In Dawn of Gold, I made the statement that gold is a store of stable value. It was suggested by two people who proofed the book, that is should be phrased as a stable store of value.
I left it as it was.
The statements have different meanings. It is not the store that is stable, it is the value that is stable.
Gold is money because it has a stable value – nothing is absolute in our quirky universe, but gold is the most stable value available to the marketplace. Again, that is why it is money. The statement that gold has a stable value cannot/should not be construed as meaning that goods have a stable value. I just watched a video of someone stating that gold being a stable value meant that goods’ values must all be pinned to that stability of value. Quite how he arrived at that conclusion was not explained. The value of a good, any good, cannot be pinned to money. It is like saying that my grandson, who has been measured at 18in tall, must forever be 18in tall, or that a ton of wheat must always have the same price no matter what it costs to produce or deliver. Much confusion in the area of money comes from the false statement that ‘money is the most marketable good’ – i.e., that gold is money because it is the good most desired in the marketplace. Money has nothing to do with the ‘most marketable good’. Money cannot be both a money and a good. Either it is the measured, or it is the measure; it cannot possibly be both.
Surely it can be agreed that gold is the measure of value in the marketplace? Even during the reign of fiat, gold still faithfully performs its role of measuring value – in that instance, the values of the fiat currencies.
If one does accept that gold is the measure of value in the marketplace, then the value of gold has to be stable. All measures have to be stable. A measure of length cannot be a rubber band. There are millions of litre jugs and pint jugs in the world. Each of them holds either a litre or a pint of liquid. That is because each of them is a valid (stable) measure. A pint jug here holds the same volume of liquid as a pint jug somewhere else.
It is gold’s value that is stable, not the value of goods. How could goods have a stable value? That defies the function and logic of a marketplace.
Every facet of goods production and delivery is in a constant state of change. Supply and demand rise and fall, energy inputs are subject to variation, crops fail or boom, technology becomes obsolete, wars break out, regulations and sanctions are imposed, lockdowns are dictated, fashions change, seasons change, interest rates vary, etc., etc. Myriad factors impinge upon the perception of value and the price of a good.
Before the introduction of money (defined as a known weight and purity of gold) 3500 years ago, humans lived in a world of barter, which is grossly inefficient. The result was poverty and a permanently limited in number population who were mostly malnourished.
Without a store of stable value, barter is where we would necessarily return.
There must be a measure of value for a marketplace to function and that measure of value must be stable. What else but a stable value could measure the fluctuating value of goods? One part of the equation has to be stable for a measurement to occur.
To paraphrase Lord Kelvin – a science requires something to measure, and something with which to measure. The science of money is no different.
A store of stable value simply means that gold’s stability of value is permanent and that it will hold that same value in any time and place. That does NOT mean that it will always buy the same amount of goods.
Following simple logic is far more productive (and fun) that trying to prod it in a cherished direction.
- Where gold’s unique stability of value originally came from is a fascinating story that was explained for the first time in Dawn of Gold.