Performance Of Various Asset Types Over Time
Not all assets are created equal. Some appreciate in value, some lose value over time. This is obvious with things we consume, like the groceries we eat or the clothes we wear. But the same is true of assets that don’t visibly deplete but nevertheless lose value over time through wear and tear, like a car accumulating miles or a building without active maintenance.
Less obvious is how assets that are not depleted by consumption or depreciated through use also vary in their performance over time. Traditionally scarce assets like gold or land do a good job of maintaining their value and growing in relatively fixed proportions to the global economy. Ownership shares in successful companies typically generate additional yield by putting scarce capital to work.
Ultimately, it’s about the DNA of the asset: its inherent properties dictate how the value of the asset will trend over time. If we put all of these different asset types into one image that characterizes their respective natures, it would look something like this:
Fiat Currency: Decay By Design
This high-level image is missing something: modern currencies. Gold was currency until not too long ago, only losing its link to paper currencies in 1971. Since 1971, we have been in a truly anomalous era of human history — a 50-year departure from the 75,000 years of documented use of hard money. For the first time ever, we are engaged in a monetary experiment where money is fiat currency, currency by decree alone — no asset-backing whatsoever.
Of greatest relevance to our focus, however, is the guiding principle at the heart of fiat currency: decay by design. Central bankers and governments believe it is best for the economy that you spend or invest your money, rather than store your earnings as savings, and they have designed the currency to lose 2 percent of its value per year in order to impose that…