Weights, Measures and other Constants
We all know what a yard is. A pound is also standardized and known. A minute is the same anywhere on earth.
Why do we not have a standard measure for value? Until recently, we did—an ounce of gold. It was the measure of wealth all over the globe for thousands of years. Remarkably, it is still accepted everywhere and it still has the same value world-wide. But gold is no longer used as a measure of wealth, a standard of value, having been pushed to the side in favour of paper money issued by government and mandated as the currency for all transactions.
There is no problem with the government issuing currency, such as the dollar, for the settlement of transactions. But society has unwisely decided to use this transactional currency to measure and store wealth. Why unwise? Because dollars are a political creation and there is no reliable constraint on creating more of them. Dollars are used by the government and central banks to achieve their objectives, such as stimulating the economy, bailing out foolish debtors, running deficits, influencing exchange rates and encouraging certain behaviours over others. These objectives are incompatible with the preservation of savings and wealth.
Should you store your wealth in a currency whose supply grows exponentially, like this?
Do you think it is a good idea to store your savings in a currency that suffers ongoing loss of purchasing power like this (below)?
There are better ways to preserve wealth. Since 1972, gold’s 2875% advance in US dollars has far surpassed the cumulative rate of inflation in the US of 480% for the overall CPI and 473% for Core CPI. We chose 1972 because the US officially left the gold standard in 1971.
In our next post, we’ll look at what this performance could mean for your retirement.