Where does money come from?

[caddmannq]

Every year there is more and more money in the world. Where does it all come from?

I see a lot of misunderstanding about this concept, from young and old alike. They think of money like some kind of magic: "If the government wants money, it just prints more money! Then they give it out to people for things." This is pure BS. Printing money doesn't increase the supply of money at all. More bills in circulation just means each one is worth a bit less. The total value didn't increase.

Money comes from work. Human labor. We produce more money by working.

Work = money. Period. This is how it works:

Say your fence is broken. You go out and fix it. That's work.
In the process, you've just increased the value of your house (or maybe someone else's house if you rent it!) If your house was worth $50,000 with the broken fence, it might now be worth $50,100 with a good fence.

You just created that extra $100 of value by working. It didn't exist before, but now it does.

You just created that $100 out of thin air (by work) just as surely as if you'd printed it on a printing press yourself!

Money isn't some governmental magic. YOU LITERALLY MAKE IT.

And it's made from work.

[Epidemic]

Where I get confused is if the government Froze all prices where they are right now. Then gave 100,000,000$ to every person out there with the stipulation that you have to give the same output as before at the same work. Would you not be 100,000,000 dollars richer. With prices frozen would you not buy a new car for 20,000$.

Oh yea with this scenario we have to close the borders completely.

Scenario 2

if the government prints up a trillion dollars to buy goods and services. This trillion dollars goes into the economy making people have money who did not before. When does it lose value. You have to have inflation for it to devalue. I get so confused.

I mean even gold as a standard or diamonds is simply stupid. How did useless materials become valuable. Gold you cant eat it, You cant make tools with it. It has no value to stone age man. how do you suddenly say I will give you a goat for this shiny thing that has no use.

[Mortis]

My very crude understanding of how money works

Money' value is determined by how much is in circulation and directly representative/equated with the amount of gold in reserves. For whatever reason, Gold is the commodity/exchange that is the root foundation/representation of wealth/value.

Crude explanation as I understand it using simple numbers- if the US has 100 dollars worth of gold in Reserve, then it will print 100 one dollar bills. Each bill is worth 100 cents. Should the US arbitrarily print 1000 one dollar bills, then a DollarBill is worth 10 cents because there is still only 100 dollars worth of gold. Money is printed every X amount of years based on the amount in Circulation to try and keep a balanced amount.

Hope this makes sense.

Mortis

EDIT: I think all countries do this. The exchage rates are determined by the differences in number values. Ex- US goes by 100 cents for each dollar, Canada goes by X for each of their dollars... Europe- Etc... In Europe, they created the Unitary Monetary value that exists there. There was effort to Get the US involved in this, but for whatever reason- we didnt.


EDIT- ACK! My Information is OLD information. Wonder what else I have learned that is now much out of date

The dinosaurs are still around, right?

[jman01pa]

1816: The Gold Standard
Gold was officially made the standard of value in England in 1816. At this time, guidelines were made to allow for a non-inflationary production of standard banknotes which represented a certain amount of gold. Banknotes had been used in England and Europe for several hundred years before this time, but their worth had never been tied directly to gold. In the United States, the Gold Standard Act was officialy enacted in 1900, which helped lead to the establishment of a central bank.

1930: End of the Gold Standard
The massive Depression of the 1930's, felt worldwide, marked the beginning of the end of the gold standard. In the United States, the gold standard was revised and the price of gold was devalued. This was the first step in ending the relationship altogether. The British and international gold standards soon ended as well, and the complexities of international monetary regulation began.

More here

http://www.pbs.org/newshour/on2/money/history.html

[caddmannq]

Originally posted by Epidemic
...if the government Froze all prices where they are right now. Then gave 100,000,000$ to every person out there with the stipulation that you have to give the same output as before at the same work. Would you not be 100,000,000 dollars richer. With prices frozen would you not buy a new car for 20,000$.

if the government prints up a trillion dollars to buy goods and services. This trillion dollars goes into the economy making people have money who did not before. When does it lose value. You have to have inflation for it to devalue. I get so confused.

I mean even gold as a standard or diamonds is simply stupid. How did useless materials become valuable...

The fallacy here is that the government can freeze prices. They can only set the "official" price. Don't forget supply & demand. There's only so much stuff to go around, unless we build more. But you can't build stuff as fast as you can just print bills.

With that much money in circulation, and a finite ammount of goods and services, you will get a situation where so many people go out and buy a new Corvette, that there are no more available. Then people start selling them on the black market at highly inflated prices. Pretty soon that car costs $500,000 instead of $50,000. That's inflation. A Corvette is still a Corvette, but now $500,000 only has the purchasing power of $50,000.

Aside from industrial uses like computers or abrasives, gold, diamonds, etc. have a low value. They, like paper money, only represent a quantity of work performed, and are only used for the purpose of easy barter.

[vass0922]

Yep, our currency is no longer backed by gold or anything else really.. We trust the government that this one dollar bill is really worth one dollar.
Epidemic - if you could go out and dig up a pile of diamonds out of your back yard and just put them in a pile next to your neighbors pile of diamonds.. because you wanted to plant a bush or something. Now everybody in this country has a pile of diamonds intheir back yard...
Do you think diamonds would still have the value they do today?
Things have a value because they are scarce. It is not easy to come by. You can't just go out in your back yard (typically!) dig some up and go shopping.
Currency is the same way.. if there is too much in circulation it loses value. it is not as scarce anymore.

There is a picture of a german boy right after WWII is it?
He literally has a WHOLE wheelbarrow full of MONEY!!
He's just walking down the road with it..
Nobody cares... because its worth NOTHING.
If everybody had millions of dollars... it maybe everybody has millions of dollars, but don't you think people would increase the prices of everything since everybody can afford more? Hence a million dollars would be worth crap...

[fosin]

Gold...shmold...

They should make coins out of Athlon XPs

(dare I say...there's something worth their weight in gold)

[Epidemic]

Scarce is the reason that diamonds are worth alot. First off diamonds are as plentiful as ruby's and emralds and jade. The problem with diamonds is they are metered out by the de beirs or what ever their name is. So ultimately scarce.

But scarce seems like an odd reason for value.. Lightning striking me is scarce, buffalo crap is scarce in the states, smart people are scarce. Why do the smart dudes always have trouble getting the chicks. Thugs are a dime a dozen and they are valued hehe.

Again if I need to eat as a stone age person why will you take gold for a cow that has take you years to grow and protect. It blows my mind.

I don't value gold except for the value it holds in peoples mind. But I wonder where it got the value. Who was the first idiot who gave up his bow and arrow for a lump of gold. I understand the barter system it makes sense. I also know that money is alot more flexble than barter. After all I only want a steak not the whole cow.

But for gold and gems to be the standard of wealth is freaky.

I asked my wife why she likes diamonds. Why not zerc's she basically said that it is a symbol of status. But unless you look through a loop you cant tell real from memorex.

So why I asked again??? No answer.

maybe there is some sort of genetic switch in women that make them want sparkly things. and women are the root of all monitary value. I will marry you if you give me a diamond (sparkly thing)

[caddmannq]

Some things have an artificial value, independant of the actual work they require. It's based on the work they represent.

Women like diamonds because of the huge amount of YOUR work it represents when you buy one for them.

[cadetstimp]

Most money is congoured (sp) up electronically by Bank Loans.

The main thing limiting how much money Banks can "create" via loans is by the amount of Checkable deposits the Bank holds. ...So the more money people or businesses can hold in the Bank in checkable deposits....the more money the FED will allow Banks to "create" (or have to lend out) for loans.

To strenghen the economy .. now is a good time to borrow borrow borrow for investments!