Money. We work for it. We buy things with it. We need it for retirement. But what is it, anyway? And what gives our money value?

When you take a second to think about it, it’s incredible that people don’t ask themselves these questions more often. After all, the saying “money makes the world go 'round” is true — but why? Why do we work forty hours a week (or more) for these pieces of paper? And why are merchants willing to trade us tangible goods for them?

Gold and Silver

There was a time when a “dollar” was simply a term for a set weight in gold. Through the start of World War I, you could take your dollars to the U.S. government and convert them into gold. Redemptions were temporarily suspended in 1914 but later resumed. Then in 1934, the dollar’s value was changed. Although citizens could no longer redeem their dollars for gold, foreign governments could, up until 1971.

The U.S. dollar used to also be convertible into silver. As late as 1968, dollar bills were silver certificates convertible into silver by the government.

Fiat Money

But since 1971, the U.S. dollar has been convertible into absolutely nothing. Why then do people still work for them? The answer is legal tender laws. If you look at one of your dollars, you will notice it says, “This note is legal tender for all debts, public and private.” This means that people and businesses must accept U.S. dollars — by law — for any debts. And, of course, the U.S. government has to take them for taxes.

But this isn’t good enough for a lot of people. They think the “closing of the gold window” in 1971 put a death sentence on the U.S. dollar. Without gold or silver backing, there is little to stop the government from printing more and more paper money, and if adequate goods and services are not produced to equal the expanded money supply, then there is inflation. How much inflation have we had since going off the gold standard?

What Does This Mean to Investors and Consumers?

Diversifying out of U.S. dollars is probably wise, so you’re not vulnerable to inflation or a potential dollar collapse. One way to do so is to convert your U.S. dollars into gold. No, the government no longer performs conversions for you, but you can buy gold in the open market.

But gold isn’t the only investment that helps diversify out of U.S. dollars. You can convert your dollars to foreign currencies, invest in crypto and stocks, and buy real estate. The collapse of the U.S. dollar is probably not something that should keep you up at night, but converting your dollars into tangible assets is perhaps a wise move, regardless. After all, your dollars themselves are worthless — it’s only what you can trade them for that gives them value.

Thank you for reading and hope you have a good rest of the day!

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