1. Introduction

 

In this paper, we analyze the value of money. We considerboth paper money and gold. We attempt to relate the supply of money (MS) andgold to their purchasing power (PP). We demonstrate the extent to whichprinting of money dilutes its value. As a store of value, the value of money isrepresented by its purchasing power. We compare the ability of paper money andgold to function as a long-term store of value. We conclude that gold is anexcellent store of value, while paper money is not. We observe that excessiveprinting of paper money is the ultimate cause for the inability of paper moneyto function appropriately as a store of value.

 

2. Data Sources

 

Historical monetary data is readily available on theinternet. The official source is the Federal Reserve Board. Its monetaryaggregate data can be found on its web site and is available free ofcharge.

 

The Bureau of Labor Statistics (BLS) publishes thehistorical Consumer Price Index (CPI) data. Like the Fed, it alsopublishes the data on its web site and makes it freely available. For a proxyof the purchasing power of money, we use the inverse of the consumer priceindex. To illustrate, if the price index doubles, the purchasing power ishalved; if the price index increases 10 times, then purchasing power of moneyfalls 90%.

 

 

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Published originally on DollarDaze.org -Feb 23, 2009

 

 

About The Authors

 

Mike Hewitt is the editor of DollarDaze.org, a website pertaining tocommentary on the instability of the global fiat monetary system and investmentstrategies on mining companies. His website also provides a no-cost market data feed servicewith up-to-date quotes on currency exchange rates, commodity prices and majorindices.

 

Dr. Krassimir Petrov received his Ph. D. in economicsfrom the Ohio State University and currently teaches Macroeconomics,International Finance, and Econometrics at the Prince Sultan University located in Riyadh, Saudi Arabia. He is a frequent contributor to www.FinancialSense.com

 

 

Disclaimer: The opinions expressed above arenot intended to be taken as investment advice. It is to be taken as opiniononly and I encourage you to complete your own due diligence when making aninvestment decision.