Speaker 1: Welcome to brain Stuff from how Stuff Works dot com
Speaker 1: where smart Happens. I am Marshall Brain with today's question.
Speaker 1: If all the money in the United States only totals
Speaker 1: eight trillion dollars, how can the New York Stock Exchange
Speaker 1: have stocks valued at twenty six trillion dollars. Let's start
Speaker 1: by understanding what global market capitalization means. On the New
Speaker 1: York Stock Exchange, thousands of companies are listed. A company
Speaker 1: has a total number of outstanding shares. Let's say a
Speaker 1: large company has two billion outstanding shares and the stock
Speaker 1: prices ten dollars. That means the total capitalization is twenty
Speaker 1: billion dollars for that company. In other words, if all
Speaker 1: the shares were bought by someone for ten dollars to share,
Speaker 1: the person would have to pay twenty billion dollars to
Speaker 1: buy up the company. If you perform that calculation of
Speaker 1: us all the thousands of companies on the New York
Speaker 1: Stock Exchange and add them all up, you get a
Speaker 1: total capitalization of twenty trillion dollars. The difference between the
Speaker 1: eight trillion dollars in the money supply and the twenty
Speaker 1: six trillion dollars on the New York stock exchange is
Speaker 1: that the eight trillion dollars are actual dollars, while the
Speaker 1: twenty six trillion dollars are all on paper. Stock prices
Speaker 1: fluctuate every day, sometimes by a wide margin. A stocks
Speaker 1: price can fall ten percent in one day. On paper
Speaker 1: billions can evaporate in one day. What this shows is
Speaker 1: that there's a difference between cash and value. There's a
Speaker 1: limited amount of cash, but there are many different things
Speaker 1: that have value to people. Cars, boats, houses, buildings, gold, land, books, roads, stocks,
Speaker 1: and so on. These things all have value. In order
Speaker 1: to transfer ownership, we use cash to represent that value.
Speaker 1: Cash is the universal representation of value. If we didn't
Speaker 1: have cash, we would have to exchange objects of equal
Speaker 1: value whenever we wanted to buy something. That's called bartering,
Speaker 1: and it's generally an inconvenient way to purchase things. As
Speaker 1: a society, we agree to use the limited quantity of
Speaker 1: cash as a universal object of value in our transactions
Speaker 1: because it makes transactions a lot easier. You only need
Speaker 1: a little bit of cash to handle a lot of
Speaker 1: value because you don't buy and sell everything every day.
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