Before the invention of money, goods and services were
typically exchanged through bartering. One person might
trade bags of wheat for bags of rice, and the like. With
bartering it is hard to trade exact values with others or
find suitable traders many times and is a time consuming
process. Next came metal coins from ancient civilizations
which spread to most countries in the form of Gold and
Silver which were stamped with pictures that denoted
denominations.
In the United States, the first paper money was created in
1690 and represented a bill of credit (also called IOU’s)
that could be redeemed at a later time for Gold. In essence,
the paper money was an IOU (I Owe You) which represented
gold, theoretically meaning that the paper was worth actual
gold. The US Government writes on all paper money "THIS NOTE
IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE" which
means the dollar is an IOU of the US government.
It is not the money itself that creates the value, because
the value of the money is not backed by any collateral
anymore. Before 1971, paper money was backed by Gold, so the
government could only print based on their Gold reserves at
Fort Knox (because paper money could be convertible into
gold). Nowadays, money is just paper. When the government
wants to or needs to print more, it can do so at any time.
In essence, the only reason that money is worth anything, is
because all the people in society accept it's stored value
and carry it's worth in exchange for products and services.
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