First of all you have to give up the idea that “money” has any utility except as a medium of exchange.
If you have a goat or a camel you can milk it, you can eat it and use the hide, AND you can make cute little baby goats and camels. On the other hand they eat and are smelly and ill tempered. Gold is shiny and pretty, non-reactive and a good electrical conductor, as well as being easy to shape and bend. You can’t eat it or use it for tools (try tightening a bolt with a solid gold wrench).
Now whether it’s Dollars or Gold or Yap Island Rais the essential concept of “money” is that it is something that you can trade for a goat should you happen to need one for milk or meat (not to mention those cute little baby goats) without the inconvenience and stink of actually being a goat herder.
Moreover if you’re weighing the economic advantage of camels v. goats (you can ride them and use them to haul heavy things, on the other hand they spit at you and bite you) instead of figuring out how many goat carts makes a camel load you can go to the magical free marketplace and find out how many carved stone doughnuts it takes to get one.
And it gives you an easy way to deal with fractional goats. How much is a a haircut worth? A pair of shoes? A suit?
Because of it’s adaptable and arbitrary nature “money” is a useful measure of the difference in societal desire between various objects. This is one reason inflation is economically useful, because it encourages investment in actual goats and camels that produce milk and meat and stinky little goats and camels rather than simply holding hoards of rocks you can’t eat. There are no cute little baby golds.
“Money” is a lousy store of value.
There is over $700 Trillion of ‘notional’ value floating around in the magical free market place. This is enough to buy all the little goats and camels for 30 years but that’s not a problem if you don’t need one right now so you can sacrifice to the gods and read the entrails for augury. Should everyone need ALL THOSE GOATS AT ONCE RIGHT NOW! there is literally not enough “money” in the world, even including camels. Store of value? Goats 1, Rocks 0.
It’s really all about convenience.
Nobody wants to smell like a goat herder and hard think make brain hurt. Especially pampered privileged Masters of the Universe types. They whine and complain not only over their pwecious wittle fee fees but are constantly surprised when the magical marketplace doesn’t conform to their ignorant expectations.
Ah, if only we had less uncertainty. And it was a bad lie, I’m taking a mulligan, it’s not that I’m a horrible golfer at all.
Dollar dominance is a historical oddity. It’s partly a result of the fact that after WW II we were the only economy left standing. It’s also a result of elite intellectual laziness and the fact that there are penalties for being the world’s reserve currency.
Felix TV: Will the US downgrade be a nonevent?
Felix Salmon, Reuters
Jul 27, 2011 12:50 EDT
The fact is that Treasury bonds are going to remain the global fixed-income benchmark, simply because there’s no alternative. There are $9.3 trillion in marketable Treasury securities outstanding – that’s five times the debt stock of triple-A countries like France, Germany, or the UK. And when it comes to liquidity, the gap is even bigger: daily Treasury volume of $580 billion is 17 times higher than the next most liquid triple-A security, UK gilts. And UK gilts are denominated in pounds, which is hardly a global reserve currency; they’re certainly not much use for, say, financial institutions needing collateral for their dollar-based triparty repo transactions.
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… but it would be silly to suggest that there is $700T in US dollars as a stock of money. Total notional value of all financial assets one might buy with money is not the money supply.
The money supply at the end of June 2011, counted broadly as all bank liabilities + cash, was $11T+$1.9T(M1)-$(double_counting) < $13.9T.
And total US annual GDP was more than that, so even broad money is less than the amount required to buy everything produced in the US in a year.
The fact that is everyone holding money tried to unload it at the same time would find it difficult to find enough real things to buy is true but that’s not a common enough event to undermine money’s ability to function as a store of value. The reality is that US$ has functioned fine as a store of value. Sure, you need to have longer term certificate of deposit bank money rather than immediate access ordinary checking or saving account bank money if you want to store value over years rather than weeks or months … but then if you have the immediate access account, you are doing so because you value that liquidity as equal or greater than the explicit interest paid on the certificate of deposit, so you deposits your money and you takes your chances.