You've anticipated where we were going next. It can be either/or, but not simultaneously both. I believe that the original puzzle statement specified that the intent was that the gold or silver was intended as a production good.
If the goldsmith had intended for $5000 worth of his gold inventory to be a store of future purchasing power, and the same for the silversmith, then all the exchange would have done is diversify their stores of future purchasing power.
The goldsmith can change his intent every day, but his marginal utility of the dollar will track that intent, assuming everything else being equal.
I'm not sure that I'm being totally clear here, so please either question or confirm.
Yes, I understand. The different states of marginal utility of the goldsmith's dollar will correlate at every instant in time with his intent of use for the gold. A lower marginal utility of his dollar will be correlated with intent to use gold as a store of value, and a higher marginal utility of his dollar will be correlated with intent to use gold as a production good. But the gold cannot simultaneously be intended to be both a store of value and a production good. Otherwise, we'd end up with the nonsensical conclusion that the marginal utility of his dollar occupies two states simultaneously.
The purchasing power of money depends on the both the supply of, and the demand for, money, and on both the supply of, and the demand for, goods.
When gold or silver is added to someone's store of future purchasing power, this is probably best seen as a reduction in the demand for actual money.
Can I conclude that when gold is added to someone's store of future purchasing power, the purchasing power of money goes down? |
