By Larry Marsh, Kansas City Star Midwest Voices columnist
Ever since we dropped the gold standard, our money has been based on the government’s promise to pay what? Nothing.
Without taxes, our money would have no value.
Money is essentially an IOU – some guy’s promise to pay you back some day. If you believe you will actually get paid back, then you might accept that promise.
Creating money puts unused resources to work (or causes inflation if there are no unused resources).
A farmer might give another farmer an IOU for corn so the second farmer can raise pigs. If that corn, to be paid back at harvest time, would otherwise sit idle, then the IOU is money being used to stimulate the economy.
Of course, a store of value is just one of several roles money can play. Medium of exchange and unit of account are others.
Banks followed the lead of individuals in creating money. They issued promissory notes often payable upon demand.
Individuals or banks issuing IOUs still feel they have ownership of the money even though other individuals or entities are actually using their money.
To the extent that the creditor would not have used that money during the period of the loan, the IOU increases the demand for goods and services in the economy.
Then governments got into the act of creating money. Initially they issued coins that had at least some intrinsic value, but soon backed their currencies with a promise to pay in gold or, in some cases, in silver.
Ultimately many governments abandoned the promise to pay in gold or silver, and, instead, created what is know to economists as “fiat” money.
Basically “fiat” money nominally has value just because the government says it does. In theory, “fiat” money should be worthless. After all, who is going to believe the government, or worse yet, the politicians who control the government.
The real reason that money has value is because you have to pay your taxes in money. Pay up or go to jail.
You will be glad to know that this is the time of year when you enable our money to have value.
Aren't you proud to be a taxpayer? ;-)
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You Are Confusing Things Larry...
Money as a "store of value" is ZERO except for its value as recycled paper. It's "value" is in the fact that people will take it as payment for goods and services. Take away this faith, and it reverts to its true value, zero.
Gold on the other hand is a physical commodity that has throughout history been accepted for goods and services. It has a true "store of value". Paper currencies, as you correctly noted in the case of Zimbabwe are subject to the politicians who cause people to lose faith in their government.
Tricky Dick...
Yea, I remember the day well. I was in California and he came on tv and started and I said to my wife, "he's going to take us off the gold standard".
That merely opened the floodgates to our politicians to depreciate our currency, which they have done in "splendid" fashion.
I read somewhere that the Chinese have actually been net sellers of our bonds this year. They know what is coming and want to get out in a nondisruptive way. After all, they have over a trillion dollars now and don't want to lose some percentage of that.
I don't know that we will resort to wheelbarrows, but we are going to have some major inflation IMO. The big 0 and buddies are either clueless to this, I don't think so, or think agenda trumps responsibility, I do think so.
store of value vs. medium of exchange
Question: Is there an economy where money has virtually zero value as a store of value but is still used as a medium of exchange?
Answer: Zimbabwe
BBC reported a while back that Zimbabwe's annual rate of inflation had surged to 2,200,000%.
Kcgrh
I agree with your comment that our government is depreciating our money, however Nixon took us off the gold standard. Many economists predict that our currency will go into a tailspin because, if foreigners stop buying our Treasury securities, we have no option but to print more money. That's where supply/demand kick in. I keep remembering pictures of 1930's Germany with people transporting their money to the grocery store in wheelbarrows. The liberals think Obama has everything under control, but they don't realize that the deficit will quadruple in two years. That money has to come from somewhere, and the Chinese are showing signs of pulling out.
Store of Value???
Larry,
You had it correct when you said "Basically “fiat” money nominally has value just because the government says it does".
It, fiat money, in fact has no value as contrasted to such barbaric relics as gold, which served a useful function in controlling governments, such as ours, to depreciate the currency, which they are doing now!
go big 0 and your Keynesian buddies....
Can I still get on the Midwest Voices blog
in prison? If I get to pick - I want to go to Gitmo.
911
You sound like one of those right wing extremist who isn't going to fit into the new socialist movement. Get with the program or find yourself an enenemy of the state.
LMAO
Thanks for a little sanity TWAS....yeah, I am so Patriotic I am bleeding....and just think we get to fund projects like Harkin put through, millions to find how why hogs smell!
As Mr. Biden says -
I feel really patriotic. I think my patriotism will be going up in a few years. I have sympathy for those folks that don't pay any taxes - they are missing out on a lot of patriotism. Come to think of it - those same folks that don't pay any taxes are a big chunk of voters that put a guy in the office who wants to increase taxes on the folks that DO pay taxes. Now that's real patriotism!
You conclusion is
You conclusion is ludicirous. I believe this has already been pointed out. Our money has no value because it is not backed by anything of value. If there is any value to the pretty green pieces of paper, it's because that is what I want from the fellow who wants to buy my washer and dryer that I listed on craigslist. How could you possible come to a more illogical conclusion?
Did the Kansas City Star cut editors amidst its reorganization? Your writing is terrible. It is not coherent (see paragraphs five through seven). Not to mention one sentence paragraphs should be used very minimally. Did you miss this during ninth grade English composition class?
Not only was your conclusion about the value of money utterly ridiculous, you were incapable of even communicating that with clarity.
Note to the KC Star editor: Your advertisers are not leaving because of the economy, they are leaving because you allow this doggerel to be published.