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To act as a store of value, a commodity, a form of money, or financial capital must be able to be reliably saved, stored, and retrieved - and be predictably useful when it is so retrieved.
This is distinct from the standard of deferred payment function which requires acceptability to parties one owes a debt to, or the unit of account function which requires fungibility so accounts in any amount can be readily settled. It is also distinct from the medium of exchange function which requires durability when used in trade, and a minimum of opportunity to cheat others.
When currency is stable, money can serve all four functions. When it isn't, such as during times of hyperinflation or when complex and volatile forms of financial capital are involved, it becomes important to identify alternative stores of value, of which common ones are:
- real estate - actual deeds in protectible land
- gold - once the basis of the gold standard
- silver - once the basis of the silver standard
- base metals such as copper and nickel - some argue that metals with real applications are more stable in the long run.
- precious stones, and precious metals
- collectibles, e.g. original art by a famous artist or antiques
- livestock (see African currency)
While these items may be inconvenient to trade daily or store, and may vary in value quite significantly, they rarely or never lose all value. This is the point of any store of value, to impose a natural risk management simply due to inherent stable demand for the underlying asset. It need not be a capital asset at all, merely have economic value that is not known to disappear even in the worst situation. In principle, this could be true of any industrial commodity, but gold and precious metals are generally favored because of their demand and rarity in nature, which reduces the risk of devaluation associated with increased production and supply.
See also
External links
- Linguistic and Commodity Exchanges by Elmer G. Wiens. Examines the structural differences between barter and monetary commodity exchanges and oral and written linguistic exchanges.
Sources
Shane Levy
Wikipedia content modification information:
- This page was last modified on 23 November 2008, at 07:53.
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