Why is money valuable at all(What drives money)?

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Coinmonks

4 min readFeb 19, 2022

Money is a legal tender, a tool, just a worthless paper or just anything that can be used to exchange for a commodity or service rendered. That has been what almost everyone believes. But over time, have we ever asked why money seems to be valuable at all?. Why do we constantly need to have this paper or coin to get what we need and want? What is the thing behind money getting power through its value?

A picture of 100 dollar notes — Photo by Giorgio Trovato on Unsplash

Let us dive in through this and discuss why money is valuable;

The reason why money is valuable is primarily on the simple term of “Demand and Supply”. According to Alfred Marshall in 1890. He propounded the law of demand and supply, and we will see how it gives us the answer to how and why money is valuable. In plain terms, he said, “the value, that is; the price of a commodity; say goods and services are dependent on the demand and supply of that commodity”.

Suppose the demand for commodity increases or the supply decreases. In that case, the value of that commodity increases, and if the need for a commodity decreases or the supply increases, the value of that commodity decreases, all things being equal.

This means that scarcity drives value. Let us have an example; let us imagine that there can only be 100 apples in a country, and due to the sweetness of the fruit, people fell in love with it. Does this mean that there are no other fruits abundant in that country? No, this country may have a lot of bananas, oranges, pawpaw etc., but their primary concern is the supply of apples, right?.

Now, in our imaginary country, the value of apples will be more than almost all the fruits in the country, if not all. Why is this so? As discussed earlier, it may be due to demand increasing or the supply decreasing. We can see that the supply of 100 apples every year is pretty low. Also, talking about the market, some people will want to get the apple because it is scarce only, and demand for it will keep increasing, and it may only be reserved to the top 1% of that country as a show of class.

A quick note here, does this mean that the apple is the best fruit? That can’t be true, but it has value because it appears hard to come by. So the value rises so that it is only distributed to those who can afford it or are in a particular class in the society.

Now, let us bring this concept to money now and slowly, we can see what is typically driving the value of the money we spend.
Before we proceed, don’t let us mistake money for currency, even though they are interchangeable, but currency represents money. Say as the metre is to distance, same as currency is to money.

The population of people working and striving are all your striving to make money. Here we say there is a demand for it, and the demand is through the work hustle done by various people to have more of it to afford their wants.

One more thing that makes money valuable is the belief that people have in their affordability of the money; the better the value of the money is kept. For instance, during wars, the value of the money/currency of the affected nation(s) diminishes.

This is because; 1) The supply may be more than the demand as people in the country may no longer work to get it.

2) The supply of the money keeps increasing (as the treasury of the country may keep printing more money)

3) The citizens in the country may no longer believe in the efficiency and the affordability of their money/currency.

There may be other things that drive the value of money and make money to be valuable, but the things highlighted earlier seem to be the primary factor behind the value of money.

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Why is money valuable at all(What drives money)?

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Written by Samuel Adeyemo