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Wednesday, January 1, 2014

A store of value

A store of value and a medium of exchange.  These are the principle attributes of money.  The US dollar meets only one of these creiteria.  It is the medium of exchange par excellence.  It works in almost every country in the world.  It can be exchanged for almost any good or service.

But as a store of value it is clearly a colossal failure:


By contrast, as a medium of exchange, the Croesid Gold Stater clearly, at present,  leaves much to be desired.  You can exchange it for other currencies through certain select dealers throughout Europe and the United States.  But you can't use it to buy a car, for example.

Minted in 565 BCE it worked quite well in the Lydian Empire as a medium of exchange until the Persians conquered Lydia some 50 years later.  For a while, Cyrus minted his own gold staters closely resembling those of Croesus.  Then he desired his own coinage; and  most of these were melted to be used in the striking of Persian Gold Darics.

But as a store of value, the coin above beats the hell out of the US greenback.  It has something that no current currency possesses: Intrinsic Value.  It is valued as an artwork, as an historical artifact, and for the intrinsic attraction of the qualities possessed by the metal in which it has been struck.  These are the qualities enumerated by Aristotle:  

"Gold is durable, not like wheat, divisible, not like diamonds, convenient, not like lead, constant, not like real estate."

And best of all, Aristotle concludes: "it has intrinsic value: as jewelry."  In other words is pleases the human aesthetic. 

This coin has held or increased its purchasing power over the course of 2500 years.  And going forwards it is likely to continue to gain value.

Going forwards the US dollar will clearly continue to lose value.  At some point, like all paper currencies, its value will go to zero.  Nobody can predict the time frame for this.   It could be in ten days.  It could be in 1000 years.  Nobody knows.  But it will  happen.  

Meanwhile, the first coin ever minted, from an empire long since defunct, will continue to appreciate in value as long as humans survive.

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