What money is made of ?



I would imagine that most people know that price of a certain thing is determined by demand and supply. But for many things that is not certainly true. Obviously, value is psychological and it depends indvidually. Like for me gold is not that valuable. I mean I wonder why people demand it as a store of their wealth ? I do not see any value of gold. I do not wish to wear gold oranaments and I cannot live by eating gold. True, it has a limited supply. Despite all that I still have a hard time grasping such high value of gold.

Price = Demand X Supply + Pschology

Demand and Supply determines a price of a good for most of the goods like burgers, smartphones, rice etc with psychology playing a decent role. If people believe a burger is not worth $8, they will not buy that much and the burgers’ price will dwindle.

Stock market is a good instance to showcase the speculative nature of wealth. Billions of $ wealth is created and destroyed within seconds. People who can play and understand well the market psychology can make good amount of money by trading. It seems hard to believe that how could wealth that of billions of $ can be created and vanished in seconds ? Start-up valutions and housing market are also good instances of speculative valution. I’m not saying there is no intrinsic value to those. Of course, there is! But so much of it of those are specualtive.

I don’t think we can ever truly know the intrinic value of a partcular good. Price of a certain good is always either overvalued or undervalued. The one who can spot this can make money out of it.

So much of the wealth in the economy is speculative. It’s a bet. Indeed, so is life.