Zixinus wrote:On that note, aside the functional value of gold and its scarsity, how did we swich away from gold and what do we excatly have instead of it?
EDIT: I know we somehow measure a nation's economic output, but how does that work excatly?
Since 1973, the dollar and other world currencies work as honest-to-goodness scarcity-based resources. Since we're required to use the dollar to pay taxes, and there's only so many dollars, it maintains a certain relative value. By not telling the public exactly how many dollars are printed at any one time (or exactly when more are printed), inflation is retarded to the point where the dollar doesn't
immediately lose value when the Fed prints more to cover the government's ass. Eventually (and slowly), however, the economy catches on to the fact that more of the resource exists than "should" and prices re-adjust upwards (since the dollar is then worth less) - causing inflation.
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I believe prior to the actual transition to a floating currency system, the dollar's value was based off a specific quantity of gold. Over a series of moves, however, the public's ability to actually trade in for that gold was removed, and at that point we had a workable system where the dollar was based on absolutely nothing (but retained the same approximate value it had when based on gold). By printing more or less money (as above) the government has reduced the value to about... ?1/10th? what it was based on gold. Of course, people now
make more money as well, so it (partially) compensates. But at this point, we're simply trading on the idea that we want dollars, and there's not an unlimited supply.</partially researched>