Dearest reader, it has occurred to me recently that most people, or you personally, don’t really know what money is, or that they/you/we don’t really think about its meaning and the significance or insignificance that comes with it.
I will talk about the U.S. dollar currency because I use this type of currency most often and it seems to have the most importance of any currency in the world, as the rest of the currencies compare to the value of a U.S. dollar. In any case, what I will have to say will apply to all currencies since they are all money.
Most people don’t know what the U.S. dollar is backed by. Heck, most people don’t even know what “backed by” means. To me, “backed by” is a phrase meaning that I can exchange the paper, or coin, currency for something more stable in terms of its value. That is why the U.S. dollar was backed by gold because the value of gold is more stable than the paper, linen, ink and the security features that the dollars were made.
The U.S. dollar is not backed by gold anymore. That was news of the last century. It is backed by something called “faith”. The reason that the dollar is not backed by gold but by faith is because that gold is finite and so limited that if everyone were to exchange their dollars for gold the United States of America would be bankrupt. Since we all know that population growth is exponential and gold doesn’t grow, as to my knowledge, we can just imagine the consequences of using gold as the back up. Thus to solve this problem, the U.S. government essentially said that the dollar will be backed by faith.
Why faith, and what of it? Faith is just how much we believe in the trade system. For example, if I gave you a $20 bill you would be glad because you can use that $20 bill to buy something that is worth about $20 in value. But if I gave you a sheet of paper that said “$20″ you would not be able to trade with it because other people are not going to accept that “$20″ paper that I wrote.
So essentially money is worth nothing and everything at the same time. Actually its worth depends on time. Right now the U.S. dollar is not worth as much as in previous years because the U.S. economy is tanking. But so is almost every other economies of the world. So relative to the past, the dollar is worth less but relative to other countries, I would say, the value has changed little because every few countries are actually doing well economically.
When people on TV, on the radio, in the newspapers report the economy is so bad they are only half right. The result of all this negative news will have a negative mental impact on the viewers, listeners, and readers. The situation will not change unless we think the opposite.
So how do you/me/we are going to fix the economy? Remember my previous post from a week ago about Mr. Bruce Padian? I’ll let you connect the dots and meanwhile I’ll leave you with a story.
A few days ago, as of this writing, I gave a framed photograph of mine that was worth $675 in an upscale local art gallery in 2007 to one of my dear neighbors. My mom was thoroughly upset but I was very content.
The framed photograph has been in my room for the last year and half, collecting dust with the rest of my photographs. But during my solo photography exhibition at the gallery, my neighbor said that particular photograph is his favorite one. This tells me that to him this photograph is worth more than it is to me, because if I valued the photograph I would have hang it up on the living room wall.
If my mom valued more of my photographs, she wouldn’t have taken down my photographs in the living room and replaced them with oil paintings of an unknown artist.
I also believe that my photograph will have a positive impact for him not just materialistically, but also mentally, since he likes it best among all of my photographs.
Not to mention I received a dinner invitation from him and his wife at a nice Japanese restaurant.
I hope this post can do some good and I hope someone can comment on my blog, and especially to this post, with similar stories. So far I’ve receive 4 spam comments that were blocked by WordPress and 0 real comments. Please show me some love, I am a real person.
Hiatt, I think this is a very interesting observation that you’ve made here about “value” in general and its link to our particular socio-economic reality. Value, unfortunately, always seems to be backed by faith to some extent even when we say we have faith in the value of gold. The question that remains, for me, is: can anything become “valuable” if we convince enough people to believe in it? If so, how do we trace the relationship between that which is valued over that which is un-valuable as part of a matrix of power relations? Remember the term “derivative trading” that has been coming up a lot in discussions of the great financial collapse? Or Madoff? Everything seems to become increasingly less and less real. $20 bills?! What’s more common: paper money or immaterial transactions (i.e. credit/debit cards)? If it’s all a question of believing and dreaming-up value, why do we still do it? And if capitalism seems to erase more and more of the material, what is the horizon of “money”?
I’ll leave you with a quote of Octavio Paz:
“El dinero es el gran prestidigitador
evapora todo lo que toca:
tu sangre y tu sudor,
tu lágrima y tu idea.
El dinero te vuelve ninguno.
Entre todos construimos
el palacio del dinero:
el gran cero.”
Money is the great trickster
evaporating all it touches:
your blood and your sweat,
your tear and your idea.
Money turns you into no one.
Together we all build
the palace of money:
the great zero.
Yo Omar, Thanks for the reply! You are the first to comment of my blog.
I just gave your reply value, a lot of it, because I just simply acknowledged your question of “can anything become ‘valuable’ if we convince enough people to believe in it?”
In it’s theoretical level I think everything has some value, but the amount we assign to things is different. Like your value for love of you girlfriend compare to your value of eating mushrooms. And if you think about it we give value to everything we see. We discriminate, not just racially, but also objectively so that we recognize things to be different and this causes you to favor one thing over another.
So if I think everything is valuable then your second question of “how do we trace the relationship between that which is valued over that which is un-valuable as part of a matrix of power relations?” would contain very little to me that it is almost irrelevant. But I’ll entertain the question anyways.
First, I don’t know what “derivative trading” is. I just think that it’s a jargon for whatever Wall Street did for the country to end up in this state. So I guess I have a negative feeling about derivative trading, like some kind of trick done by a bad magician.
Secondly, why do people still believe in money when it seems less real? That’s the time problem that I mentioned. The value of money seemed less than before but it really stayed relatively the same when compared across the board at this time.
As to why people still believe in money then try this experiment if you want: tear up a $20 bill, or $1, $5, $10, $50, or $100 bills and see if you can exchange the bigger halve at a bank of your choice. By law, banks can give you a fresh $20 bill, or whatever amount you tore, if you have more than 51% of the bill. But I bet the teller will look at you really strange if you asked them to give you a brand new, off-the-press, $20 bill when you hand them a tore, old, at least 51% of $20 bill. Also imagine if a lot of people did that at the same time at all the banks, that’ll be a financial collapse in it’s most fundamental form.
Thirdly, I think immaterial transactions, I think, are more common than paper money if you are talking about the average amount of each transaction. Think of a stock market, all the money are virtual and gets traded at a central point. But if you are talking about the amount of transactions then I think paper wons because there are more countries that don’t have stock markets and also just for the simple fact that people still like to use cash than credit when buying things, United States might be an exception where credit cards provide virtual money for the ease of transaction.
And finally, Omar my friend, no need to panic because the “horizon of money” is always flat. That is to say that money must be reminded as a concept of exchanging two goods or services. What really matters is the morality behind money. This is why Madoff is looked upon as the number one thief right now when he was considered as one of the greatest financiers of the century not long ago.
I hope this is of some help to you. I could have written more but it’ll be more of another article than a response to a comment. My apologies for wordiness.
Cool Hiatt, are you familiar with the Austrian School of Economics? You sound a little bit like Heyak!
I’m not familiar with any schools of economics except the Department of Economics at the University of Rochester where I received two straight C’s in both of my economic classes. I think the C’s stand for “Cool, and Cooler.”