Background
The concept of “store of value” is a fundamental function of money, ensuring that it can retain value over time and be used in the future without significant loss. This characteristic distinguishes money from other financial instruments and assets, which might fluctuate more significantly in value.
Historical Context
Historically, various commodities (such as precious metals, grains, and livestock) have served as stores of value. The adoption of money in its myriad forms (coins, paper, digital) reflects the evolving recognition of money’s reliability and efficiency in preserving value across time and space.
Definitions and Concepts
A store of value entails an asset that can be saved or exchanged to retain purchasing power in the future. Essential attributes include durability, purchasing power stability, and predictability concerning inflation and economic variables.
Major Analytical Frameworks
Classical Economics
Classical economists recognize money as a medium of exchange, a unit of account, and a store of value. They underline maintaining the value stability to ensure money effectively serves these functions.
Neoclassical Economics
Neoclassical theory investigates how money balances interplay with overall economic welfare, influencing decisions regarding the storage or allocation of financial resources.
Keynesian Economics
Keynesians focus on money’s liquidity preference, suggesting that during economic downturns, the storage of value in money can increase as inflation expectations reduce.
Marxian Economics
Marxians critique money in its store of value function as it may divert resources from productive to speculative investments, affecting overall economic productivity.
Institutional Economics
Institutionalists emphasize the role of legal and cultural frameworks in shaping how effectively money serves as a store of value, highlighting trust in financial systems and regulatory stability.
Behavioral Economics
Behavioral theorists explore how cognitive biases and emotional reactions influence individuals’ preferences for holding or investing money, reflecting perceptions of risk and stability.
Post-Keynesian Economics
Post-Keynesians emphasize active policies to stabilize the currency’s value to safeguard money as a store of value, preventing adverse economic cycles.
Austrian Economics
Austrian economists examine how inflation, catalyzed by fiat money, erodes the store of value function, advocating for hard money standards like the gold standard.
Development Economics
In developing contexts, ensuring reliable stores of value is vital against currency volatility and inflation, impactful in savings rates and long-term investments.
Monetarism
Monetarists stress controlling money supply to stabilize the economy and maintain money’s reliability as a store of value. They attribute inflation management as crucial to this role.
Comparative Analysis
Countries and economic regimes vary significantly in inflation rates, monetary policies, and macroeconomic stability, impacting money’s reliability as a store of value. Comparative analysis often highlights how achieving low inflation and robust financial systems secures this function.
Case Studies
- Hyperinflation in Zimbabwe (2008-2009): Examining the effects of hyperinflation and resultant currency devaluation on the store of value function.
- The European Sovereign Debt Crisis (2010-2012): Analysis on the Euro’s role and reliability as a store of value amidst economic instability.
- Venezuela’s Hyperinflation Crisis (2015-present): Evaluating how excessive money supply and political instability undermine money as a store of value.
Suggested Books for Further Studies
- “Money: The Unauthorised Biography” by Felix Martin
- “The Ascent of Money” by Niall Ferguson
- “The Theory of Money and Credit” by Ludwig von Mises
Related Terms with Definitions
- Medium of Exchange: A characteristic of money facilitating trade by eliminating the need for a double coincidence of wants.
- Unit of Account: A function of money providing a common measure for valuing goods and services.
- Inflation: The rate at which the general price level of goods and services rises, diminishing purchasing power.
- Fiat Money: Currency which the government has declared to be legal tender despite it having no intrinsic value.
- Hyperinflation: Extremely rapid or out-of-control inflation eroding currency value significantly.
