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 can eat, or things that you

can use, and things of hard value.

But what is it about this little 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 little thing, that doesn't

seem to have any use in it's own right, valuable?

Well, one kind of interesting exercise is

to step back in time a little bit

and take a look at what the very, very first

United States dollars looked liked.

So I have here one of the very 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 just say 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 out a little bit, it says,

it says that this certifies that there has been

deposited in the treasury of the 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 this dollar originally represented

was the fact that you were gonna be able to

turn in this bill for a silver dollar.

This piece of paper in theory, could be turned in

to the United States treasury, which guaranteed

that it had in its deposits a silver dollar,

an actual piece of silver, 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 it value was this guarantee

that you could turn it into silver if you wanted.

So this way you could trade this with other people

as if it were a piece of silver, 'cause if you gave

it to someone that person, now being the bearer on demand,

could then in theory, turn this in

and get a silver dollar as a result.

And the reason for even having this paper money,

and printing these bills is that it was pretty

inconvenient to always lug around actual pieces of silver,

and actual pieces of metal.

And this would be especially true in the case

of even higher amounts.

So for example, here we have a 10,000 dollar bill.

Something you don't really see too often.

And if we zoom in and kind of see the guarantees

that are written on this guy, it's actually very similar,

but its this is instead in gold instead of silver.

It says that $10,000 in gold are payable to the bearer

on demand, as authorized by law.

So kind of legally backing up the idea that this could be

turned in for $10,000 worth of gold.

So that way people could actually treat this as if it was,

ya know $10,000 worth of gold, without having

to lug around that much money.

So what is it that you actually got when you turned in,

ya know for one silver dollar or something like that.

What is it that was payable on demand?

Well you have, what's another form of money,

what you can use in commerce and kind of trade

with people as a medium of exchange.

Officially United States money, but the difference is

that the piece of money itself, is the valuable metal.

It actually is the silver, so in theory if you ya know,

didn't trust the United States Government anymore,

you could melt it down for just the pure silver

and maybe other countries still value that silver.

And similarly there was gold coins like this

that people would use.

Like this right here is a gold coin

worth two and a half dollars.

So, this is something where the value is held

within it because presumably people value gold,

and even if this didn't have a fancy you know,

United States symbol all stamped onto it,

it would be something valuable, because it's gold.

And this kind of money, this ya know gold coins

or these silver coins has a special kind of name.

It's called commodity money.

Let's see, commodity money.

And basically what this means is that the thing

that you're using for money, the thing that you're

trading around, has some value 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, it could not only be ya know

silver or gold, but things like food or furniture

or livestock.

These are commodities.

And you know you could argue that silver and gold

aren't valuable other than the fact that people

just like using them for trading.

I mean they're kind of pretty and useful for jewelry,

and there's some electronics that use them,

but on the whole, the main reason that people

value silver and gold is because they're used for trading.

It's kind of because other people value them.

So it's a little bit weird that these are the

quintessential examples of commodity money,

when in fact other commodities ya know like wheat

or oranges feel much more real, hard valuable,

something you can use in its own right,

than the pieces of metal.

But never the less, these are, these are commodities.

And the other form of money here, where you have

something that you could in theory exchange to a bank,

and then the bank would return to you,

ya know the actual silver that 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 being backed up by the value of

whatever commodity they represent.

Another term that you might 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 representative money like the shekel,

which represented a certain weight of barley.

So it doesn't just have to be silver or gold,

sometimes you have money that represents a different

sort of commodity, so commodity-backed, representative.

This is the kind of old style United States,

or other countries money.

A lot of people had commodity-backed money.

But in modern terms, it's common

not to have either of those.

You can just have this bill that's not backed up by silver.

You could not turn this in and 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's like the United States

Government has declared that this is money.

And just by declaring that it's money,

presumably that gives its value.

So it kind of feels much more hollow in comparison

to commodity money, or commodity backed money.

But there's a couple, a couple hard 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 says this note is legal tender.

So here, I'll write that down.

This note is legal tender for all debts public and private.

And I talked about the idea of legal tender

in the last video and how that actually ya know

gives a little bit of clout to 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, what makes this stuff valuable

is the fact that other people trust it, right?

The reason that you value having a dollar bill

is because you know you can give it to most people

and they are willing to trade you 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 just trade around the bill itself.

So once that's actually in the psychology of a society,

and once everyone kind of is used to the idea of

trading around this paper representative money

in order to get things of value, it's not actually

a huge leap to just have the paper that you're trading

around as long as everyone else trusts it.

And it still serves those 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 to degrade, it's something

you can store, and it does give a unit of value.

Assigning a number to various goods out there.

But it is, it is just something that was declared,

it's not an actual hard good,

and this is kind of an important distinction

to recognize is that fiat money really does mean

it's just trusted, it's just 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 on faith that if you melted

down the silver other people would find that valuable.

And same goes for gold, and in fact in some,

ya know even though a lot of western cultures

valued gold a lot, there were 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 having money that we use basically

because we trust that others will 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 things like hyperinflation,

that makes it so that it no longer serves

those functions of money.

See you next video!