This is s perfect place for me to ask this question. My child says, “hey, I understand we give people money and they give us food, clothes, games, etc., but how is it worth anything? What gives it its value?”
He’s 7.
I tried to say money represents labor or hard work, which he understands as having value. I tried to say something like, well when people had to look and forage for food all day, they didn’t need money. But then we invented farming, so other people had more time to do other things. So if the iron maker needed food and the farmer didn’t need iron what do they do?
I think I did a good job explaining the problem, but not answering the question. So, what gives money its value?
Thanks in advance. I’m in the US, but I think even in his young brain he wasn’t asking specifically about dollars, I think this is a more general question about currency. Like I don’t think this is about the gold standard or returning to it. I think it’s more about how a currency can get value along with a little answer to the reason why currency is necessary. Which is actually a pretty smart question. For a child.
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The value of money (fiat currency) comes from the power of the government to collect taxes.
Push come to shove, they can literally get a tank and some guns to take your farm if you don’t pay up. Incidentally, this is also why crypto is complete bullshit and basically just a drummed up kids game of exchanging colored paper. Don’t believe in crypto unless you can pay your taxes in crypto.
People saying money has no inherent value are somewhat wrong because of this. Value comes from ability to seize actual, physical assets, or trade them for other stuff. Among other things.
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