What is money?
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Have you ever seen a coin that is made of totally blank, unmarked metal? All coins start like this, but at some point most get stamped or marked by a king, an emperor or a nation. Once stamped, these metal disks are suddenly transformed into money.
What’s going on here? The value of metal coins has little to do with the value of the metal in the coin itself – notoriously, it costs around two pennies to make a penny in the United States. But by stamping a number on it, the government can decide exactly how much it is worth. This system, where money is valuable just because the government says it is, is called fiat money. Today our money isn’t something inherently useful – like gold, salt or cigarettes. While these types of currencies consisting of items that are useful in themselves, called commodity money, have been used in the past, today almost all our money is something that would otherwise be useless.
We give money value by agreeing to use it and treat it as valuable. Otherwise,...
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