Why is money worth anything? Why are people excited when they win a million dollars? Whatever happened to penny candy, anyway? All of these questions are rooted in the same issue: the nature of modern money.
Money is anything that is used as a medium of exchange. In other words, money represents the value of stuff. Typically, the more money you have as an individual, the better off you are. Who doesn’t want more money?
But alas, that concept only works on an individual level. After all, money is just a way to trade with others. If everyone had a billion dollars, a billion dollars suddenly wouldn’t be able to purchase nearly as much as it originally would have — the more money everyone has, the less that money can buy.
But why? If a little money is valuable, wouldn’t a lot of money be extra valuable? Yes and no. Before we can completely understand this concept, we have to look at why money is valuable at all. As About Economics explains:
“Money doesn’t have any inherent value. It is simply pieces of paper or numbers in a ledger. A car has value because it can help you get where you need to go. Water has a value because it has a use; if you don’t drink enough of it you will die. Unless you enjoy looking at pictures of deceased national heroes, money has no more use than any other piece of paper.”
This means that money is just a tool. It helps us trade with others to get what we want. In the end, it’s all about the stuff money can buy, and not the actual money.
So remember, money doesn’t inherently have value… it represents value. It’s just paper that represents wealth that has to exist out there — stuff we want. Printing a hundred trillion new dollar bills wouldn’t make everyone richer, because the value that money represents would stay the same.
This is why when we say we’re “making money” we aren’t talking about literally printing dollars. Making money is about creating material value in some manner. Money is just a standard for representing that value.