The Real Value Of Money

Have you ever wondered about money? That deosn't mean wondering where your money is going to come from or whether you will make it till the end of the month before the money runs out. What I mean is, where does money itself come from and where does it get it's value from.

Long ago coins had a real precious metal value. It's value was the metal it was made from and the stamp or image on it was just proof that it was the official weight and size. Some people cheated the system and cut little slivers from the edge of the coins to slowly build up enough to be worth selling which is why the milled edges became more usual on coins so that you could see if pieces had been removed from the edge and you would know it wasn't worth the full official value.

Back when the Romans were having a fine old time rampaging throughout Europe the gold and silver that they captured was returned to Rome and turned into coins which then could be used to pay their soldiers to continue with their rampaging and when the Spanish were shipping boatloads of gold back from South America they had so much gold that it caused problems for their economy. We don't often do that sort of thing anymore but what exactly is your £10 note worth, or your 20 Dollar bill or your 50 Euro note? You could change it for other smaller value notes or coins perhaps. You could use it to start a fire or maybe add it to your wormery as I'm sure the worms would enjoy nibbling their way through it. You could, of course, go and spend it but then why would anyone accept it has value when all it's worth is the cost of a firelighter or worm food? The famous phrase, "Money To Burn" is saying that banknotes are of little value to you because you have so many that they seem worthless but the reality is that they are indeed worthless.

The value of a banknote is in the trust placed in it by everybody. Your local corner shop will accept that note because they believe in it and have no reason to doubt that they, in turn, will be able to spend it so it's value comes from a trust and belief that others will accept it has a value and that that value will be the same to everyone.

There was a time it's true value was the equivalent value in gold. If the note said it was worth £1 then you could go to the Bank of England and exchange it for gold. English bank notes still state that "I promise to pay the bearer the sum of xy pounds." and it is signed by the chief cashier of the Bank of England.

It all sounds very safe and secure except the bank doesn't hold enough gold any more. The bankers/politicians/financial wizards, in their wisdom, came to the conclusion that since nobody ever bothered to claim their piece of gold that there was no need to keep all that gold available to exchange. Without this need for gold to exchange you could just print banknotes whenever you pleased with no restriction on the quantity other than the effect all this money sloshing about the system might have on the economy.
How much real money do any of us see these days?