What Is Money?

Ritholtz features a quote from Jeremy Irons in the movie Margin Call:

“Its just money; its made up. Pieces of paper with pictures on it so we don’t have to kill each other just to get something to eat. It’s not wrong. And it’s certainly no different today than its ever been. 1637, 1797, 1819, 37, 57, 84, 1901, 07, 29, 1937, 1974, 1987 — Jesus, didn’t that fuck up me up good — 92, 97, 2000 and whatever we want to call this [2008].
It’s all just the same thing over and over; we can’t help ourselves. And you and I can’t control it, or stop it, or even slow it. Or even ever-so-slightly alter it. We just react. And we make a lot money if we get it right. And we get left by the side of the side of the road if we get it wrong.
And there have always been and there always will be the same percentage of winners and losers. Happy foxes and sad sacks. Fat cats and starving dogs in this world. Yeah, there may be more of us today than there’s ever been. But the percentages-they stay exactly the same.”

In all the discussion about the gold standard and fiat money, the thing about money being made up is so often overlooked.  It is a medium of exchange, and worthless if other people don't believe it has value.  What is gold going to do for you that eggs can't?  What is all that paper in your wallet good for if people quit believing in its value?  The value of money is a fiction everyone has a stake in continuing to believe in.  That is the key job of the policy makers in trying to avoid crises.  Make sure people don't lose faith in money, and the system it supports.  If that goes, there will be chaos.  You don't need a gold standard to maintain that belief.  In fact, the gold standard makes the situation worse, because it prevents printing money to aleviate deflation.