Purchasing Power

Purchasing power is the quantity of goods and services a unit of money can buy. It moves inversely with the price level: when prices rise, each dollar buys less. Measured by the Consumer Price Index, the US dollar has lost more than 85 percent of its purchasing power since 1971, the year its last link to gold was severed.

Why it matters

Purchasing power is the honest scoreboard for money and savings, because nominal numbers flatter. A salary, account balance, or asset price can rise while commanding fewer real goods, and small annual losses compound into large generational ones: at the 2 percent inflation rate central banks target, money loses about half its purchasing power over 35 years, and actual outcomes have often been worse. Thinking in purchasing power reframes investment decisions, since holding cash is not neutral but a slow guaranteed loss, and any store of value is judged by what it will actually buy decades from now.

In the gold vs bitcoin debate

Preserving purchasing power is the shared goal of gold and bitcoin holders, and each asset makes a different case. An ounce of gold buys broadly what it bought decades ago, the standard illustration being that it covered a fine men's suit a century ago and still does. Bitcoin's purchasing power has grown enormously since 2009 but with drawdowns no saver could ignore. Gold offers stability of purchasing power; bitcoin offers a bet on its expansion, with volatility as the price of admission. Framed this way, the gold versus bitcoin question is simply which asset defends purchasing power better from here.