When someone asks you how much is it worth, what do you think of? The question is intuitively simple, but at the same time very complex. The first thing that comes to mind when asked about an object or service’s worth is probably money, the dollars and cents that someone would pay to receive said thing. We are all familiar with a dollar. In our minds we can imagine a dollar bill, even though we use the physical currency less and less. The dollar represents a quantifiable amount of purchasing power. But the next question peels back a layer of complexity that most of us don’t think about.
What is a dollar worth? Up until 1971 the dollar was worth a certain amount of gold. But what is it really worth to you and me? How much can I buy with one dollar? That is the question that pushes through the layered psychology that blinds us from our everyday transactions. Money was created because people didn’t want to bring one hundred sheep in exchange for four hundred bushels of wheat. It was a way to make it easier to exchange goods and services. So every time we use a dollar we are basically exchanging a thing or service for an “I owe you” instead of another good or service.
But with the dollar, who owes who? The dollar is the official money of the US government, so it is backed by the full faith and credit that the US government will fulfill its “I owe you”‘s. This is made even more complicated when you take into account that the dollar is not backed by gold any more, so theoretically the dollar is worth a certain (unknown) percentage of the taxing power of our federal government.
If you think that is confusing, just try and imagine for one second that the things that we are all purchasing are constantly changing in value, and the value of that small percentage of taxing power (dollar) is changing as well. So trying to pinpoint what the dollar is worth is like trying to hit a moving target 50 yards away while bouncing on a pogo stick. There are people who can do it, but they are probably in the circus.
So why does it matter what the dollar is worth? Mostly it is harmless to remain naive about the pieces of paper that we make rain. But if we try to think about the nebulous concept of dollars and cents and what they are actually worth, maybe we will all be a little less frivolous and a little more wise with how we squander away our life savings.