Stop Measuring Wealth By Money Units, Start Measuring Wealth By Purchasing Power
The biggest misconception about wealth is measuring it in currency units rather than purchasing power. Why does purchasing power matter more?
Purchasing power determines how much real value—goods, services, and resources—you can actually afford. The amount of money you earn means little if it buys you less each year. You may earn $100K annually, but if the prices of goods you consume rise 2% every year, your purchasing power decreases over time: that same $100k is worth $98K next year, $96K the year after…In five years, $100k no longer represents the same lifestyle or opportunities—it buys less. Nominally, the figure hasn’t changed, but in reality, you’re poorer.
Officially, economies must express figures in currency units to maintain a common standard of measurement. But at an individual level, knowing the right metric to measure your wealth is crucial for your quality of life. At a minimum, your personal finances should outpace inflation just to maintain your standard of living. A more accurate approach is to track your own CPI (Consumer Price Index), based on the price change of the goods and services you constantly consume. Governments calculate inflation based on a standard basket of goods, but your consumption habits likely differ. Tracking your own expenses gives you a more realistic picture of your financial health.
Inflation isn’t accidental. It is a built-in feature of our current monetary model. Major economies target a 2% annual inflation rate, and policies are constructed to achieve this. Inflation is a desired purpose. In some countries, salaries are adjusted to match inflation. But in many others not.
Earning money is challenging enough. Living in an inflationary system, we must also preserve the value of our savings. Otherwise, the more you save, the more you lose. When you know the money you save will inevitably lose its value over time, why not spend them today? This spending mindset is a consequence of living in a system designed to depreciate currency over time.
The flaw of an inflationary system
Keynesian economics, adopted by current policy makers, believes that aggregate demand drives economic growth. So governments are responsible for ensuring that people continue to consume. Not sufficient consumption, economy recedes. This economic philosophy is about stimulating demand—encouraging people to spend, not save.
Where does demand come from?
Population. A large, young population drives consumption. So birth is important. An aging society and declining birth rate is an alert for governments and investors alike.
Consumption culture. Culture drives the desire to consume. If everybody likes saving money, the economy will recede - according to Keynes. So we’ve built a culture that encourages, celebrates, and even pressures us to consume.
The standard must-haves for middle class
Commercializing special occasions: festives, anniversary, birthday, wedding…
Commercializing emotions: inventions like “Diamonds are girl's best friend”
You’re not just spending because you want to—you’re spending to respect the social norms.
Short life-time consumer goods
Smart phones have a limited time for battery and software compatibility.
Cars must meet new standards, old ones must be abolished from the market;
Changeable components for electronics and home appliances are harder to find, so you must buy a new one.
Fashion swifts from everlasting to fast. Last year’s tee will already lost its shape this year
…
Why were products decades ago built to last, while today’s fall apart quickly? It is not a failure of engineering, it is a feature of the system. Today’s business models depend on repeat and frequent purchases. Timeless pieces are fatal for profitability.
Financial Means
Wanting to spend is not enough, people must have the ability to spend. Not everyone is rich, but tools have been created to help everyone to spend money - credit cards, easy loans, installment payments, etc. All of these are extensions of national economic policy. In order to understand the source of these financial tools, let’s take a step into the world of macroeconomics.
A Few Words On Macroeconomics
Keynes argued that aggregate demand in an economy is significantly influenced by monetary liquidity. Therefore, central banks’ job is managing the monetary liquidity using a set of key tools :
Interest rates.
Lower rates make borrowing cheaper, encouraging spending; higher rates discourage borrowing and spending.
Quantitative Easing (QE) or Tightening (QT).
QE - buy government bonds as a way to inject money into the market;
QT - sell bonds or not reinvesting matured assets to withdraw money from the market.
Additionally, governments issue debts (bonds) to borrow money for public spending on infrastructure, defense, welfare, etc.
Now when you read these keywords in the news, you know what they imply - tools for regulating demand.
All of this is based on one core assumption: more money liquidity = more demand. If people have more money units, they’ll spend more, and companies sell more. It’s supposed to be a positive loop.
Where is the problem
But cross-checking today’s reality, this assumption failed. Diverse human behaviors, resource limitations, geopolitical friction, and uneven access to capital make the theoretical model unreliable. The assumption that more money equals more productivity falls apart when the supply of real resources—like land, labor, and raw materials—stays the same. In that case, you just have more money chasing the same goods, which drives prices up. That’s the main cause of inflation.
When artificially inject money into the market, those who have early access to cheap credit will be the beneficial ones. They have the freshly created money to buy resources before prices go up. While the ones who are farther in queue for getting loans or not at all will inevitably suffer, facing increased prices. As a result, honest, hard-working workers end up working harder just to keep up with inflation, while those closest to the source of money effortlessly benefit from the wealth effect. Ironically, inflated monetary supply has more negative impacts on the majority’s consumption demand, gradually eroding their purchasing power. The reality across developed countries is ordinary people can afford much less things than their parents’ generation.
Another expected but unintended consequence of an inflationary system is that speculation becomes more attractive than hard work.
When the currency you hold loses value, you’re better off borrowing and spending than saving. In a way, borrowing is a bet against the currency. Today you borrow an amount of money that allows you to buy certain amounts of goods, over time your borrowed money can buy less goods. This translates to a cheaper debt enabled by inflation. This strategy benefits most the governments, who run massive deficits and pay them back with “cheaper” future money.
Meanwhile, individuals who lose faith in salary income turn to gambling for big wins. That’s how meme stocks, crypto and speculative real estate thrive.
An inflationary system does not encourage hard work, it rewards speculation.
Break The Mental Loop
We live in an illusion that the economy is supported by increasing amounts of money. That printing more money is a prerequisite for growth. But this belief is false.
Real economic growth comes from more resources, better efficiency and greater production. Printing more money is a superficial act that looks like an investment, but deep down it does not touch the core of the problem. Because wealth is not created by money itself, it is created by goods and services. A country is wealthy when it has farms, factories, skilled workers, and technology; it does not become wealthy by printing big amounts of money to chase the same amount of production.
Growth can happen with limited supply of money
Money supply does not need to match the total production increase in a society. Let’s make an extreme example where the total money supply is limited in a society.
When the total production is 1000 units, the total money supply is 1000$, each unit costs 1$. When the total production increases to 1050 units, the money supply is still 1000$, each unit now costs 0.95$.
When production increases but money supply is limited, prices decrease. Yes, a deflation. Deflation is not a disaster as Keynesian economics convinces you to believe. In fact, it is abundance! Prices are falling not because demand is collapsing, but because society is producing more value with the same money.
In a hard money system, savings gain value over time. Your stored wealth buys more tomorrow than it does today. Your purchasing power increases. That’s the opposite of what happens in inflationary economies, where savings slowly decay.
And yes, investment is still possible in a society with limited supply of money. But instead of relying on printed money, investments come from real capital accumulation - savings. Since the purchasing power of savings increases over time, those investments carry more weight, not less.
Essentially, investment isn’t about the number of currency units. It’s about what those currency units can buy.
This is where we need to break the inflationary mental loop. We don’t need more money.
We need more value—and value comes from real work, real production, and real savings.
Back To Our Inflationary Reality
Living in an inflationary economy, the right question isn’t how much money I earn/save, but is my purchasing power increasing or decreasing?
On one hand, we need to work harder and smarter to earn more; On the other, we must preserve the purchasing power of our savings.
How? By putting them into long-term assets that hold and grow in value over time. That’s why generational wealth is rarely passed down in cash. Families pass down assets - property, stock shares, precious art, or other stores of value.
Where To Put Our Saved Money
Once we are able to save, the next step is preserving, ideally increasing, its purchasing power. The only way to do this is by investing in assets that consistently outperform inflation over the long run.
For this article, I’ve selected three widely recognized asset classes to compare their inflation-adjusted performance over the past five years:
Gold - the classic store of value;
Bitcoin - the new and high performing store of value;
S&P 500 - an index that reflects the collective stock performance of the most valuable companies.
I live mostly in Europe, so I’ve used the Euro area Consumer Price Index (CPI) for inflation adjustment, and all prices are converted to EUR. The period analyzed is from 2020 to 2024, offering a clear short-term view of how these assets performed in real purchasing power terms.
Each asset’s adjusted purchasing power was calculated as:
Purchasing Power = (asset price/HICP Index )*100
This chart uses log-scale to show the change in purchasing power of each asset class.
How to Read This Chart (And What It Means for You)
This chart shows how the purchasing power of four assets—Gold, Bitcoin (BTC), the S&P 500, and the Euro—has changed month by month since January 2020.
All four assets start at the same point: 100. That’s our baseline.
If a line goes above 100, it means that asset has increased in purchasing power—it has outpaced inflation.
If a line drops below 100, that asset has lost purchasing power—it buys less today than it did in 2020.
Euro: A Steady Decline
The green line—representing the Euro—tells a familiar but sobering story. It can always buy less. It’s not a crash, but a quiet, invisible erosion.
Gold: The Timeless Classic
Gold (blue line) remains a stable store of value, doing what it has done for thousands of years—holding purchasing power. It doesn’t spike like Bitcoin, but it quietly does its job.
S&P 500: The Reliable
The purple line shows the performance of the S&P 500. Similar to gold, it steadily climbs above inflation. It tells you why equity investing is one of the safest bets for preserving wealth.
Bitcoin: Winning but still wild
Bitcoin is the dominant orange line—volatile. But one thing is clear: it’s consistently far above the baseline, despite ups and downs. Bitcoin has been the top performer in terms of purchasing power since its birth. It’s volatile in the short term—but powerful in the long run.
I chose a 4-year window intentionally to make the volatility of Bitcoin more pronounced. When using a 9-year period, here is what we got:
When viewed across a long time span, Bitcoin has shown a neat upward trajectory in purchasing power. The short-term volatility is smoothed out.
Certainty vs. Risk
Fiat money, backed by the state, offers certainty - but a certainty of declining purchasing power.
By contrast, Bitcoin is inherently volatile. But over the long run, it has shown a powerful ability to grow its purchasing power.
Would you rather choose the certainty of loss, or short-term volatility for a chance at asymmetric upside?
Often, people who shy away from investing seek the certainty of fiat money, finding comfort in its perceived stability despite its inevitable devaluation. Ironically, by doing so, they expose their purchasing power to unpredictable government policies and political agendas.
Bitcoin holders seem to gamble with risks, yet in reality, they entrust their wealth to a fixed, deterministic algorithm—arguably the most stable and transparent monetary policy available today.
Critics often dismiss Bitcoin by saying “it is nothing without fiat”. The interesting part is that phrase itself: “Without fiat.” A deeper question is: "when the world is without fiat, what will take the role as the next universal currency standard?"
References
Euro area CPI official data https://ec.europa.eu/eurostat/databrowser/explore/all/all_themes
Gold historical price https://www.bullionvault.com/gold-price-chart.do
BTC historical price https://coinmarketcap.com/currencies/bitcoin/historical-data/
S&P 500 historical price https://www.marketwatch.com/investing/index/spx/download-data
EUR USD exchange rate https://www.investing.com/currencies/eur-usd-historical-data