Does gasoline at 10 cents a gallon and falling sound impossible in today’s world? Well, if you think it’s impossible, you’re wrong.
Because that’s where gasoline actually is, and it looks like it’s going even lower.
Of course, it’s not 10 cents a gallon in today’s paper money. But it is 10 cents a gallon in the Constitutional money of the United States, which is gold coin and bullion.
Gold is now at $700 per ounce, and rising. Above is a picture of a $20 United Stated gold coin, known as a Double Eagle. If you look carefully, at the bottom of the coin, you can actually see where it says “Twenty Dollars.”
This coin contains approximately one ounce of actual gold, which means that at today’s market price of gold, it’s worth $700. And this means that one gold dollar is worth $35 of today’s paper dollars. And that means that one gold dime is worth $3.50 in today’s paper money. This last, of course, is roughly what a gallon of gasoline costs in today’s paper money. Which means that a gallon of gasoline costs just 10 gold cents.
So why does a gallon of gasoline cost $3.50 in the paper money? Well, one explanation is that we’re expressing the price of gasoline in terms of a money that is itself very cheap and getting cheaper. Just think: if $20 gold dollars are worth $700 paper dollars, one paper dollar is worth only one thirty-fifth of a gold dollar. That’s less than 3 cents. It shouldn’t be surprising that buying things with 3-cent dollars is going to require a lot of such dollars.
The key point here is that our money is getting cheaper and that’s why prices are rising. Don’t be surprised if in the future, gasoline is a lot more expensive in paper money than it is today, and, at the same time, cheaper than it is today in our Constitutional gold money. Look for $5 per gallon gasoline in the paper and 7 cent per gallon gasoline in gold. That’s a real possibility.
[This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author's web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.]
{ 22 comments }
If those coins sell for $700 but are stamped as $20, couldn’t you e.g. stipulate employment contracts in dollars, but require that they be paid with those coins? That way, you’d pay or be paid the market value for labor, but you’d only report the income as being 1/35th of what it “really” is, and thus pay taxes on less income and at a lower rate. And if the IRS ever objected, you could just say, “Hey, it’s not my fault you devalued the currency!”
I have a problem with pundits always commenting that there is little or no inflation. Are the CPI numbers being manipulated so as allow the Federal Reserve to increase the money supply?
Similarly, we are told how robust the US economy is growing in contrast to Old Europe. Which is something I don’t doubt. Yet, if we accept the US dollar as the reserve currency of the world as if it were gold of yester-year, why can’t we say the European economies have grown by 40% in terms of exchange rate since the introduction of the Euro?
check out this interview
Mr. Reisman, in keeping with the fit traditions of Good Teachers, does us, again, the service of bringing to the forefront, of our thinking, those issues that are Central to Our well-being. In this instance he is brave enough to confront the powers, that denominate our very lives, by illuminating the perversities they twist about us.
Much to that end, the following link:http://www.financialsense.com/fsu/editorials/kirby/2006/0510.html
puts into tactile relief the characters we allow center stage. The relief from them is simple, We must not be mere spectators of their Animating Struggles, that give Us not Liberty, but, to they Our Wealth.
When the double eagle an good man’s suit cost an oz of gold. It still does. Gold is the highest it has been in 25 years? The people who bought gold 25 years ago just broke even and lost 25 years of interest.
When gold was $20 the working class wage was maybe 50 cents an hour and the working family spent half their income on food. Inflation should be measured in hours one must work for basic food and shelter.
Bill,
That’s a ridiculous measure of inflation. We should get it straight. Real inflation is simply an increase in the monetary supply beyond backings in reserves or the printing of new money. General price-increases are another thing entirely, and may be more or less than the actual rate of inflation at any given time (although on average over long periods of time, price-increases tend to correspond to inflation-rates; although they correspond more exactly to inflation minus growth in productivity).
The other concept is growth in productivity. Trying to measure inflation in terms of the number of hours you must work to buy certain goods confuses increases in productivity — which make goods cheaper — with inflation, which makes goods more expensive in nominal terms.
Now, it would also be a mistake to think of inflation — that is, increases in the monetary supply — as being neutral aside from making price-levels higher in general. Inflation reduces the actual rate at which the economy can increase productivity in numerous ways. Firstly, it causes distortions in the prices of goods, which causes resources to be sub-optimally allocated. Secondly, it causes distortions in the wealth in a society (creditor/debtor, etc). Thirdly, it causes interest rates to be artificially lowered below their natural levels, which in conjunction with the price-distortions, causes the onset of the business cycle, whereby resources are wasted. Inflation also tends to lead to higher time-preferences, which retards progress.
The article is deliberately misleading.
During the late 70′s, I herd that some gas stations actually were charging 10 cents per gallon – but requiring people to pay with silver dimes.
Theatre of the Absurd writes: “The article is deliberately misleading.”
Care to explain? Or is one of your hobbies to drop vague comments and hope that you somehow have affected people’s lives?
Mark:
Yes, absolutely the government “adjusts” the CPI and PPI. The simplest yet most evil adjustment is the removal of energy and food from the CPI and calling it a core rate.
On top of the adjustment for core rate are the behind the scenes adjustments that constantly understate the real inflation.
Billwald,
Your definition of changing prices is exactly the one the inflationists want you to have. It allows them to steal from you a goodly portion of the increased productivity of the economy.
Person:
That ploy was eviscerated by the FDR US Supreme Court, which voided the enforceability of such gold clauses in contracts. “Legal Tender” on your paper means you don’t have to tender gold coin. That was part and parcel of FDR’s confiscation by Executive Order of all individual’s gold holdings (they were forced by law to exchange them for paper dollars).
To be clear on the Constitutional provisions:
Art. I, Sec. 8, grants Congress the authority to “coin Money” and “regulate the Value thereof”. The USG has only the authority granted by the Constitution (at least that was the original idea).
Art. I, Sec. 10 prohibits any State to “coin Money” or to “make any Thing but gold and silver Coin a Tender in Payment of Debts”.
200+ years later we could have phrased that better, but with the background understanding that at the time Gold and Silver were generally recognized as Money (particularly Spanish Silver Dollars), then it is evident only the USG could convert Gold and Silver to coin (authenticating its content) and the States could not pass legal tender laws allowing payment of debts with anything but such coins.
How we got from that to our present sorry state of paper, is for another post.
Excellent article! http://www.zealllc.com has a chart with the price of oil in gold that’s also interesting. Media types have missed the fact that the rise in oil/gasoline is part of a general rise in the prices of all commodities. The ’90′s saw commodities at unusually low prices, even in terms of gold, probably due to massive productivity increases caused by new tech. These huge productivity increases masked inflation in that decade just as they did in the decade of the 1920′s. But the party can’t last forever.
BillG may have the technical definition of inflation wrong, but his concept of measuring price increases by the labor required to purchase a basket of goods is interesting. Because it’s hard to grasp the value of money in the Bible, Biblical commentators often describe the price of something in daily labor wages, so I’d like to see something along those lines. Anybody know of anyone who has done that?
Roger,
The “media types” haven’t “missed” anything, they are, like good employ-ees, doing the job that they are paid to do.
To do otherwise, as you suggest, would lead them, the Media & the People, to the doorstep of the US FedRes.
And, if you haven’t yet summed 4, from those two twos….that ain’t happenin’.
The People, if they care about Liberty, will take notice of the glimmer of light, that Mr. Reisman has provided, and search that path to its rightful conclusion.
To be redundant, relying on “the Media” to provide, to you, only reinforces the old aphorism: “A Fool and his Money were lucky enough to get together, in the first place.”
Leading to : “Man, Shear yourself, lest, Ye be Shorn.”
I’ve seen a lot of charts comparing the price of gold to currencies and commodities lately.
Out of curiosity a while back I charted the price of gold adjusted for M3. It was a little sloppy, so the numbers aren’t perfect, but visually it gives you a good idea where we are at. You can take a look at it on my blog here: http://www.brokesucks.com/debt/?p=6
You don’t need to know much about economics to look at an M3 chart and realise that something is wrong with this picture. The problem is that psychologically people have been trained to see the dollar as the baseline measure of value. People are saying that gold is in a bubble, when the reality is that it may actually be the dollar that is having problems.
Looking at hours worked to purchase something is useful but at best it reveals that the ravages of inflation have been mitigated (growth in price of gold?) in part by productivty growth.
So, during all the years in which the price of gold was falling, I imagine that Prof. Reisman must have interpreted this as massive deflation and urged the Fed to inflate (much like Jude Wanniski did).
I don’t think I need to explain why this is a ridiculous argument…
What “all the years in which the price of gold was falling”? It climbed “slowly” over about 7 years from $30 to $300, spiked up hugely in January 1980, corrected back to around $300 over a couple of years, and has been wobbling around that value — essentially flat (thanks largely to central bank manipulation, no doubt) — until fairly recently. At no time did it ever look like going back to anywhere near the $30 range, let alone “falling”.
What “all the years in which the price of gold was falling”?
Historical graphs are available at http://www.kitco.com and many similar websites.
It climbed “slowly” over about 7 years from $30 to $300, spiked up hugely in January 1980, corrected back to around $300 over a couple of years
You have answered your own question here.
Besides, from 1990 to 1999 the dollar price of gold declined from over $400 to a low of about $250. Either the dollar price of gold is a good measure of inflation, or it isn’t, there’s no middle ground. If gold is “real money”, as Reisman suggests, then the only conclusion that can be drawn is that those were years of deflation. This is why Jude Wanniski – who always regarded gold as “real money” – then urged the Fed to inflate.
This article is good propaganda but very bad economics. Gold is not “real money”, it’s a commodity and its price is influenced by supply and demand. The present speculative boom in commodities (not just in gold but in silver, platinum, zinc, copper, alluminium, oil, etc) may well end in the near future, but if so it won’t mean that the Fed has suddenly stopped inflating.
What “all the years in which the price of gold was falling”?
Marco de Innocentis is right about gold being a commodity. Even the World Gold Council says that gold is not a good inflation hedge in the short run, but excellent in the long run. During the 90′s, new technology enabled gold producers to flood the market. Plus, central banks leased or sold huge amounts of gold. Both depressed the price. Today, central banks have loaned out of sold all they can and mining companies have cut back, so gold is responding to the inflation built up over the past 15 years.
“Gold is not ‘real money’, it’s a commodity and its price is influenced by supply and demand.”
Real money is a commodity used as a meduim of exchange, which we have been completely without for 35 years. Does is matter? I think we’ll soon find out, given what Nobel Laureate Robert Mundell had to say in his 2000 acceptance speech:
“The absence of gold as an intrinsic part of our monetary system today makes our century, the one that has just passed, unique in several thousand years.”
Marco de Innocentis: Historical graphs are available at http://www.kitco.com and many similar websites.
Yes, exactly; they show what I said: a rise from about $30 to about $300, a relatively flat period from the early 1980s until a year or so ago, and a rise. There was never any fall. A little insignificant wiggle in the flat period is not a fall.
Roger M: Even the World Gold Council …
What do you “even” the World Gold Council? The WGC is about the most anti-gold body you’re ever likely to meet. They want gold to be jewelery, and are totally anti-monetary-gold.
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