Thursday
A recent statement by an economist whose work I hugely respect, calls for a rebuttal. He claimed that Gold is not a store* of stable value. It is hard to beat around the bush, to soften the blow, with such a basic error. He is wrong.
* Store (noun) 1. a quantity of something kept available for use. (Concise Oxford Dictionary)
If Gold cannot be used as a store of stable value then the free market has been wrong for the last 3,500 years. Stability of value is the primary reason that Gold is money. Gold’s function of being able to convey a stable value into the future is the basis of capital accumulation – i.e., the basis of capitalism.
It is what makes producing surplus goods worthwhile. Why would you bother to produce excess food, or excess goods of any type, if you could not reliably store the resultant profit? Any number of things can be utilized for the exchange of goods in the marketplace, but only Gold can store a stable value over time and space.
Yes, it is true that there is no such thing as an absolute, but Gold is the most stable value available to us and thus is the measure of value. No measure is an absolute; they are sometimes upgraded as new, more precise measures are discovered HERE, HERE. However, though theoretically possible, it is highly unlikely (due to the stock-to-flow ratio) that we will ever come up with a more stable value, and thus measure of value, than Gold.
A common misunderstanding of Gold’s role as a store of stable value is that it means that Gold will always purchase the same amount of goods. It is the value of Gold that is stable, not the value of goods. Indeed, it is Gold, in its role as the measure of value, which unequivocally informs us that the value of goods is not stable. In the same manner, it is Gold that informs a business operator whether he is making a profit or a loss. That last entirely valid point, was made by the same person who is now denying that Gold is a store of stable value.
Of what virtue could there be in the establishment of a Gold standard if Gold were not a store of stable value? How can a monetary system be based around something of unstable, and thus uncertain, value? It cannot. That is why fiats always, eventually, fail.
And then people return to Gold, as the world will soon witness.