Finance and Investing
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With an account, you can revise, criticize, and comment on ideas.Apparently, stocks have fallen since the dot-com bubble when measured in gold instead of dollars: https://x.com/elerianm/status/1976237139185574170
Some comments suggest measuring stocks in gold is arbitrary, others say this development is simply due to inflation.
Are they right or is this development a deeper sign that the economy is in trouble?
Measuring the stock market in fiat is more arbitrary than measuring it in gold.
A short video relating to that:
https://youtu.be/AGNvdN1Lw9A?si=b5vO7kx_pTRgEgrZ
I think it would be arbitrary to measure the value in any unit that you aren’t hoping to trade your asset for.
For example, if you eventually want to get gold in exchange for your asset, measure the number of ounces your asset is worth and sell at an opportune time.
If you want to get dollars, measure your asset in dollars. Etc.
Thinking in terms of gold is less arbitrary than thinking in dollars because gold is anchored in physical reality, whereas the dollar is anchored in political decree. When you choose to measure your wealth in a unit just because you want to trade for it later, you are prioritising the convenience of a transaction over the integrity of the measurement.
Measurement requires a constant. If you measure a table with a rubber band, the "length" of the table changes depending on how hard you pull the band. The US dollar is that rubber band. Its supply and value are subject to the whims of central bankers, interest rate policies, and the shifting needs of government deficit spending. Gold, however, is a physical element with a high stock-to-flow ratio. Its total supply grows at a very slow, predictable rate that no person can speed up by decree. Measuring in gold allows you to see the real change in an asset's value, independent of the currency’s volatility.
Gold's value is anchored by the arbitrage of mining. If the value of gold rises significantly, it becomes profitable to mine more, which eventually brings the value back into equilibrium with the cost of production. This creates a feedback loop rooted in physics and labor. The dollar has no such anchor; the cost to "produce" a trillion dollars is the same as the cost to produce one dollar: a few keystrokes. Using a unit that costs nothing to create to measure things that require real work is an arbitrary standard.