Welcome to brain Stuff from how Stuff Works dot com where smart Happens. I am Marshall Brain with today's question. If all the money in the United States only totals eight trillion dollars, how can the New York Stock Exchange have stocks valued at twenty six trillion dollars. Let's start by understanding what global market capitalization means. On the New York Stock Exchange, thousands of companies are listed. A company
has a total number of outstanding shares. Let's say a large company has two billion outstanding shares and the stock prices ten dollars. That means the total capitalization is twenty billion dollars for that company. In other words, if all the shares were bought by someone for ten dollars to share, the person would have to pay twenty billion dollars to
buy up the company. If you perform that calculation of us all the thousands of companies on the New York Stock Exchange and add them all up, you get a total capitalization of twenty trillion dollars. The difference between the eight trillion dollars in the money supply and the twenty six trillion dollars on the New York stock exchange is that the eight trillion dollars are actual dollars, while the twenty six trillion dollars are all on paper. Stock prices
fluctuate every day, sometimes by a wide margin. A stocks price can fall ten percent in one day. On paper billions can evaporate in one day. What this shows is that there's a difference between cash and value. There's a limited amount of cash, but there are many different things that have value to people. Cars, boats, houses, buildings, gold, land, books, roads, stocks, and so on. These things all have value. In order to transfer ownership, we use cash to represent that value.
Cash is the universal representation of value. If we didn't have cash, we would have to exchange objects of equal value whenever we wanted to buy something. That's called bartering, and it's generally an inconvenient way to purchase things. As a society, we agree to use the limited quantity of cash as a universal object of value in our transactions
because it makes transactions a lot easier. You only need a little bit of cash to handle a lot of value because you don't buy and sell everything every day. Be sure to check out our new video podcast, Stuff from the Future. Join How Stuff Work staff as we explore them as promising and perplexing possibilities of tomorrow. The house, Stuff works, I Find app has a ride down at it today on iTunes