How Money Works
Or: Everybody Clap for Tinker Bell!
Why is money valuable? Why are people willing to work so hard for it, lie for it, cheat for it, go to prison for it, fight for it, kill for it, give up their children for it . . . even marry Donald Trump for it?
I mean, look at the dollar bill. What is it, really? It’s a piece of paper! What’s more, it’s a piece of paper that appears to have been designed by a disturbed individual. On one side, you have a portrait of George Washington, who, granted, was the Father of Our Country and a great leader and everything, but who looks, in this particular picture . . .
. . . like a man having his prostate examined by Roto-Rooter. And then on the other side of the dollar you have:
What is that about? Why is there a picture of a pyramid, instead of a structure traditionally associated with the fundamental values of the United States of America, such as a Wal-Mart? And why is the pyramid being hovered over by an eyeball the size of a UPS truck?
Whatever the explanation, the design of the dollar would not seem to inspire confidence in its value. And yet if you drop a few dollars from an overpass onto a busy freeway at rush hour, people will run into traffic and literally risk their lives in an effort to grab them. Try it!
What does this tell us? It tells us that people are stupid. But it also tells us that money is more than just pieces of paper. But what makes it valuable? To answer that question, we need to consider:
The History of Money
In prehistoric times, there was no such thing as money. When people needed to buy something, they had to charge it. And then when the bills came, nobody could understand them, because there was also no such thing as reading. This led to a lot of misunderstandings and hitting with rocks.
The first form of money that we are aware of by looking it up on the Internet was animals. From the start there were problems with this type of money, particularly the smaller denominations, such as squirrels, which were always biting the payee and scampering away.
By 9000 b.c., the most commonly accepted form of animal money was cattle. When you bought something, you would give the other person a cow, and the other person would give your change in calves. This was better than squirrels, but still not an efficient system. The cash registers were disgusting.
By 3000 b.c., the Mesopotamians had invented two concepts that revolutionized economic activity: (1) writing and (2) banking. This meant that, for the first time, it was possible for a Mesopotamian to walk into a bank and hand the teller a stone tablet stating:
GIVE ME ALL YOUR COWS AND NOBODY GETS HURT
These robbers were captured quickly, because they had to make their getaways at very slow speeds. Still, it was clear that a better medium of exchange was needed.
The ancient Chinese tried to solve the problem by using seashells as money. The advantage of this system was that seashells were small, durable, clean, and easy to carry. The drawback was that they were, in a word, seashells. This meant that anybody with access to the sea could get them. By the time the ancient Chinese had figured this out, much of their country was the legal property of gulls.
And so the quest continued for a better form of money. Various cultures experimented with a number of commodities, including tea, grains, leather, tobacco, and Pokémon cards. Then, finally, humanity hit upon a medium of exchange that had no disadvantages—a medium that was durable, portable, beautiful, and universally recognized to have lasting value. That medium, of course, was beer.
No, seriously, it was precious metals, especially gold and silver, which—in addition to being rare and beautiful—could be easily shaped into little disks that fit into vending machines.
Before long, many cultures were using some form of gold for money. It came in a wide variety of shapes and designs, as we see in these photographs of ancient coins unearthed by archeologists:
The problem was that gold is too heavy to be constantly lugged around. So, to make it easier for everybody, governments began to issue pieces of paper to represent gold. The deal was, whenever you wanted, you could redeem the paper for gold. The government was just holding your gold for you. But it was YOUR gold! You could get it anytime! That was the sacred promise that the government made to the people. That’s why the people trusted paper money. And that’s why, to this very day, if you—an ordinary citizen—go to Fort Knox and ask to exchange your U.S. dollars for gold, you will be used as a human chew toy by large federal dogs.
Because the government changed the deal. We don’t have the gold standard anymore. Nobody does. Over the years, all the governments in the world, having discovered that gold is, like, rare, decided that it would be more convenient to back their money with something that is easier to come by, namely: nothing. So even though the U.S. government still allegedly holds tons of gold in “reserve,” you can no longer exchange your dollars for it. You can’t even see it, because visitors are not allowed. For all you know, Fort Knox is filled with Cheez Whiz.
Which brings us back to the original question: If our money really is just pieces of paper, backed by nothing, why is it valuable? The answer is: Because we all believe it’s valuable.
Really, that’s pretty much it. Remember the part in Peter Pan where we clap to prove that we believe in fairies, and we save Tinker Bell? That’s our monetary system! It’s the Tinker Bell System! We see everybody else running around after these pieces of paper, and we figure, Hey, these pieces of paper must be valuable. That’s why if you exchanged your house for, say, a pile of acorns, everybody would think you’re insane; whereas if you exchange your house for a pile of dollars, everybody thinks you’re rational, because you get . . . pieces of paper! The special kind, with the big hovering eyeball!
And you laughed at the ancient Chinese, with the seashells.
So what does all this mean? Does it mean that our monetary system is a giant house of cards that would collapse like, well, a giant house of cards if the public stopped believing in the pieces of paper? Could all of our “wealth”—our savings, our investments, our pension plans, etc.—suddenly become worthless, meaning that the only truly “wealthy” people would be the survivalist wing nuts who trade all their money for guns and beef jerky?
Yes. But that probably won’t happen. Because, fortunately, the public prefers not to think about economics. Most people are unable to understand their own telephone bills, let alone the U.S. monetary system. And as long as we don’t question the big eyeball, Tinker Bell is safe.
OK, now you know what money actually is. (Don’t tell anybody!) The next question is: How come some people have so much money, while others have so little? Why does the money distribution seem so unfair? Why, for example, are professional athletes paid tens of millions of dollars a year for playing silly games with balls, while productive, hardworking people with infinitely more value to society, such as humor writers, must struggle to make barely half that? And above all, how can you, personally, get more money?
We’ll address these questions in future chapters,3 which will be chock-full of sure-fire, can’t-miss, no-nonsense, common-sense, easy-to-apply, on-the-money hyphenated phrases. You’ll be on your way to riches in no time! All you have to do is really believe in yourself! Come on, show that you really believe! Clap your hands!
Also, just in case, you should get some jerky.
Why Does the Back of the Dollar Have a Pyramid and a Giant Eyeball?
There is actually a simple explanation for these two seemingly odd symbols:
Back when the Founding Fathers were designing our currency, they were looking for an image for the new nation, an image that would symbolize the concept of something strong and massive being watched over by something all-seeing and wise. After much discussion, what they came up with—as you have probably guessed—was a picture of an owl standing on an elephant.
The Founding Fathers passed this idea along to the artist hired to do the engraving of the printing plates for the dollar, whose name was Phil. As it happened, the day he did the dollar, which was his birthday, Phil consumed what historians now believe was at least two quarts of whiskey, and for whatever reason—the only explanation he ever gave was “the squirrels made me”—he engraved a pyramid with a giant eyeball on top of it. Unfortunately, the Founding Fathers, who were in a hurry to get the dollar printed so they could spend it, failed to notice this until it was too late. Fortunately, however, they did catch the error on the front of the dollar, where, instead of George Washington, Phil had engraved a fish playing tennis. Otherwise we might live in a very different nation today.
From the Hardcover edition.