The Anti-Concepts Of Money: Store Of Value

If you’ve read the previous essays on Purchasing PowerInflation, and Money from this Anti-Concepts of Money series we can now discuss the Anti-Concept: Store of Value.

Money, Profit, Finance, Business, Return, Yield

Image Source: Pixabay

Another anti-concept is store of value. The very term evokes a picture of a container. You pour water into the container, and it is stored until you’re ready to pour it out again. 

Somehow, what we call money, is supposed to bottle up purchasing power the way a jug bottles up water. One is supposed to think of purchasing power like some kind of liquid, and that storing it merely requires the appropriate kind of vessel, which is capable of holding it without leaking. 

Cognitively, this is equivalent to thinking the TV houses little people. 

Wikipedia defines store of value as: 

“…any commodity or asset that would normally retain purchasing power into the future and is the function of the asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. 

The most common store of value in modern times has been money, currency, or a commodity like a precious metal or financial capital.” 

Notice the assertion that a store retains purchasing powerRetention conjures up a picture of a landscape wall, which holds back the soil on a slope. 

Economic value is not a liquid, nor any kind of physical substance. It does not spill like water, nor ooze like silt. It is not an entity, nor is it intrinsic to an entity. The idea of storing value is naïve at best, and facile and unsuited to a serious study of economics. 

In the market, the marginal bidder on every asset is changing constantly. As is the bid price.5 If we observe that an asset’s value is stable over long periods of time, then it means that millions of people are consistently making the same bid over long periods of time.6 

The reason they value it so consistently needs to be discovered. Instead, the anti-concept of purchasing power insinuates that whatever an asset can buy is intrinsic to the asset itself. 

Smuggled Anti-Concepts

The Wikipedia definition commits the same error that we saw in all the other anti-concepts. It unites two essentially different things into one word. After mentioning “money, currency, or a commodity like a precious metal”, it adds “financial capital.” 

It seems logical enough at cursory glance. This is just a list of things that can store value. People buy stocks as a means of preserving their purchasing power

Recall that Rand says a definition must: 

“distinguish the things subsumed under a single concept from all other things in existence; and, therefore, their defining characteristic must always be that essential characteristic…” 

What is the alleged characteristic which unites money, currency, gold, and financial assets? It is allegedly that they hold purchasing power. This is quite pernicious. The real meaning is: financial assets can be thought of in terms of how many groceries, cars, or Xboxes they can be traded for. 

Groceries, cars, and Xboxes are consumption goods. But financial assets are productive capital. The smuggled premise is that capital assets are to be traded for consumption goods. They are to be thought of in terms of the quantity of consumption goods they can purchase. 

It would be like saying that the purpose of a farm is not to grow food, but to be liquidated to buy groceries. The pastureland is to be sold to a condominium developer. The barn is to be torn down, to sell the planks to a flooring manufacturer. The fruit trees are to be chopped down, for their wood which is to be sold to a cabinetmaker. Even the tractor goes to an artist, who makes a sculpture for the atrium of the condo tower. 

This is a model for a society to cannibalize itself. What do the people do, once the productive capital has been drained of all the consumer goods it stored—i.e. the capital has been consumed? 

Why Do We Need a Store of Value?

And what creates the need for a store of value? The need arises from inflation and loss of purchasing power. Let’s look at an analogy to help illustrate the flaw with this anti-concept. 

Imagine if the government imposed a wealth tax. Everyone must add up all their assets, and pay 2% of the total value every year. Naturally, people would hate this and seek a way to avoid it. 

Suppose someone proposed an asset that kept up with the tax, that stored your wealth no matter that the government is taking 2% of it every year. No, it’s not a tax dodge scheme. It’s an asset that, no matter the tax rate, is guaranteed by the financial universe to go up at an equal rate! 

This is a pleasant fantasy, but it does not exist. The universe provides no such guarantee. If the bid for an asset is steadily rising, then we have to look for the underlying cause. And of course it will not go on forever, though the wealth tax could. 

The wealth tax is an allegory for inflation and loss of purchasing power

More By This Author:

The Anti-Concepts Of Money: Inflation
The Anti-Concepts Of Money: Velocity
Why Can’t Banks Raise Their Rates On Deposits?

Disclaimer: The content in this article is provided as general information and for educational purposes only and should not be taken as investment advice. We do not guarantee the accuracy ...

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