What Gives Money the Value it Possesses?
“The agreed upon capability that money possesses, which enables us to buy goods and services on its exchange gives money the value it has. ”
Value is a very relative aspect. A thing that is of value for you may be totally useless for your neighbor. A beautiful rose blooming in a field is completely useless for a farmer unless he is a lover of the exotic beauty that the rose possesses.Similar is the case with money. It does not have any fundamental or absolute value. However, in the past money could have been said to have some intrinsic value.
It is because the gold or silver coins that money consisted of were themselves made of precious metals that could be melted and sold in the market or used for other lucrative purposes.
Here you may again ask what made those metals precious? To be very honest, it will turn out to be a very lengthy discussion if I go into the intricacies of the subject. To make matters simple the answer is that it was the use of those metals (including the use defined by social customs) that made them precious.
The same case applied to money for many years when you could take your paper dollars to the government and they would provide you with equivalent amount of gold, calculated according to the prevailing exchange rate at that time. It is not possible these days.
So, you can say that our paper money is simple and pure paper these days that cannot be linked to gold except in the market.
Now suppose you have loads of money but nobody is interested in it. There are simply no takers for it! Would it have any value? No, absolutely not. Again suppose that the government prints currency notes in extreme excess so that ever body has them as per their wish.
Would money have value in such a case? No, it would simply be worthless. Just think why do people want to have money? The answer is that they want to buy things with it.
Therefore, the agreed upon capability that money possesses, which enables us to buy goods and services on its exchange gives money the value it has. Even if you are to get a sizeable amount of money after a decade or so, you would keep on working for it.
This mutual trust that these printed pieces of paper (or simply signals in cyberspace) will continue to buy goods and services for us gives value to money.
Author - DeeKay
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