Christopher S. Penn – Marketing AI Keynote Speaker

Money is based only on faith

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Christopher S Penn

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Money is based only on faith

I had the terrific experience of speaking in front of high school students today, and the part that I think disturbed them most was the opening discussion about money and where it comes from. It’s unsettling to a lot of people to realize that money – currency – has no intrinsic value. Its value is entirely based on the faith you have in it and the government that’s backing it, as well as the faith of the vendors from who you buy stuff.

Once upon a time, money had backing and intrinsic value. You could redeem a United States dollar bill for a dollar’s worth of silver or gold, albeit a small amount, and thus the money had intrinsic value. Today, it’s only a medium of exchange, as there’s no store of value any longer. Your money is worth only what you think it’s worth, and more importantly, only what others think it is worth. Ask anyone in the currency exchange markets just what the worth of a dollar is relative to other currencies in the world.

At the end of the day, if there ever was a serious crisis of confidence in the US dollar, it wouldn’t matter whether you were a pauper or Bill Gates – your money would be worth the exact same amount – the paper it’s printed on. Ask anyone still alive who survived the Weimar Republic, when citizens burned Deutschmarks to keep warm, so low was their value. History was not kind to the Weimar Republic or what came after – a dictatorship led by a guy with a scrubby mustache who gave us a second World War.

Comments

6 responses to “Money is based only on faith”

  1. Steve Avatar
    Steve

    Even adults don’t get this concept. It’s always nice to watch the expression when you show them that the paper money in their wallet is backed only by the faith of the US government. It even says it is an I.O.U. right on the dollar.

    Thank goodness we don’t live in other times when things like butter, salt and rats were used for currency.

    Reply
  2. Steve Avatar
    Steve

    Even adults don’t get this concept. It’s always nice to watch the expression when you show them that the paper money in their wallet is backed only by the faith of the US government. It even says it is an I.O.U. right on the dollar.

    Thank goodness we don’t live in other times when things like butter, salt and rats were used for currency.

    Reply
  3. John Wall Avatar
    John Wall

    So perhaps the most important statement in the universe really is: “Don’t Panic!”

    Reply
  4. John Wall Avatar
    John Wall

    So perhaps the most important statement in the universe really is: “Don’t Panic!”

    Reply
  5. Thomas Avatar
    Thomas

    I completely agree with your first paragraph. It’s the second with which I have a problem. You say:

    “Once . . . money had backing and intrinsic value. You could redeem a United States dollar bill for a dollar’s worth of silver or gold, albeit a small amount, and thus the money had intrinsic value.”

    I would argue that nothing, absolutely nothing, has intrinsic value (I’m not discussing the value of people here). Any value an item has is only present when placed there by people.

    So, it doesn’t matter if we’re speaking of gold or dollars, the only value the item has is what you and I agree to place on it. When U.S. currency was backed by precious metals, it didn’t give the currency intrinsic value. Instead, it merely meant the government would exchange the currency for a certain amount of the precious metal. Only because the public placed a value on the precious metal did this have any meaning at all.

    As you say, the value of money is based only on what others think that value is, and this is true for everything. If Person A needed water and what Person B wanted was food, B would only take gold from A in exchange for water if B thought that others valued the gold enough to trade B food for the gold. B wouldn’t take the gold from A because the gold had any intrinsic value. Same with currency, whether backed by precious metals or not.

    Reply
  6. Thomas Avatar
    Thomas

    I completely agree with your first paragraph. It’s the second with which I have a problem. You say:

    “Once . . . money had backing and intrinsic value. You could redeem a United States dollar bill for a dollar’s worth of silver or gold, albeit a small amount, and thus the money had intrinsic value.”

    I would argue that nothing, absolutely nothing, has intrinsic value (I’m not discussing the value of people here). Any value an item has is only present when placed there by people.

    So, it doesn’t matter if we’re speaking of gold or dollars, the only value the item has is what you and I agree to place on it. When U.S. currency was backed by precious metals, it didn’t give the currency intrinsic value. Instead, it merely meant the government would exchange the currency for a certain amount of the precious metal. Only because the public placed a value on the precious metal did this have any meaning at all.

    As you say, the value of money is based only on what others think that value is, and this is true for everything. If Person A needed water and what Person B wanted was food, B would only take gold from A in exchange for water if B thought that others valued the gold enough to trade B food for the gold. B wouldn’t take the gold from A because the gold had any intrinsic value. Same with currency, whether backed by precious metals or not.

    Reply

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