Wednesday
A commentator who I have great respect for has questioned the phrase ‘a store of value’ when attached to Gold. He labels it ‘Store of Value Fallacy’.
His logic seems to be that because Gold does not stably buy the same amount of any particular good, that it cannot be a store of value. That is wrong. In fact, it is so wrong that I read the offending paragraph a few times to make sure that I was duplicating it.
It may be helpful to define the word ‘store’. The applicable definition in this instance is the first definition. Well, that is certainly the way that it was used in Dawn of Gold.
Gold is a quantity of value and, importantly, a stable quantity of value. What is the value? Well here, I agree with the commentator – 1. It is only on that basis that it can be the measure of value. Here is a graph on the value of Gold that I put up back in 2016.
It is unquestionable that Gold is a store of value, further, that it is a stable store of value over time. If that were not so, it could not be money. All sciences have as their measure that which is the most stable.
It was Lord Kelvin who noted that to qualify as a science a subject required a/ something to measure, and b/ something to do the measuring. The measuring is always, logically, done by that which is the most stable. The basis of all weight measurement is the famous kilo bar in Paris. What weight does it store? 1! That is how it becomes the measure of weight. That kilo bar is a stable store of weight over time (well, pretty stable, bearing in mind that nothing in this universe is totally stable).
The kilo bar is kept in a vacuum
In terms of value, the stock-to-flow ratio ensures that Gold’s value is and will always be, the most stable.
That a Gold ounce will not always buy the same amount of wheat or whatever, is irrelevant. The perception of any good’s value is subjective, and hence changes, constantly – from person to person and from moment to moment. That is why we need a stable store of value that can measure a good’s value.
Attributing a ‘store of value’ to Gold is not a fallacy, it is the bedrock of monetary science.