Posted:April 23, 2026
Categories: Bonds, Fiat Currency, Gold, Inflation, Monetary Inflation, Money, US Dollar
Purchasing power is the price of money. It represents the amount of goods, services, or labor that money can command or acquire in an exchange. When viewed through the lens of fiat currencies, such as the U.S. dollar, our purchasing power declines as more dollars are created. During periods of inflation, as the prices of goods and services rise, the purchasing power of the currency decreases because each unit gets you less. Thus, inflation erodes our hard-earned purchasing power.
In my book, Timeless, I share thoughts from the philosopher Aristotle on the essence of money. According to Aristotle, money serves as a:
As a store of value, money allows individuals to delay consumption. A strong store of value must have stable and predictable purchasing power over time. This article draws a clear distinction: gold preserves purchasing power, while stocks grow it. These are complementary but fundamentally different roles. To illustrate both, I will examine the purchasing power of gold, stocks, and the dollar relative to a barrel of oil.
Gold: The Preserver
The chart below illustrates the cost of one barrel of crude oil from 1950 to 2026, measured in both U.S. dollars and grams of gold.
Figure 1: Oil Priced in U.S. Dollars and Gold, 1950-2026
Source: TradingView, Goldmoney
The Black Line (Oil Priced in U.S. Dollars): This line tracks the cost of oil in dollars. As you can see, starting in the early 1970s, when the global monetary system was severed from its anchor in gold, this line shows extreme volatility, which was felt deeply at the pump, with gas prices highly inflated.
The Gold Line (Oil Priced in Gold): This line tracks the cost of oil in grams of gold. As a hard currency, gold’s supply is constrained. This limits the amount of gold that comes to market every year. The gold line has remained constant throughout this time period, representing a strong form of purchasing power and store of value.
In 1950, a barrel of oil cost $2.50, equivalent to 2.50 grams of gold. In 2026, that same barrel of oil costs nearly $100, yet it costs only 0.50 grams of gold. The volatility of the black line does not indicate that oil is becoming fundamentally scarcer or more expensive to extract. Rather, it reflects the rapid depreciation of the U.S. Dollar’s purchasing power. The gold line, holding near the bottom of the chart across seven decades, tells a different story. In real terms, energy has actually gotten cheaper.
Stocks: The Engine
The chart below illustrates the cost of one barrel of crude oil from the same time period, 1950 to 2026. I measured the cost of a barrel of oil in both dollars and stocks as represented by the S&P 500.
Figure 2: Oil Priced in U.S. Dollars and Stocks (S&P 500), 1950-2026
Source: TradingView, Standard & Poors
The Black Line (Oil Priced in U.S. Dollars): This line tracks the cost of oil in dollars, as in the first chart.
The Red Line (Oil Priced in Stocks): This line tracks the cost of oil in stocks. Think of this line as how many S&P 500 index “units” you would need to exchange for one barrel of oil. In 1950, a single barrel of oil cost roughly 18% of the total price of the S&P 500 index. Today, it costs less than 2%.
Unlike gold, which is a passive store of value, stocks represent companies that actively work to overcome inflation. As oil prices rise, this eats into a company’s bottom line by increasing costs. However, companies find ways to innovate and achieve efficiencies, rather than sitting idle. This is why, over the very long term, the red line generally trends downward, and stocks provide the engine of growth for portfolios.
One final note about stocks. Notice the dramatic red spike during the 1970s energy crisis. In the short run, stocks are vulnerable to energy shocks, such as the current conflict in Iran. During the stagflationary 1970s, oil prices exploded while stock returns stalled. For a decade, stocks failed as an inflation hedge. Investors holding stocks alone watched their real wealth erode significantly. This is why investors can harness gold’s stability to protect against periods when stock returns fail to keep up with inflation.
Bonds: The Stabilizer
No discussion of portfolio construction is complete without bonds. While bonds are ultimately fiat contracts that represent promises to repay in nominal dollars plus interest, they still play a vital role in a diversified portfolio. Bonds provide predictable income, reducing overall portfolio volatility, and offer a safe haven during periods of deflationary shocks. Bonds are a very broad term for any fiat-denominated instrument that pays interest, such as short-dated U.S. Treasury bills, corporate debt, municipal bonds, etc. However, because they are tethered to the U.S. dollar, they cannot be solely relied upon to outpace long-term structural inflation. They stabilize a portfolio; they do not protect it from the slow erosion of purchasing power.
Conclusion
Ultimately, the utility of money as a medium of exchange in everyday life means it has no purpose other than its purchasing power.2 If a monetary unit cannot maintain its purchasing power, it will inevitably fail to act as a store of value.
As our debt-based, fiat monetary system has expanded since 1971, the veil of inflation has been lifted by the dramatic rise in gold prices. The market is telling us that gold remains the supreme objective yardstick for measuring the true cost of energy, commodities, and human labor over long periods. Similarly, if gold is the anchor that preserves your wealth’s purchasing power, stocks are the engine that grows it. While the dollar price of energy rises, business productive capacity eventually makes energy cheaper for shareholders.
Therefore, this does not mean we can simply abandon fiat. In today’s global economy, the U.S. dollar is the strongest fiat currency and is the heartbeat of the monetary system. The mechanics of our modern global economy still require the vast liquidity of the U.S. dollar and its transactional velocity. Instead, investors should utilize both. The U.S. dollar remains our necessary medium of exchange for daily commerce. Yet, as oil prices so clearly demonstrate, fiat has structurally failed as a store of value.
In an inflationary fiat system, Aristotle’s three functions of money must be distributed across a portfolio. As the lifeblood of daily commerce, the dollar serves as the medium of exchange but structurally fails to preserve its value over time. Gold steps in as the store of value. Stocks serve as the engine of long-term growth. Bonds provide income and stability. Each asset does what the others cannot.
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