Money as a "Store of Value"

Imagine that you earn a living by raising chickens and selling eggs, and I raise cows and sell milk. We both support ourselves by specializing in the production of one product, and we must sell that product in order to procure all of the other goods and services that we don’t produce for ourselves.

This is known as the division of labor and is the basis of the market system. Everyone is better off if we all specialize in one productive process and exchange our excess produce for the other things we need, rather than producing everything we need by ourselves. It is not an exaggeration to say that the division of labor is the basis of human civilization. Without it, we would still be savages living in the wilderness, not very different than animals.

Let’s say you and I meet to negotiate a barter transaction in which I give you milk in exchange for your eggs. The perishable nature of our products puts pressure on both of us to transact sooner rather than later. Although each of us will attempt to negotiate the best terms possible, we both know that we will be worse off if we fail to reach an agreement, because eggs and milk quickly become worthless if they are not consumed. Their value cannot be stored. The nature of real goods and services requires that we transact. Failure to transact is harmful both to ourselves and to others.

What does the concept of a “storing value” mean in a barter economy? For me, “storing value” just means that I keep my milk instead of exchanging it for your eggs, and vice versa for you. But if we both keep our products rather than exchanging them, they quickly become worthless and our efforts to store value become self-defeating. In an economy made up exclusively of real goods and services (i.e. a non-monetary economy), storing value invariably leads to losses, and prosperity can only be achieved by constant production, exchange and consumption. Any form of stored value imposes costs on its owners, thus incentivizing circulation rather than storage.

Now let’s imagine that instead of exchanging our products via barter, we introduce money into the equation. Now, instead of directly exchanging your eggs for my milk, I use money to buy your eggs and you use money to buy my milk.

Has anything changed in terms of the goods we produce? Have the laws of nature changed? Has the introduction of money changed the fact that milk goes bad in a week? No. The only way for us to avoid losses is to exchange our products before they go bad. Circulation, rather than storage, is the only way to prevent a net loss to society.

So if I choose to “store value” by holding onto my money instead of buying your eggs, what is actually happening? No value is being preserved. Your eggs and my milk still lose value with every day that passes. The only result of my decision to “store value” is that mutually beneficial exchanges do not take place and perishable goods go to waste. Therefore, if a holder of money manages to “store value”, nothing is actually preserved. It just means that the holder of money has shifted the costs due to the passage of time onto someone else.

The idea that money can and should be used to “store value” only makes sense to those who have lost sight of the fact that the purpose of the market system is to allow everyone to share in the benefits of the division of labor and that this can only be accomplished via constant mutual exchange. Value that circulates sustains life. Value that remains stationary causes a net loss to society. This is a universal, unavoidable fact due to the laws of nature, and no form of money can change those laws one iota.