I don't understand why we have money...???

Question

I was thinking about this the other day and I think I thought a bit too much because I've only gone and confused myself.
This is basically what went on in my head:
Where does money come from? Isn't just made in like money producing factories or whatever? If the government is short on money then why doesn't it just make money and use it? but then money would have no value to it would it? so basically what is the point of money, when money is made where does it go to? Please someone help me I'm really lost !
yes this is actually what went on in my head and no it's not a joke question in anyway.....

Answer 1

First of all, when people started trading for goods - i.e. they discovered that someone else was better at making something they were - they bartered to trade it. Joe had a good corn crop, but Sam made great baskets. Let's trade some corn for baskets.

Eventually, paper notes were traded as a promise to pay. Those paper notes eventually became currency.

if you think a country can just print more money when they need it, do some research on the recent history of Argentina. They did just that. And when you do that, there is this awful thing called INFLATION. Suddenly, your 50 cent gallon of milk costs you 20 dollars - because as more money is printed, it is WORTH LESS. printing more doens't mean that people GET MORE, it means the money they have is worth less, and it makes life even harder. You are probably too young to have felt the true impact of inflation. What Argentina went through was HYPERINFLATION, and it has ruined their economy.

Answer 2

How would you get your meat for dinner if you didn't have money?

Do you keep chickens, so that you could barter eggs? Do you grow wheat so that you could barter flour? And if you even had these things, would the beef rancher be willing to trade for what you have? Maybe he's overstocked on eggs, and only wants hay.

I'm thinking that you probably don't, so you barter your time for money, which you then trade for goods.

THAT is the point of money. It's a universal bartering tool.

When money is made, it goes to the bank. It stays in circulation until they release a new batch, and then they take an equivalent amount out of circulation. You're right in saying that if they just kept making more then it wouldn't have any value.

Answer 3

Money is a recognized, legal medium of exchange. Its main purpose is to keep people from having to barter goods and services with one another. Were you to have to buy a car with the goods or services you can produce, you would have to find someone who wants those goods/services then haggle over a set amount in trade for the car. Money removes that by setting a rate of compensation for your goods/services and then a set amount for those you wish to purchase (in this case, the car).

Governments have tried produceing money to get out of debt and you are correct, the money becomes worthless. It causes hyperinflation sometimes, so bad that workers will be paid several times a day because the money devalues so fast.

Money supply in the US is controlled by the Federal Reserve which replaces worn out money by pulling the old from banks and putting new money back into those banks to be disbursed to the public. At times, the money supply will grow or decrease to compensate for inflation/recession/new wealth creation. The moeny supply is becoming more and more electronic all the time and fiscal policy has changed to control inflation through credit availability (that's when the Fed raises or lowers interest rates) rather than actual, physical money supply.

Answer 4

Money is put there as a way for you to be able to provide services without using the bartering system.

Basically, you can exercise your skill and get currency, which in turn can be used freely by you to basically buy any services or objects you want at market price (in a capitalist society, or via a rationing allowance in communism).

Money also sets limitations on what you can and can't have. If you want something, you can buy it if you save, or find a way to make more money. Without money, you could just take as much of it as you want... but say, someone else got their first, took all of them because they didn't have the limits money sets, and no you can't have anything. It's a system that has been in place and has worked for over 3,000 years.

Answer 5

Basically without money, we'd have to buy things on an exchange basis and it'd be heavy! For example, you may have to exchange a cow for 5 chickens or a certain amount of gold for food.
The governments shouldn't print too much cash because it devalues the currency. That's what happens in many south American countries and then people want to be paid in stronger currencies like US $ or GBP because their national currency is too changeable.
If you read your money, it says that the bank of england (or wherever your currency is from) will exchange your note for the value of the note. The bank of england has reserves which could be distributed but if everyone cashed them in... probably not!

Answer 6

You hit on some important ideas, but it's not quite as bad as it sounds. The link below will explain it to you a lot better than I can. As long as only the government makes new money and only for the right reasons then the system works. Of course when counterfeiters make money for their own profit, the value of all money goes down.

Answer 7

I'm in a positon where money has to be accounted for day in day out, 'm 36yrs age, divorced with 4 boys, where their father has never been made to pay to pay not a penny in 10yrs, he lives the life of larry, while his 4 sons live a life ,of mum allways robbing peter to pay paul, living on the never, never, trying the best that you can. Be'ing very intelligent and well able to work and do a good job if the oppertunities were there, but when you've been out of full time work for a long time like me, it's all there in theory and not in practice, I would turn my hand to anything to earn a few pound and get out of the house, but while I try, and do the good job that I am doing anyway, bringing up 4 boys to the best of my ability, who are doing me proud, and will be of benefit to the community as good lads, I don't have money, this goverment has let me and my sons down, but we're still in there, we won't let our family, neighbours, friends down!!! Thats respect!!!

Answer 8

if we don't have "money", we would be wandering everyday to trade whatever we need. That means you might have to trade your cell phone, if you have one, for 1 week food. It's really inconvinient since actual value of materials differ by materials themselves and people's judgement.

This is why money system is convinient because the money itself can be used to buy almost anything. It's also convinient to have common value of something when trading between larger community such as between cities, countries, etc.

One of the cons for using money is that sometimes, values of materials might not make sense. For example, an electricity bill for a month, $400, doesn't mean it worths as same as two iPods. Both costs same, but sometimes you get more benefit on the same amount of money. Like i would turn all my eletronic equipment 24/7 or eat food instead of buying 2 iPods every month. i messed up explaning, hope you understood.

Answer 9

Money (paper bills) is made but is backed by gold and if more is made, the value will decrease and prices will go up (we'd end up like japan: $3 billion dollars for a cheeseburger). The reason we are in debt is because we have had to borrow money from other countries to buy defense equipment. In order to pay them back, we would have to pay them back in gold (the REAL international currency).

Answer 10

To greatly simplify the concept, a country has reserves, let's call it 'gold'. By the means of employment and savings and many other influences, some of that 'gold' actually belongs to you.

To save carting it around, you have tokens (money) that represent how much of that 'gold reserve' actually belongs to you. You gain or lose quantities of that 'gold' by paying for things or receiving salary which, for convenience, is represented by money.

Also, as this 'gold' has international value, it can be taken from you in ways such as taxation, and that 'gold' can be exchanged for goods and services from other countries.

Vastly simplified, but that is the general principle.