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The Classroom / Path 2 · Money 101

What is money?

You used it today. Could you say what it is, or what's behind it? This path starts with a common belief about the dollar and follows the paper trail to what money really runs on.

Under construction: 4 of 6 steps ready
  1. 1The question
  2. 2The idea
  3. 3The evidence
  4. 4The other side
  5. 5Check yourself
  6. 6Keep going

The question

Backed by gold?

Myth

“The dollar is backed by gold.”

Reality

Not since August 15, 1971. That day, foreign governments lost the right to swap their dollars for U.S. gold. Americans had already been told to turn in their gold in 1933.

So if gold isn't behind the dollar, what is? And what makes anything money at all?

Federal Reserve History, “Nixon Ends Convertibility of U.S. Dollars to Gold”; Executive Order 6102 (April 5, 1933).

The idea

Money is a job, not a thing

Mara writes this

Three or four sentences in my own words. The core idea: money is whatever people trust to settle a debt. It does three jobs (something to trade with, something to price things in, something to save in), and who controls it has changed a lot.

Words for this step: Money Medium of exchange Unit of account Store of value Fiat

The evidence · don't trust, verify

How the dollar came loose

  1. 1913The Federal Reserve is createdWilson signs the Federal Reserve Act. Source
  2. 1933Americans turn in their goldExecutive Order 6102 makes most private gold illegal. Source
  3. 1944Bretton WoodsOther currencies peg to the dollar; the dollar pegs to gold. Source
  4. 1971The gold window closesForeign governments can no longer swap dollars for gold. Source · The full story
  5. 2009Bitcoin's first blockA new kind of money starts, with no bank in the middle. Source
Who says what makes money good?The three traits both Federal Reserve lessons name, compared side by side with the classic 1875 list.

The other side · challenge the idea

Is money just whatever the government says?

Mara writes this

The strongest case against “good money has to be scarce”: the state theory of money (governments give money value by demanding taxes in it) and the history of credit before coins. What it gets right, where I disagree, and what would change my mind.

Check yourself

Could you explain it to a friend?

When did foreign governments lose the right to swap dollars for gold?
Which three traits do both Federal Reserve lessons say good money needs?
Add later

A third question about the other side, once step 4 is written.

Keep going · follow the money

Where to next

Chapter 1: The Evolution of MoneyBarter, gold, paper, digital, episode by episode. Fiat vs. the gold standardThe two systems side by side, in plain English. What is Bitcoin?The next path: money with a limit written in code.

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