Before the gold standard was dropped, it was relatively easy to understand where money got its value.
Money represented a certain proportion of gold in a country’s National Reserve. The money could be cashed in for gold, a very physical and tangible item. That all makes sense.
But we don’t use that anymore. So isn’t the money just paper? I don’t see how this system makes sense anymore.
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The US dollar has value because the us has never ever ever missed a payment on its debt the US basically has a perfect credit rating so we (for now) can print money with that credit that’s forever good. Unless we star missing payments which would fuck the economy
Money is, and has always been, an abstract representation of value that only has that power because enough people in society agree that it does. Even when it was backed by gold, this was still true–it’s not like gold is an inherently valuable object (other than maybe admiring how shiny it is, most people would have no use for gold if not for the fact that it’s widely agreed upon as an abstract representation of value).
The federal government will only accept USD to pay you taxes. You can’t pay in crypto or silver or pokemon cards. This create an inherent demand that set the dollar as a valuable thing to have. The rest is just what we agree the dollar is worth.
The money has value because people believe that it has value and it will continue to do so. This basically means people believe they can hold on to their dollars, and trade them in at a later date without worrying about losing too much value.
The moment people stop believing this, the money stops being valuable (so people would trade dollars for other currencies like euros, and the price of the dollar drops because everyone is selling).
The belief is all it takes to create the value. If enough people believe and trust that the systems reliable enough not to crash….then itll just keep the snowball rolling. The wealth is created by believin, if u believe theyll pay you back u can let more borrow then trust they will make payment that u can use to let even more borrow and make payments. And the only think everyone’s gotta do is keep the faith and dont stop believing (and trying not to think too hard about it just go with it and keep fingers crossed)
You’ll get some good answers, but try this thought on for size. When money was tied to a quantity of gold, what gave gold its value? What did gold do that was valuable? Why?
>Before the gold standard was dropped, it was relatively easy to understand where money got its value.
But where does gold gets its value? Gold has practical usage but it is quite limited. Gold primary is valuable because historically easy to shape and keeps its color and we like its look of it. But today when you can have other material that looks just like gold the primary value is because we think it has value. This is exactly the same as paper money.
The value of money is because we all agree it has value. That makes trading services and goods a lot simpler so it is a good idea for us all to agree on its value. Money is used because a barter system is quite impractical on a large scale so we use money as a token to make it simpler for everyone.
Now you’ve figured it out, or USD had no real meaning, it’s value is based on the fact that as a society, we agree it had value, but on paper there is no tangible thing to back up paper money’s worth
I think you need to see money as the equivalent of value of goods, not precious metals, and understand that commodities are the real root value of money.
Gold bars don’t pay interest. It’s value is arbitrary. But what about the industrial output if a nation? What about a stable, growing nation? What if you could own a piece of that nation and that nation’s growth, getting more of the nation as it grows?
Government Bonds are essentially this. If we take the dollar off of gold and back it by a promise of growth- a guarantee that you’ll get your money back along with some a percentage of that nations growth, then we have something that could be more valuable than gold- especially if new gold reserves are found and mined.
This all works well if the nation continues to grow. If it doesn’t, or finally hits a wall, well… here we are.
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