If that’s your definition (and I don’t agree with it but we’ll use it for the sake of argument here) then dollars have intrinsic value. Regardless of their physical properties, dollars are certainly something which many people think are valuable.
There is no question that gold started out as a luxury trade good, used for decorative or ornamental purposes, before it was transformed into money. Gold and silver coins go back to maybe 600 B.C.E.; gold was used decoratively for probably thousands of years before that, and I’m sure it was originally sought after and mined for ornamental use, or to trade to other people so they could use it for ornamental purposes.
Proposing this as a serious cite is laughable. I am not an economic historian, however, I have been a professional historical researcher, so I think I know something about how history is supposed to be documented and what constitutes a useful or persuasive cite.
This ain’t it.
I think you may want to think about taking up your own suggestion.
As MEBuckner has pointed out, gold was initially sort after for what it was - an ornamental/decorative metal. There was no government decree saying “you must value gold” or anything like that, people saw it, and wanted it for themselves. They didn’t want it for trading, there was no “agreement” that people will value gold. It started out merely as a wanted good amongst many others, that only those who personally wanted it would barter for.
Soon, people started accepting gold as barter because they knew that others were seeking it for personal use.
This crucial step when gold went from being a bartered commodity to being traded merely for it’s “retrading” value preceded any government attempt to start melting the stuff in to coins. People were already valuing gold as a commodity money well before any government came along and standardised it.
This crucial, important step - of a bartered commodity sort after for personal use ‘graduating’ to be accepted as a commodity money is not a process that fiat money ever went through.
Hence, any sentence that claims that paper money and gold have value “for the same reason, because people accept them as having value” totally ignores how they got that value in the first place.
Because people place more value on the euro.
That is the answer. But I can answer your other questions as well.
Because they think that a euro will get them more stuff. It’s not the money that’s ultimately important, it’s what you can buy with it. People value euros more than dollars because they think euros will get them more houses, more cars, more breakfast cereals, more gasoline, more rutabagas, more diet beer, more sex with prostitutes, more socks, more of everything. So the euro is worth more.
Why do people think the euro will get them more stuff? Because they lost some measure of confidence in American money. Why? Complex reasons. The overall demand for dollars compared to euros is nothing more the sum of every individual’s demand. So if you want perfect knowledge of why people value euros more than dollars, you’d have to get inside the head of every single person who has faced the trade-off between dollars and euros. That is an impossible task.
But we can make a reasonable guess: people value dollars less because the American economy was mismanaged, which caused people to lose confidence in the dollar.
Value is not determined by supply alone. It is determined by supply and demand. They work together, not separately. This is introductory economics. This is the introduction to introductory economics, the first week of class. The supply of something isn’t all encompassing. The price of anything is determined by the interaction between both “forces” of the market. If you don’t understand this point, then please speak up, because this is absolutely necessary to understand anything else.
You are mostly correct here, but this particular line is a little iffy. Mostly, it’s just the balance of interest rates, which is affected by government action, current inflation, cyclical economic conditions, and so on.
They go up and down a lot, and you also have to semi-understand that the “zero point” of different currencies differs. For example, you could say that The Yen is less valued than a dollar, but the Yen is also treated more like a penny. Different currencies work a little differently, sometimes for historical reasons. But there’s no good way of direct comparison, so it’s more useful to look at rise and falling exchange rates.
For example, the dollar is trending way up against the Euro, the British Pound, the Australian dollar, the Canadian dollar, and the Singapore dollar. But it’s declining against the Hong Kong dollar and the Chinese Yuan. And against some SouthAM currencies, the dollar is bounding around like a pinball (probably because fo the currency devaluations).
This is an important point that speaks to free markets that I want to expand on further. An object’s price is simply a way of conveying information about how people percieve the value of that object relative to other objects. Since you can’t get inside everyone’s head to figure out what they are willing to trade, a free market where people are able to buy or sell goods for whatever price they can get for them is the most efficient way of communicating percieved valu. It may not be the best method for making sure everyone’s needs are met but that is a different debate.
It’s not iffy in the slightest.
It’s a widely held opinion that interest rates were kept too low for too long, especially given the enormous budget deficits raked up under the current administration. Nobel Memorial Prize winner Paul Krugman (heh, my first chance to cite him after his reward) has long railed against both Alan Greenspan’s decisions as he chaired the Fed (which could be characterized as a deliberate attempt to boost the housing market to lessen the severity of the bursting dot-com bubble, which then resulted in an even worst bubble) and also his condonation of Bush’s fiscal policies which are, again, widely considered extremely poor. I’m not going to say I can prove any of this, but my original statement was correct: it is a very reasonable guess that the dollar fell as a direct result of poor decisions about the direction of the American economy.
One concept that hasn’t been explicitly mentioned is the “key good”. If we start with a barter economy, where you have to trade goats for eggs, but you don’t want eggs you want beads but the bead-seller wants clay pots, you’ve got a complex chain of transactions before you get what you really want.
Eventually some goods start to take on a special property. People don’t accept this good because they want that particular good, but because they know that this particular good is very easy to trade. And then all transactions can be considered in terms of this one good. You never trade your goats for eggs, you always trade your goats for cowrie shells. And then you take your cowrie shells over to the egg-seller, or the bead-seller, or the pot-seller, and trade your cowrie shells for the goods you want. Cowrie shells have become a key good. Everyone accepts cowrie shells in trade, not because everyone wants cowrie shells, but because they know that cowrie shells are easy to trade to anyone else.
And various goods have worked as key goods throughout history–whiskey, cattle, grain, cowrie shells, cigarettes, cacao beans…and bits of gold.
Turns out gold has lots of qualities that make it very useful as a key good, which have been explained earlier…divisibility, durability, permanence, and so on.
A key good is a good that takes on more and more properties of money. At first the good is only valued for itself, but as the good is used as a method of facilitating barter, it becomes more and more like money…not valued for itself, but valued as money. The ancient identification of gold with money is simply due to gold’s properties that make it such a useful key good, until the monetary uses of gold almost obliterate the original decorative uses. Even gold jewelry becomes valuable not so much because it is beautiful, but because it is a very literal method of wearing money, like a suit made out of 100 dollar bills.
But this doesn’t mean gold has an intrinsic value, any more than a cowrie shell or a cacao bean or a cow or a bushel of grain has intrinsic value. These goods only have value because people want them.
Paper money was originally just a reciept for a certain amount of precious metal…or a paper IOU for some other good or service. People accepted these IOUs as money for the same reason that they accepted gold ingots or cacao beans…even if they didn’t want the particular good or service for themselves, they knew that the IOU or gold ingot or cacao bean could be easily and transparently exchanged for the goods and services they did want. If I write out a coupon entitling you to one backrub, and started exchanging these backrub promises to other people for their goods and services, then I’ve created my own form of paper money. And that paper money is just as intrinsicly valueless as any Federal Reserve Note or string of numbers in a bank’s computer database. My backrub note only has value if people believe that I’ll eventually redeem that note for a backrub, if people think I’m likely to back out of the deal when they try to redeem the note, then they aren’t likely to accept my notes in exchange for their goods and services.
And so fiat money is created by various governments in exactly the same way that I created my backrub notes.
How do I put this…
As much as I admire Krugman’s theoretical work, he habitually makes up facts in his columns to support his political views. Neither group particularly was or was capable of “managing the American economy,” because even the Fed has very limited control. The current problems are only tangentially related to the Housing Bubble, in that they were exacerbated by it but were hardly caused by it.
On a more practical level, I’m saying that the state to which I responded assumed a lot, and is something which is highly debateable, and will be argued over for decades if it is ever decided at all. In other words, it is not suitable GQ material.
Finally, appealing to “common knowledge” in economics is a very bad idea, because the “widely considered whatever” in economics people subscribe to is inevitably biased, ignorant, and . That’s not you, by the by, it’s everyone. And in GQ, I can’t condone using it in an Econ question which has a very direct and more informative answer.
Okay, smiling bandit, I think I see now what you’re trying to say. I’m willing to agree that it was poor, obfuscatory phrasing on my part.
The underlying point I was attempting to make was thoroughly GQ, and not tangential, but I’ll withdrawal the statement as it currently stands, with my apologies for the confusion.