Video transcript
- [Voiceover] Let's take a look at a United States one dollar bill. What is it that gives this thing value? You can give it to people and get back, ya know food that you caneat, or things that you can use, and things of hard value. But what is it about thislittle piece of paper that makes it valuable? Or I guess it's not paper, as it's cotton, something like that, right? But the questions stands, right, like what makes this flimsy littlething, that doesn't seem to have any use init's own right, valuable? Well, one kind of interesting exercise is to step back in time a little bit and take a look at whatthe very, very first United States dollars looked liked. So I have here one of thevery first that was printed, and let's zoom in on it and kind of read some of the words associated with it. So if we zoom in, let's justsay towards the very top here. Notice that it says silver certificate, silver certificate up at the top. So what does that mean? Well, if we zoom outa little bit, it says, it says that this certifiesthat there has been deposited in the treasury ofthe United States of America and then the sentence kind of continues in an awkward way below,one silver dollar payable to the bearer on demand. So what that means, what thisdollar originally represented was the fact that youwere gonna be able to turn in this bill for a silver dollar. This piece of paper intheory, could be turned in to the United Statestreasury, which guaranteed that it had in itsdeposits a silver dollar, an actual piece ofsilver, and I'll show what one of those looked like in just a moment, It would return to you for this bill. So in a sense what gave itvalue was this guarantee that you could turn itinto silver if you wanted. So this way you could tradethis with other people as if it were a piece ofsilver, 'cause if you gave it to someone that person, nowbeing the bearer on demand, could then in theory, turn this in and get a silver dollar as a result. And the reason for evenhaving this paper money, and printing these billsis that it was pretty inconvenient to always lugaround actual pieces of silver, and actual pieces of metal. And this would beespecially true in the case of even higher amounts. So for example, here wehave a 10,000 dollar bill. Something you don't really see too often. And if we zoom in andkind of see the guarantees that are written on this guy,it's actually very similar, but its this is insteadin gold instead of silver. It says that $10,000 in goldare payable to the bearer on demand, as authorized by law. So kind of legally backing upthe idea that this could be turned in for $10,000 worth of gold. So that way people couldactually treat this as if it was, ya know $10,000 worthof gold, without having to lug around that much money. So what is it that you actuallygot when you turned in, ya know for one silver dollaror something like that. What is it that was payable on demand? Well you have, what'sanother form of money, what you can use incommerce and kind of trade with people as a medium of exchange. Officially United Statesmoney, but the difference is that the piece of moneyitself, is the valuable metal. It actually is the silver,so in theory if you ya know, didn't trust the UnitedStates Government anymore, you could melt it downfor just the pure silver and maybe other countriesstill value that silver. And similarly there wasgold coins like this that people would use. Like this right here is a gold coin worth two and a half dollars. So, this is somethingwhere the value is held within it because presumablypeople value gold, and even if this didn'thave a fancy you know, United States symbol all stamped onto it, it would be somethingvaluable, because it's gold. And this kind of money,this ya know gold coins or these silver coins hasa special kind of name. It's called commodity money. Let's see, commodity money. And basically what thismeans is that the thing that you're using formoney, the thing that you're trading around, has somevalue in it's own right. Even if it wasn't money, it would still be something valuable. This word here, commodity,basically means just anything valuable, itcould not only be ya know silver or gold, but thingslike food or furniture or livestock. These are commodities. And you know you couldargue that silver and gold aren't valuable otherthan the fact that people just like using them for trading. I mean they're kind of prettyand useful for jewelry, and there's someelectronics that use them, but on the whole, themain reason that people value silver and gold is becausethey're used for trading. It's kind of becauseother people value them. So it's a little bitweird that these are the quintessential examplesof commodity money, when in fact othercommodities ya know like wheat or oranges feel muchmore real, hard valuable, something you can use in its own right, than the pieces of metal. But never the less, theseare, these are commodities. And the other form ofmoney here, where you have something that you could intheory exchange to a bank, and then the bank would return to you, ya know the actual silverthat it represents, the commodity that it represents, ya know in this case silver. These are called commodity-backed money. Commodity-backed. Because their value is beingbacked up by the value of whatever commodity they represent. Another term that youmight hear for them is representative money,because they are representing another good, representative. In this case, silver or gold. But in the early days of money,like thousands of years ago, you would have representativemoney like the shekel, which represented acertain weight of barley. So it doesn't just haveto be silver or gold, sometimes you have moneythat represents a different sort of commodity, socommodity-backed, representative. This is the kind of oldstyle United States, or other countries money. A lot of people hadcommodity-backed money. But in modern terms, it's common not to have either of those. You can just have this billthat's not backed up by silver. You could not turn this inand get silver as a result. And this, this is termed fiat money. Fiat money. And this word fiat kind of means a decree or a declaration, so it'slike the United States Government has declaredthat this is money. And just by declaring that it's money, presumably that gives its value. So it kind of feels muchmore hollow in comparison to commodity money, orcommodity backed money. But there's a couple, a couplehard things backing this up. One of them, if we kind of zoom in on some of the words here. If you go you see that it saysthis note is legal tender. So here, I'll write that down. This note is legal tender forall debts public and private. And I talked about theidea of legal tender in the last video andhow that actually ya know gives a little bit of cloutto this being valuable as long as you trust that the government will enforce it's laws,as it claims that it will. But for the most part, whatmakes this stuff valuable is the fact that otherpeople trust it, right? The reason that you valuehaving a dollar bill is because you know youcan give it to most people and they are willing to tradeyou valuable things for it. And at the end of the day,that's what was making, ya know silver dollars or these $10,000 ya know gold notes valuable. 'Cause almost no one would actually trade it in for the silver,'cause why would you? It's just as good, and it's a little bit more convenient to justtrade around the bill itself. So once that's actually inthe psychology of a society, and once everyone kindof is used to the idea of trading around this paperrepresentative money in order to get things ofvalue, it's not actually a huge leap to just have thepaper that you're trading around as long as everyone else trusts it. And it still servesthose functions of money that I talked about in previous videos. It's a medium of exchange,and you can store this for value, right? The paper's not going todegrade, it's something you can store, and itdoes give a unit of value. Assigning a number tovarious goods out there. But it is, it is justsomething that was declared, it's not an actual hard good, and this is kind of animportant distinction to recognize is that fiatmoney really does mean it's just trusted, it'sjust taken on faith that people will find this valuable. But for that matter, that's also true of silver and gold, right? Like, it's just taken onfaith that if you melted down the silver other peoplewould find that valuable. And same goes for gold,and in fact in some, ya know even though alot of western cultures valued gold a lot, therewere other cultures that they might find like in Asia, that didn't value gold in the same way. And just thought why is everyone getting all up in a fuss about this fancy metal? So this idea of havingmoney that we use basically because we trust that otherswill find it valuable, isn't actually that absurd,and as long as it serves the same three basic functions of money, you can have a working society. Ya know barring thingslike hyperinflation, that makes it so that it no longer serves those functions of money. See you next video!
