Why does the dollar bill in our pocket have value? The value of money is established, according to some experts, because the government in power says so.
There is a problem with this way of thinking since the demand for money arises because money has purchasing power.
If the demand for money depends on its preexisting price, how can this price be explained by demand?
We are seemingly caught here in a circular trap, for the purchasing power of money is explained by the demand for money while the demand for money is explained by its purchasing power.
In his writings, Ludwig von Mises has shown how money becomes accepted.
Yesterday's demand for money was fixed by the prior day's purchasing power of money.
Originally, paper money was not regarded as money but merely as a representation of gold.
https://mises.org/mises-wire/how-does-money-our-possession-acquire-value
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