OpenStudy (anonymous):

How do we know our current money has value?

3 years ago
OpenStudy (jim_thompson5910):

In my mind, value is a subjective thing. For one person, stamps may be valuable and they may collect them, but to another person, stamps are worthless and boring. Money in itself is intrinsically worthless. The coins/bills themselves have no use all on their own. However, it's the fact that you can trade coins/bills for other valuable, needed, or desired things that make money very useful. Let's say person A has an apple and person B has a boat. We'll also add in that person A is well fed and doesn't need the apple, but would love to have the boat. At the same time, person B is starving and needs the apple. Person B could care less about the boat. Assuming both parties don't just steal what they want/need, they would naturally trade to get what they want and need. Person A would get the boat and give up the apple to person B. Both parties would be much more happier with this trade so it is very likely to happen. Simple trading like this was done a lot in the past and it is known as the barter system. In the example above, no money is needed to execute that trade. However, life is much more complicated and our needs don't perfectly align like that. With more people added to the picture, and more things to desire, it gets harder to pull off the barter system. It's still doable, but its complexity grows immensely. The reason why it gets more difficult is that you have to keep track of what everyone wants and needs and somehow find the right people to trade with. You may trade with 5 to 10 people to really get what you want. To avoid this very tangled barter system web, you can go to an intermediate item to trade. Let's say this item is seashells (which were used in some cultures in the past). Instead of dealing with a ton of people to get the 1 item you want, you can go directly to the person who has that item and give them the proper number of seashells. Assuming everyone trusts in the value of seashells, the person would take the seashells and then use them to get what s/he wants. This would happen for everyone which further adds value to the currency. Notice how the currency only has power if the vast majority accepts and trusts it. If you have only one or two people trusting it, while others do not, then the currency is virtually worthless. It's only valuable to the one or two people. So to sum things up, money is just a very abstract thing to allow for direct and simpler trades. It's only valuable if the vast majority believes and trusts in it.

3 years ago
OpenStudy (anonymous):

If people accept it

2 years ago
OpenStudy (anonymous):

in exchange for goods and services*

2 years ago
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