Sunday, February 7, 2010

So..... what is a dollar? (repost)

In my never ending quest to warp young minds, I engaged a few of my students in discussion today. The subject.... 'what is money?'

No, this is not part of the program curriculum, but instead comes under the heading of 'life lessons'. I'd be remiss in my duties if I didn't at least offer them the chance to consider the matter. It's a safe bet no one else is going to. Certainly not in any 'institution of higher learning' I am aware of.

The concept of working for money came up, and it's one I whole heartedly endorse. That said.... an important part of the equation is usually left undefined. What is money? What exactly is it we get in exchange for our labors? What are we handing off across the counter when we buy a cup of coffee at the local shop?

Setting aside the morality of money and the evils of floating currency for the moment, I concentrated on the actual concept of money. There was one particular point I wanted to get across to my young charges. That being.... what we call 'cash' is simply paper, and has no intrinsic value of it's own.

Huh? Wha? Money has no value?!? Then why the heck can I buy stuff with it?

First, cash may be money, but money must not necessarily be cash. That said, lets look at cash. What gives that piece of paper value?

Put forth was a vague notion about a Federal Reserve... gold.... and some nebulous 'backing' for our cash. I dashed that myth, telling the boys there is no gold, and nothing backs our 'money' but an agreement that it's worth something. Nothing more than that..... and belief can be fleeting, and agreements can fade away.

I used an old trick on the boys, and one that usually sets thinking people back on their heels for a while. I laid a dollar bill on the desk, and asked them what it was. Responses varied. "A dollar", "Money", and my favorite "Mine if you don't watch it closely". I got the boys to agree that it was one dollar, and that it was money, and that it was cash... all at the same time.

Next, I tore a piece of paper to about the size of a dollar bill, and replaced the greenback with the blank paper. In the upper corner of the paper, I traced the number one with a marker. Telling the boys that this now represents the dollar bill... I had them look at it a moment. "One dollar, right boys?" Okay.... I added a '0' after the one, making it a ten. "Now what is it boys? Ten dollars, right?"

Sure............ "Okay... why is it now worth ten times more than when it had a mere '1' on it? Did the one hundredth of a gram of ink I put on make it worth ten times as much?"

Silence..... as I laid the one dollar bill back down, with a ten dollar bill next to it. "Ok boys, why is this bill worth ten times this other bill?" There is no gold behind it, there is nothing backing it.... what makes one worth ten times the other?

More stunned silence.

I reiterated; Our 'money' has value because we believe it does, and for no other reason. We all share the illusion of wealth that this green paper carries, but it could just as easily be rubles, or yen, or sea shells with holes drilled in them.

One boy... the smart one.... said "This should be a class of it's own".

It is, my boy, it is.


Ted Amadeus said...

The Constitution of the United States says the only legal tender for all debts public and private in this country, is silver and gold.
THAT is the standard...But then the altruists got into the government and discovered, if they stuck to the standard, they couldn't bribe people to re-elect them and flaunt wealth they didn't have to foreign tyrants.
So the paper dollar, the silvered copper and FedRes was born...
So was American authoritarianism!

TenMile said...

The lesson you taught is the lesson the State of CA is currently teaching its citizens - with almost the same means.

The Federal Government is either: 1) not paying attention, or: 2) going to do the same bill paying.