What is the value of money?
Ask anyone this question and you will get a huge variety of answers. Ultimately it is a tough question with multiple layers to it. Let’s look at a few viewpoints on the matter. Firstly, you could say money’s value equals whatever it is able to purchase. This in turn would mean that money continues to lose value, since its purchasing power lessens each year (inflation). However, on the other hand, certain things get cheaper compared to money, meaning you can buy more of these things (increased supply). So if money's value decreases compared to some things and increases compared to others, how can we understand its value? It is hard to determine money’s value based on what it can buy, because that is ever changing.
Secondly, money’s value could be found in its utility. Which would be in its capacity to provide a median of exchange. In this case money does not have any value in and of itself, unlike the products and services it purchases. Instead money is merely a numerical representation of value.
Going a little deeper with this, we find multiple forms of money, known as currencies. So why do we have different kinds of money that put a number figure on the value of products and services? Why not have one numerical standard by which to value everything worldwide? The long answer would take volumes of books to articulate. The short answer is: governments require taxes to be paid in their form of currency, this causes the median of exchange in that country to be whatever must be used to pay taxes. We cannot pay our taxes with pesos, yen, or anything else, only in US dollars.
A government's use of its own currency is what changes the value of that currency compared to other currencies. This also could fill volumes of books (and has). Basically, how governments manage the median of exchange, or currency, affects its ability to represent value.
This gets complicated, because it is not just a number representing something, like the number of eggs in a carton. Instead it is putting an intangible figure onto a tangible item. Money turns this intangible representation of value into a tangible thing called currency. So each currency that is used (dollar, paso, yen, etc.) will have a different figure on the value of the eggs. This does not change the actual value of the eggs, it is merely represented differently.
Currencies may be better described as different languages of value, except for the fact that they can change in relation to one another. The different currencies that represent value all represent it differently based upon the supply of those currencies. Remember, money is creating a physical representation of an intangible idea. So if you increase the number of a currency representing a specific value it will take more of that currency to express that value.
For example, if there were ten cartons of eggs representing all the value there is, each carton of eggs would represent 10% of the money supply. Let's say the money supply was $100, each carton of eggs would cost $10. If we increased the money supply 10% to $110, and we still had the same number of egg cartons (so each of the egg cartons still represents 10% of all the value) each carton of eggs would now cost $11. This happens not because the egg carton is more valuable, but because its numerical representation changed. So if the amount of dollars increases 10% and the amount of pesos increases 20% and the supply of eggs stays the same, we can see how the value has not changed, but the numerical language representing value has changed.
However, if there are more or less cartons of eggs produced and the money supply stays the same, then value does change, while the language stays the same. So you can see how when the supply of currency increases, and the supply of products and services is constantly moving up and down, how complicated the idea of the value of money can get. Now we are into the black hole of the economics of supply and demand. When people need more of something they are willing to pay more for it, when there is an over supply of something, people will pay less for it. Individuals cumulatively send signals of what they are willing to pay for things, which tells the market what they want more of and less of supplied to them.
At the deepest level we can see that the invention, or maybe evolution, of money has been one of the most valuable developments to society and mankind. It is the cornerstone to capitalism and the foundation of trade and exchange. Money created a way for people to trade in fractional shares of value. So that if a person did not have the physical thing of what the other needed (like in a barter), they could just trade a representation of value for the physical thing. This is also what enabled mankind to get rid of the need for slavery. Instead of owning a person (or owning the labor they can produce), money made it possible for each person to own their own labor and sell their time for a numerical representation of value, that they could then use to purchase other things. It may have taken mankind a long time to catch on to the benefits of each person owning their own labor (a person's labor being part of their own private property), but it would not have happened at all if it were not for the invention of money as a means of exchange.
So, the value of money can be thought about in many different ways. Knowing what money is (a median of exchange that is a numerical representation of value), how it works (currencies, monetary policies, taxes), and how it can benefit society (Capitalism, commerce and exchange) starts to give us a glimpse of its true value.
6/21/24
Secondly, money’s value could be found in its utility. Which would be in its capacity to provide a median of exchange. In this case money does not have any value in and of itself, unlike the products and services it purchases. Instead money is merely a numerical representation of value.
Going a little deeper with this, we find multiple forms of money, known as currencies. So why do we have different kinds of money that put a number figure on the value of products and services? Why not have one numerical standard by which to value everything worldwide? The long answer would take volumes of books to articulate. The short answer is: governments require taxes to be paid in their form of currency, this causes the median of exchange in that country to be whatever must be used to pay taxes. We cannot pay our taxes with pesos, yen, or anything else, only in US dollars.
A government's use of its own currency is what changes the value of that currency compared to other currencies. This also could fill volumes of books (and has). Basically, how governments manage the median of exchange, or currency, affects its ability to represent value.
This gets complicated, because it is not just a number representing something, like the number of eggs in a carton. Instead it is putting an intangible figure onto a tangible item. Money turns this intangible representation of value into a tangible thing called currency. So each currency that is used (dollar, paso, yen, etc.) will have a different figure on the value of the eggs. This does not change the actual value of the eggs, it is merely represented differently.
Currencies may be better described as different languages of value, except for the fact that they can change in relation to one another. The different currencies that represent value all represent it differently based upon the supply of those currencies. Remember, money is creating a physical representation of an intangible idea. So if you increase the number of a currency representing a specific value it will take more of that currency to express that value.
For example, if there were ten cartons of eggs representing all the value there is, each carton of eggs would represent 10% of the money supply. Let's say the money supply was $100, each carton of eggs would cost $10. If we increased the money supply 10% to $110, and we still had the same number of egg cartons (so each of the egg cartons still represents 10% of all the value) each carton of eggs would now cost $11. This happens not because the egg carton is more valuable, but because its numerical representation changed. So if the amount of dollars increases 10% and the amount of pesos increases 20% and the supply of eggs stays the same, we can see how the value has not changed, but the numerical language representing value has changed.
However, if there are more or less cartons of eggs produced and the money supply stays the same, then value does change, while the language stays the same. So you can see how when the supply of currency increases, and the supply of products and services is constantly moving up and down, how complicated the idea of the value of money can get. Now we are into the black hole of the economics of supply and demand. When people need more of something they are willing to pay more for it, when there is an over supply of something, people will pay less for it. Individuals cumulatively send signals of what they are willing to pay for things, which tells the market what they want more of and less of supplied to them.
At the deepest level we can see that the invention, or maybe evolution, of money has been one of the most valuable developments to society and mankind. It is the cornerstone to capitalism and the foundation of trade and exchange. Money created a way for people to trade in fractional shares of value. So that if a person did not have the physical thing of what the other needed (like in a barter), they could just trade a representation of value for the physical thing. This is also what enabled mankind to get rid of the need for slavery. Instead of owning a person (or owning the labor they can produce), money made it possible for each person to own their own labor and sell their time for a numerical representation of value, that they could then use to purchase other things. It may have taken mankind a long time to catch on to the benefits of each person owning their own labor (a person's labor being part of their own private property), but it would not have happened at all if it were not for the invention of money as a means of exchange.
So, the value of money can be thought about in many different ways. Knowing what money is (a median of exchange that is a numerical representation of value), how it works (currencies, monetary policies, taxes), and how it can benefit society (Capitalism, commerce and exchange) starts to give us a glimpse of its true value.
6/21/24