why is money so important when it is just paper that can be printed?
In: Economics
First off, it is very difficult to print money. The paper, the ink used, the design, the strips embedded are so difficult to replicate that people may end up spending more money on the attempt to do so than they print. But you probably don’t care about that. You’re asking why we give value to something that is potentially infinite provided we have the resources to print more of it.
The value of the US dollar is pinned to taxes. The US only accepts currency issued by the US in payment for taxes. Since people will always need to pay taxes, that money will always have value. Even when the US prints more, the value goes down, but it will always have *some* value because it is needed by people seeking to pay their taxes.
Other countries do it differently. They may pin the value of money to gold so that currency could always be exchanged for gold. This has advantages and disadvantages. It takes control of the value of currency out of their hands and places it in the gold market. Someone might feel safer storing their wealth in what are essentially gold vouchers since the value of gold has been historically stable, it may even go up. If some mountain of gold was discovered, or new super effective mining technique was invented, the price of gold would plummet and so would the savings of everyone who stored their wealth in that currency.
Pinning paper currency to tax obligations allows the US more control over the value of currency. They can cause inflation to happen at a steady rate, which is generally thought to be ideal since it incentives people to invest their money rather than hoard it where it’ll steadily loose value due to inflation.
Money is a placeholder of agreed value – before money was common, people would trade goods or services directly (I’ll give you a dozen eggs for 3 pounds of bacon” or whatever). However, that’s slightly inconvenient, because everyone will value their bacon and eggs slightly differently. The benefit of printed money as a universal system is that one dollar in a particular year is worth one dollar in that same year, so you can go up to someone and not have to worry about the fact that one of your pigs is a bit on the small side so you may need another. You can just spend some amount of money, and get something in return. It makes things very convenient – when the system works.
You can’t *just* print money, because of basic supply and demand: the more money there is, compared to how much there is to spend it on, the less that money is worth. In Venezuela, the … President’s? solution to economic trouble was to just print more money, so the inflation rate *in April* was about 4000% – if something cost 1 Venezuelan Currency today, next year (everything staying the same), that same thing would cost *40* Venezuelan Currency
I have a cow farm. You have a cotton farm. Jane sells wine.
You want a cow. I want wine. Jane wants cotton.
We can either all set up a bunch of different cow-to-wine, cotton-to-wine, wine-to-cow exchange rates. Or we can peg all of them to a specific unit, like a dollar.
Now you don’t need to worry about complex cotton-to-wine-to-cow transactions, you also don’t need to take a bunch of wine and hope that I will want it when you go to buy a cow.
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