Well, you see, the objectivists (including Marx[1]) attempted to explain the value of money with various cost-of-production and labor theories of value. They asserted that the value of money (specie at that time) was determined by the costs of mining, refining, and transporting the gold from one location to the next. But you see, this explanation entirely collapses once specie was replaced by various fiat currencies as the common media of exchange.
Of course, this wasn’t problematic at all for the economics community because, by the 1930’s, it abandoned outdated and theoretically untenable objective theories of value. But this remains a major problem for objectivists, which is why they no longer even attempt to explain the value of money, and which is why you’re unable to answer this fundamentally important question.
The fact that currencies sometimes appreciate and sometimes depreciate remains a complete anomaly to individuals, such as you, that still adhere to the dogma of objective value (where value exists independently of human action and consciousness).
Well, now you’ve retreated from a labor theory of value in favor of a cost-of-production theory of value. So, according to you, a bottle of wine appreciates in objective exchange value, by 1000%+ in many cases, because of the costs associated with keeping it in a wine cellar. But then, why does the value of computers depreciate dramatically when they are stored in inventories for extended periods of time? Maybe value really stems from wine cellars?
Okay, so now you’ve retreated from a cost-of-production theory of value in favor of the Marshallian framework, where value is determined by two factors, namely costs and subjective demand conditions. At this rate, you’ll be a Misesian in no time! Either way, your new position is inferior relative to the Austrian explanation because it relies on an unnecessary dualism. In other words, the Austrian theory of value is relatively elegant (Okhams razor); it doesn’t need to include costs in order to explain such phenomena.
I’m sorry, but this doesn’t even begin to explain why two physically identical goods, which require the same amount of labor for their production, demand two very different market prices (no additional transportation and/or storage costs). And it doesn’t explain why individuals in the NYC nightclub happily pay 4-5x the normal price of that product. Could it be that the two bottles of beer, though physically identical, are in fact two different economic goods that satisfy two completely different subjective desires? Just a thought.
First of all, money never initially takes the form of little green pieces of paper. Money initially emerges as commodity money (gold, silver, feathers, shells, etc) precisely because it is valued by large segments of society (most liquid commodity), which allows it to perform its function as a common medium of exchange and as a store of value.
If you went into the Amazon, right now, and offered some secluded indigenous tribe little green pieces of paper for their products, they would probably hang you upside down and skin you alive. I suggest you read Mises’ Theory of Money and Credit if you wish to learn more about monetary theory, and economics in general.
Finally, two of my questions remain unanswered. I expect a blog post from you tomorrow apologizing to all of your clueless readers for filling their heads with out-dated and already refuted economic doctrines.
[1] Capital, 1887, vol i., p.93.