My high school Econ teacher said the only reason the dollar has value is because the Federal Reserve said so. His point being that it’s not backed by gold.
In addition, scarcity gives value to the dollar.
It has value because you need USD to pay your taxes.
Think about it this way: everyone who lives or does business in the US assumes some level of tax liability that can only be settled by handing over USD.
Imagine you locked a whole bunch of people in a room, brought in a goon squad to guard the door, and held up a bunch of poker chips, telling everyone that they had to give you a poker chip to leave the room. They'd be tripping over each other to earn poker chips!
That's a good ballpark for a high school kid. Also, I'm glad that a libertarian got into teaching instead of the usual commie trash. (His lingo makes it as clear as a Ron Paul tattoo.)
On a deeper level, it isn't a traditional fiat currency: we're operating on what is often termed the 'petro-dollar' system. Long story short, if you want to buy commodities from the world, you want to do it in dollars. This is usually most evident with the oil market and we get particularly frisky if the relationship between our currency and oil gets threatened (hence the name). This is why we can print money with abandon without hyperinflation, btw. All that money we print ends up overseas, being used to buy up those commodities.
So, while it's a good way to explain the system as a primer without confusing basic economic principles, in reality it's very different. Abundance is actually what gives the dollar a lot of value, but only internationally. The Fed orders money from the Treasury and hands it out, but their affect on value is limited to interest rates (btw they have done nothing but lower the value of our money since their inception): the people proclaiming value in this situation are the US government as well as governments worldwide who rely on the dollar to purchase goods. Our currency is backed by no single commodity, making all this fairly untenable in the long term like all fiat currencies. Just remember: historically the "long term" could mean a couple hundred years, so long as bread and circuses stay off the public books.
(Full disclosure: I am probably a bigger gold bug than your teacher was, but I love everyone being fully informed almost as much as I love gold.)
Also who the hell knows when automation takes over. Back in the 80s AI was gonna take over everything, in the 90s they thought all software would be developed solely in India, the 2010s was the decade of self-driving-cars-are-just-around-the-corner. The future will get here but we have no idea when, and capitalism is highly effective at dealing with the details.
Also because it has ingrained itself as the defacto medium of exchange on a societal level.
In relative terms everyone understands the value of $1, $100, $1000. They know what they can purchase with those denominations, they know that everyone is willing to accept them, and so they are willing to accept them as well.
If you try to buy something with gold or silver, most people are not familiar enough with those to be confident in their value for trade. They have no idea how to determine if they are genuine/counterfeit, and they also have low confidence that they could use them to exchange for something else immediately afterwards, Even though both have high values.
The idea of gold tends to be better than the reality. It’s fine in small amounts, but the minute you want to start storing lots of value, you run into problems involving security, storage, transportation, etc. (Bitcoin is ingenious in these areas)
I’d also say money could be considered a good, if you take into account time preference.
What is a loan? It’s basically the amount you are willing to pay (in interest) to have money right now. You are obtaining the money now, in exchange for paying more of it back later.
People don't understand how or why currency has value. They hear that it's printed off by the government, and it confuses them.
My high school Econ teacher said the only reason the dollar has value is because the Federal Reserve said so. His point being that it’s not backed by gold. In addition, scarcity gives value to the dollar.
Am I in the ballpark?
It has value because you need USD to pay your taxes.
Think about it this way: everyone who lives or does business in the US assumes some level of tax liability that can only be settled by handing over USD.
Imagine you locked a whole bunch of people in a room, brought in a goon squad to guard the door, and held up a bunch of poker chips, telling everyone that they had to give you a poker chip to leave the room. They'd be tripping over each other to earn poker chips!
Brilliant.
This is also a partial answer to the question of why governments need to collect taxes if they can print money.
That's a good ballpark for a high school kid. Also, I'm glad that a libertarian got into teaching instead of the usual commie trash. (His lingo makes it as clear as a Ron Paul tattoo.)
On a deeper level, it isn't a traditional fiat currency: we're operating on what is often termed the 'petro-dollar' system. Long story short, if you want to buy commodities from the world, you want to do it in dollars. This is usually most evident with the oil market and we get particularly frisky if the relationship between our currency and oil gets threatened (hence the name). This is why we can print money with abandon without hyperinflation, btw. All that money we print ends up overseas, being used to buy up those commodities.
So, while it's a good way to explain the system as a primer without confusing basic economic principles, in reality it's very different. Abundance is actually what gives the dollar a lot of value, but only internationally. The Fed orders money from the Treasury and hands it out, but their affect on value is limited to interest rates (btw they have done nothing but lower the value of our money since their inception): the people proclaiming value in this situation are the US government as well as governments worldwide who rely on the dollar to purchase goods. Our currency is backed by no single commodity, making all this fairly untenable in the long term like all fiat currencies. Just remember: historically the "long term" could mean a couple hundred years, so long as bread and circuses stay off the public books.
(Full disclosure: I am probably a bigger gold bug than your teacher was, but I love everyone being fully informed almost as much as I love gold.)
Also who the hell knows when automation takes over. Back in the 80s AI was gonna take over everything, in the 90s they thought all software would be developed solely in India, the 2010s was the decade of self-driving-cars-are-just-around-the-corner. The future will get here but we have no idea when, and capitalism is highly effective at dealing with the details.
Also because it has ingrained itself as the defacto medium of exchange on a societal level.
In relative terms everyone understands the value of $1, $100, $1000. They know what they can purchase with those denominations, they know that everyone is willing to accept them, and so they are willing to accept them as well.
If you try to buy something with gold or silver, most people are not familiar enough with those to be confident in their value for trade. They have no idea how to determine if they are genuine/counterfeit, and they also have low confidence that they could use them to exchange for something else immediately afterwards, Even though both have high values.
Money is just a medium of exchange.
The idea of gold tends to be better than the reality. It’s fine in small amounts, but the minute you want to start storing lots of value, you run into problems involving security, storage, transportation, etc. (Bitcoin is ingenious in these areas)
I’d also say money could be considered a good, if you take into account time preference.
What is a loan? It’s basically the amount you are willing to pay (in interest) to have money right now. You are obtaining the money now, in exchange for paying more of it back later.