The Tinkerbell Effect

The Tinkerbell effect is the phenomena where simply believing in something makes it true. It is difficult to come up with several examples of how it exists in reality but there is one very relevant example. That example is fiat currency.

Pull a dollar out of your wallet and hold it in your hands. You are holding some cotton woven with linen and is dyed green. What gives that dollar value? The dollar has value because you believe that you can trade that dollar for a bag of chips or a soda or a pack of gum.

In the past, dollars were redeemable for either gold or silver. Today, every bill is merely backed by the full faith of the US government. Every dollar is backed up by debt.

That dollar you are holding in your hand is just cotton and linen. If it wasn't dyed green and had a picture of George Washington on it, you would not have the expectation that you could trade it for a bag of chips. In this sense, our money only has value because everyone in America believes that is has value.

This goes further than paper dollars. After all, most of the money that an Average man makes will not be touches. It will not be printed. Most people have jobs that will pay employees by direct deposit. Instead of carrying cash, a man will usually carry a plastic card in order to conduct transactions. This is a way that people are further separated from the concept of money.

I will admit that my life and this environment feels very strange. I've spent five years working as hard as I can to accumulate wealth. More than 99% of the liquid money I have is nothing more than some numbers on a digital screen that I see when I log into my account. In essence, that money is there and and that same time it isn't. That amount on the screen is the amount that the bank owes me. It isn't until I withdraw the money or spend it on some good or service that I can see the exchange of my time for some good or service. And all of this is possible because we believe that a dollar bill will buy a thing.