What gives money its value?

Part of How Money Works – FAQ

What gives money its value?

No, not gold. Gold, by itself used to be useless as a metal, too soft to use for anything, but it was rare, and so it made for a good, tough-to-counterfeit coin. It had no real, intrinsic value. In fact, money is what gave gold its value in the first place! 

Money is no longer made out of gold, it shouldn’t be. Money should never be made out of something of value, because to do so devalues the true underlying value of what money represents.

Money’s value actually comes from the underlying population that uses it and the population ability to do things and make things. It’s not a “fake belief that it has value” that some people like to claim, it has real value.

Let me explain.

Since people’s time is a valuable resource (a service) just like the things they make (goods), there needs to be a way to keep track of those “goods and services” (a term we’ve all heard in our economics class) – so that these goods and services can be traded among the people. This trading of goods and services of the people is what makes an economy.

That’s where the concept of money comes in. It’s simply a way of keeping score. 

It’s what money is, a scorekeeper. Nothing more and nothing less. 

In old England tally sticks were used as money. They put notches on the sticks to keep track of everything and those notches were matched with notches on other sticks to prevent counterfeiting.

So, money’s value comes from the fact that people can trade it for goods and services. The value does not come from anything else which is why it should have no intrinsic value.