Jul
30
Currency has come a long way since its start in the fourth century BCE. We have arrived at a time and place where you can trade between three and four slips of intaglio-printed paper with the word “One” printed on them for a gallon of gasoline, between one and two thousand of them for a new mattress, tens of thousands of them for a new car, and, in some cases, hundreds of thousands of them for your very own legislator.
There’s something odd about money. Namely, that it has no intrinsic value. What gives it value is billions of people throughout the world agreeing that … well, that it has value.
The Sixth Cents
The total cost in labor and materials for producing one of those slips comes to just under six cents. Larger denominations are slightly more costly to produce because they require more security features. Counterfeiters, it seems, rarely bother with one-dollar bills.
In his book Sapiens: A brief history of mankind, author and historian Yuval Noah Harari refers to the agreed-upon value of money as a “shared myth,” which means pretty much the same thing as “agreed-upon value” but sounds decidedly more scholarly. Ayn Rand’s Atlas Shrugged, which contemporary politicians love to cite and, in so doing, reveal that they haven’t read it, describes the value agreement when Francisco d’Anconia responds to the “root of all evil” cliché with a pages-long diatribe. I shall excerpt only a few lines here (you’re welcome):
“When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others … Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor … Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle …”
Rand’s insertion of “…which should have been gold” bears mention. Rand and others who rue the abandonment of the gold standard seem to overlook that gold, too, has a no less tenuous agreed-upon value than printed paper. Its high agreed-upon value is not due to its utility as an electrical conductor but to its coveted position as the stuff of royalty and the rich.
Likewise, diamonds have little intrinsic value yet an abundance of agreed-upon value. For the most part, the only practical uses for diamonds are things like polishing, cutting, and drilling. Diamonds’ popular value is tied to their use in jewelry, a carefully controlled supply, the fairly recent expectation that an engagement ring requires a diamond, and the near elimination of used diamond markets thanks to two sentiments: One, that diamonds are heirlooms not to be sold but kept in the family; and, two, that a “used” diamond is a sign of a stingy, insufficiently smitten prospective groom (even though used diamonds don’t exactly show wear and tear).
So much for gold-backed currency
Though no country has gold-backed currency anymore, currency’s agreed-upon value remains. The danger is that not backing currency with gold leaves a country free to print money at will. Unfortunately, at one time or another most countries have. Rampant overindulgence of the money-printing privilege can be a factor leading to inflation and devaluation. On the other hand, FDR’s letting go of the gold standard helped the United States pull itself out of the Great Depression.
Stocks are the epitome of agreed-upon value. The more people want a stock, the more its price increases—even if the issuing company isn’t doing well. A more recent example of agreed-upon value is cybercurrency. Much like stocks, a cybercurrency’s value depends on how many people are willing to pay for it, and how much they’re willing to pay. The most famous cybercurrency, Bitcoin, needs no introduction, but right now coinmarketcap.com lists 1653 other, actively traded cybercurrencies. How hot are cybercurrencies? Writing for Smithsonian magazine, Clive Thomas cites the case of “… Billy Markus, a programmer who created a joke alt-coin called ‘Dogecoin,’ only to watch in horror as hucksters began actively bidding it up.”
Whether we’re talking dollars, stocks, cybercurrencies, or seashells, the fact remains that an unwritten social contract determines a currency’s value. Yet over the centuries, currency has proven itself a fairly solid house of cards. After all, we still use it. We likely will continue to do so long after we will have replaced paper and coin with ones and zeroes.