the value of money...?

Question

as we all know, money/cash is a piece of paper. but what gives a dollar its $1 value and a 10-dollar bill its $10 value?! aren't they made of the same material?!

:~)

Answer 1

The value of money is based on the "confidence" people have in the money. It is all psychological.

Answer 2

This is a good queston, but unfortunately it's one that needs a bit of a history lesson (I know, I know...).

Early Times: Commodity Money

Money first started out as commodity money, which is money that is a commodity or a good in its own right and has intrinsic value (eg. gold/silver/copper coins). Of course, because this is both cash and a good, the materials the cash is made from, people would smelt their coins if the material was worth more smelted (i.e. if gold coins were worth more as just gold that had a particular weight, people would smelt their coins to gold and sell their gold for gold coins).

Advancements in Money Valuation: The Gold Standard.

Though this didnt' necessarily happen after commodity money, it was the standard that countries abided by for qquite some time on an international scale. Each country was to retain a certain amount of gold bullion in the national reserves. Cash became paper and it effectively became a certificate that claimed the owner owned the proportionate amount of cash to gold (i.e. if you owned 10% of the currency's cash, you would own 10% of the national reserve's gold bullion).

That meant that if you tried to artificially create money without increasing the value of the economy ro the national reserves, printing more money would still mean that the cash is worth as much as the national reserves. If the economy had $10 worth of cash and $10 worth of gold, then printing $90 worth of cash does not change the fact that the total amount of cash ($100) still represents $10 worth of gold.

Today's System: Fiat Money

Fiat money isn't real money; it's money given value and legitimacy by government decree. Though part of the value of the currency is derived from the confidence in the currency's home economy's performance, the supply of money also determines what a dollar is worth. Since the gold standard is no longer used, fiat money represents the confidence of the dollar's continuing legitimacy, purchasing power and store of value, as well as demand and supply movements in the foreign exchange markets, as well as the supply of the dollar.

Quantity Thoery of Money

If there is more of a good [supply], it will be worth [price] less. The same is true for money. If there is more cash printed, that cash still represents the productive capacity and output of the currency's home economy so, like above, printing more money means that you are devaluing the dollar.

I hope this helps.

Answer 3

everything is measured in dollars. If the US treasury says a piece of paper is worth ten of them then we accept this. As far as measuring it, a lot of it has to do with how much is in circulation. The reason our currency is losing value is that there is an abundance of it in circulation. Money does the same as anything we know as supply and demand. The less there is, the more value it has.

Answer 4

Most thing are paid for with checks of credit cards, and what makes people accept them for goods is the same reason they accept money. It is the believe that at some future time they will be able to exchange your payment for goods that they want. So your 1 and 10 bills are primarily just covenant counters of your financial dealing with the world.

Answer 5

The value of ANYTHING is whatever people believe it to be. That's in a nutshell.
And here's the nutcracker - Happy Thanksgiving!