#DidYouKnow – Money Is an Illusion?

The U.S. Dollar, like most currency, is based on supply and demand instead of gold or some other precious metal.

#DidYouKnow is a Blog Series on www.jmnorthup.com and www.nornstriad.com

Did you know the U.S. Dollar is NOT backed by gold? That’s right. It has not been backed by gold since January 30, 1934, when the Congress amended Section 16 of the Federal Reserve Act. Our currency is actually a ‘promissory note’ that gets its value from “collateral equal in value to the Federal Reserve notes” better known as goods and services.

The Value of the dollar is determined in two way: nominal (which is the present market value for exchanging goods and services) and real (which is the actual, or true, values for goods and services produced and sold). In addition, the demand for goods and services in relation to the available currency drives inflation (or deflation), effecting the value of the dollar, as well.

The demand for goods and services in relation to the available currency drives inflation (or deflation). The most common way to measure inflation in the U.S. is by the Consumer Price Index for Urban Consumers (CPI-U). This is created by the Bureau of Labor Statistics and “shows changes in the prices paid by urban consumers for a ‘representative basket of goods and services’ or the most common goods and services purchased on an average month based on detailed surveys of what Americans spend their money on. The urban consumer group represents about 93% of the total US population.

“Remembering that inflation or deflation is a relation enables us to see something else – namely, what really ‘backs’ our money. What really backs our money is not simply stuff that already exists, but stuff we use money to bring in to existence – that is, stuff we spend money to produce. You know about money we spend in this way – it has its own name. Money spent in production is called productive investment. And productive investment is counter-inflationary.”


Consider this, coins have value of their own since they are made of precious metals. Paper bills have an assigned value universally accepted based on exchange rates. This is also why we are able to use credit, because it is a concept and not a tangible value, like coins. What gives paper money and credit value is an idea; a ‘promise’ of goods or services (hence, promissory note). This is basically the same idea for digital currency, such as crypto.

So, after all this information, why would I suggest money is an illusion? Simply, we can say that the value of money is based on supply and demand, which is a perception. Therefore, an illusion since it is a concept, not a tangible asset. Where we once valued shells and beads, bartering for traded goods and services, today we use currency. Tomorrow, it will probably be crypto… Who knows what currency, or money, will be in the future.

“We’ve all heard the adage, ‘it takes money to make money.’ What this means is that, in a decentralized exchange economy like ours, you have to invest money to make the things and provide the services that people buy with money. But this means there’s an easy way to spend – and ‘create’ – money without creating inflation: you just spend it in ways that produce the very goods and provide the very services that the new money pays for.”



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