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Speaker 1: Welcome to brain Stuff from how Stuff Works dot com

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Speaker 1: where smart Happens. I am Marshall Brain with today's question.

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Speaker 1: If all the money in the United States only totals

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Speaker 1: eight trillion dollars, how can the New York Stock Exchange

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Speaker 1: have stocks valued at twenty six trillion dollars. Let's start

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Speaker 1: by understanding what global market capitalization means. On the New

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Speaker 1: York Stock Exchange, thousands of companies are listed. A company

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Speaker 1: has a total number of outstanding shares. Let's say a

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Speaker 1: large company has two billion outstanding shares and the stock

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Speaker 1: prices ten dollars. That means the total capitalization is twenty

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Speaker 1: billion dollars for that company. In other words, if all

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Speaker 1: the shares were bought by someone for ten dollars to share,

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Speaker 1: the person would have to pay twenty billion dollars to

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Speaker 1: buy up the company. If you perform that calculation of

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Speaker 1: us all the thousands of companies on the New York

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Speaker 1: Stock Exchange and add them all up, you get a

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Speaker 1: total capitalization of twenty trillion dollars. The difference between the

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Speaker 1: eight trillion dollars in the money supply and the twenty

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Speaker 1: six trillion dollars on the New York stock exchange is

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Speaker 1: that the eight trillion dollars are actual dollars, while the

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Speaker 1: twenty six trillion dollars are all on paper. Stock prices

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Speaker 1: fluctuate every day, sometimes by a wide margin. A stocks

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Speaker 1: price can fall ten percent in one day. On paper

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Speaker 1: billions can evaporate in one day. What this shows is

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Speaker 1: that there's a difference between cash and value. There's a

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Speaker 1: limited amount of cash, but there are many different things

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Speaker 1: that have value to people. Cars, boats, houses, buildings, gold, land, books, roads, stocks,

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Speaker 1: and so on. These things all have value. In order

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Speaker 1: to transfer ownership, we use cash to represent that value.

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Speaker 1: Cash is the universal representation of value. If we didn't

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Speaker 1: have cash, we would have to exchange objects of equal

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Speaker 1: value whenever we wanted to buy something. That's called bartering,

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Speaker 1: and it's generally an inconvenient way to purchase things. As

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Speaker 1: a society, we agree to use the limited quantity of

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Speaker 1: cash as a universal object of value in our transactions

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Speaker 1: because it makes transactions a lot easier. You only need

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Speaker 1: a little bit of cash to handle a lot of

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Speaker 1: value because you don't buy and sell everything every day.

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Speaker 1: Be sure to check out our new video podcast, Stuff

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Speaker 1: from the Future. Join How Stuff Work staff as we

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Speaker 1: explore them as promising and perplexing possibilities of tomorrow. The house,

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