did so, many others valued it because it was valuable to other people. The same reason people now value money.
Your argument presupposes that each and every single person who traded money backed by gold did so because of what you refer to as the intrinsic value of gold. That isn’t the case.
It’s not circular reasoning, or at least not a fallacious example of it.
It’s a description of a self-sustaining, self-dependent feedback loop
People started accepting gold in trade because they knew other people who valued gold for its intrinsic properties.
Commodity-less money has no properties of intrinsic value. Hence, the reason people started accepting commodity-less money as trade could not possibly be the same reason people started accepting gold as trade.
I think it might be helpful to consider it this way:
Given that the dollar and the Euro are at present not exactly equivalent, what would we have to do to make it so?
We would have to control such things as prices of commercial goods, prices of raw materials, taxes, import levies, wages, energy costs, etc, at a global scale. We don’t do that at present and even if we tried, local variables would still mess it up.
So the Euro is not equivalent to the dollar because it would be very difficult to make that happen, and also, we haven’t tried.
Gold is constantly being mined. There are also huge stores of gold that do not trade (such as Fort Knox). If the government were to start selling that gold in large quantities as jewelry, the price of gold would drop.
Gold and dollars behave like any other item that is traded; when there is more of them in the market, the value drops.
Because the price of a dollar, like the price of anything else, varies not just according to supply but also according to demand. In a booming economy, for instance, there is typically more demand for dollars (new business investment, higher salaries, more goods to buy, etc.) than in soft economic times.
And for its convenience as a medium of exchange. Without this element, all you’re describing is barter.
Ok, the fact that you’re missing, and that no one has said directly, is that money has value because it gets work done. It motivates people. Think of a scenario where two people agree that “I’ll watch your kid this Saturday if you watch mine next week.” They exchange labor. Now imagine that one guy says “I don’t need someone to watch him next weekend, but how about an unspecified time in the future?” Now you’ve got a debt, an I.O.U., that’s good for one kid-sitting. But suppose we take it a step further and say “Well I don’t have a kid, but I do need some candle sticks.” and the candlestick maker has a kid that needs watched. Repeat this until you’ve got a community that’s trading labor for candles for beef for corn for houses for blacksmithing, etc. How will you keep track of who owes who, and how much they’ve contributed to societ?
Money. How much is money worth? If one hour of kidwatching is traded for 3 ears of corn, we say they’re equal. But it’s even easier if you just use a system that you can relate every good and service to. It’s easier to say that 3 ears of corn is worth $1 and an hour of kidwatching is too. So why do we say things about trust being important? Because the dollar that you just traded your hour of service for is only good to you if you can get 3 ears of corn later on. If not, you’re screwed.
So wouldn’t it make sense to have something that’s guaranteed to be able to be traded later? Enter the gov’t, who can make laws that guarantee it, thus the “legal tender for all debts public and private” printed on your dollar bills.
Got it? So to answer your OP, money is a receipt people carry around showing that they worked and others owe them for it.
I could be wrong, but I believe real estate is the bulwark of the economy and has long ago replaced gold. When the price of real estate goes up, it really means the value of the dollar has gone down. When the price of real estate drops it means the value of the dollar has risen and less dollars are required to buy oil/gasoline etc.
We spend more on real estate than trasnportation, furnishings or food. Through ownership, rent, workplace accomadation and public facilities. The economy can collapse, but we will all be driven by the need to acquire or dispose of real estate through a medium of exchange.
Remember that money represents labor? Think of the Euro not in terms of paper or digits, but in terms of European labor owed to someone. If you get a euro, someone in europe owes you some work. If it’s a Yen, that labor ultimately comes from Japan. Americans don’t make Mitsubishis or Toyotas or Hyundais. Asians don’t make MS Office or iPods. Do you see why you might want to trade currencies? Oh sure, it looks like you’re buying those foreign goods with good ole American greenbacks but it’s actually being converted to the foreign currency. If Americans make good stuff that the world wants, they’ll need to get more US dollars. That means the $'s value goes up.
Questions?