Split from Bush Stomps Rights: Fiat Money

[Doug]

You aren't actually suggesting that inflation is caused by too much money being printed up, are you?

Yes; that is not far off from the very definition of inflation.

DOUG
That's ridiculous. I think this thread is now a waste of time. I think Hogeye is too far "gone."

[Dardedar]

HOGEYE
So now you know: The US dollar has lost value wrt gold. Gold is undoubtably a better inflation hedge than dollars.

DAR
Look at the graphs above. Yours or mine it doens't matter. People who invested in gold in 1980, or any year since, did not have a good inflation hedge. For the most part people who hide their money in gold took a bath. If they bought toward the end of 1980 they got wiped out bigtime ($700-800 down to $300-400). If they invested in this hedge it at any time between latter 1980 and now (that is, the last 25 years) they are in the hole.
The stock market averages about 12% per year but is risky. Real Estate is much better. During most of my lifetime, gold, not so good. That's the past, future may vary.

D.

[Barbara Fitzpatrick]

According to my grandmother, prices were pretty stable from the time she was a child (b. 1095) until post WWII. Part of the problem with Hogeye's little test is finding the prices - especially labor, since the minimum wage was a blessing of FDR's New Deal. When it went into effect in the 1930's it was 25 cents an hour, with a hike to 35 cents an hour by 1945 built into the bill. Let's pretend the hour of unskilled labor is paid at $6.50/hour - that's 26 x the 1930s rate and considerably more than what southern blacks were paid in 1900 (part of the argument for (northern) and against (southern) minimum wage was the pay raise blacks and "Mexicans" would get). I can't tell you about a bushel of wheat, but milk sold for 15 cents a quart (17 cents for certified raw) for grade A delivered in 1943. I buy Braums milk for $2.49 a gallon (last week, over the past year it's been as high as $2.79 and as low as $2.29), which is just over 4 x the 1943 rate. I don't know about a shovel, but my parents bought a house in 1948 - same number sq feet as the house I currently live in - for $6K. My house is currently valued at $78K, 13 x the 1948 rate. A 2-year "road tested" (i.e., used) Chevy sold in the DC area in 1939 for about $300, you MIGHT be able to find a 2-year-old Chevy for $6K today (maybe) which would be 20 x the 1939 rate. Of course, your basic coke has gone from a nickle for 6 oz in the coke machine to a dollar for 20 oz in the coke machine, 5 x the 1900 price.

Now to gold. Per a couple of graphs I read from the World Gold Institute, gold was set at $16/oz from 1900 to 1934, when it was doubled to $32/oz (these were US gov't determinations, not market fluctuations - as in Congress set the price of gold to the dollar or dollar to gold, take your pick). When we stopped artificially holding gold to $32/oz the price shot up, hitting a high of over $600/oz around 1980, then dropping to a low of around $275/oz in 01/2001. The last price on the graph was for 07/24/2006 with gold at slightly over $700/oz. The 2001 low was 17 x the 1900 rate, the 2006 high (so far) was 44 x the 1900 rate, and the 1980 spike right after US control of the value of the dollar was released was 38 x the 1900 rate.

I really don't see that gold has fluctuated any less than anything else, and quite a bit more than some things.

[Hogeye]

Sorry, Sav. It was Darrel who didn't get it. Using a commodity to measure gold and dollars is better than using another fiat currency, since fiat currencies are controlled by central banks, often in some degree of collusion with the US central bank. The best measures would be commodities similarly useful then and now, with market-determined price, that have not changed too much due to technology.

Look at the graphs above. Yours or mine it doens't matter. People who invested in gold in 1980, or any year since, did not have a good inflation hedge.

The current price is $635 per oz. Anyone who bought gold in the last century and held it have made money, except for those who bought in 1980. You would have made money had you bought in 99 out of the last 100 years. But you are correct that 1981-2000 was a 'sideways' period, with a flat trend. If you bought in 2001 or later, you're doing well - there is a clear hockey-stick blade rise.

Doug, you seem to deny simple economic theory, i.e. the main cause of price inflation is monetary inflation. BTW One simple way to clear up the ambiguity about the word "inflation" is to specify money inflation or price inflation.

The "natural" tendency in good, peaceful times for hard money is for the price level to decline slightly over time, due to technological advancement. 19th century US satisfied this pattern (ignoring the War of Northern Aggression.)

I found some food items (meat) here, comparing prices from 1900 and 1999.

Spring chicken 1 lb.
1900 $0.07 .00337 oz gold
1999 $0.99 .00355
% chg 1314% 5.3%

Beef 1 lb.
1900 $0.10 .00486 oz gold
1999 $4.49 .01610
% chg 4390% 231%

So here the price in dollars was grossly inflated, while the price in gold was less inflated, just as I expected.

Let's look at Barbara's examples. The unskilled labor price in dollars has gone up 2500%, but the price in gold only 43%. For a quart of milk, it's a 1560% rise in price for dollars, and a 9% reduction in price for gold. For a house comparing 1948 to today, we get a 1200% price rise in dollars, but a 29% reduction in price for gold. For all three, gold was better against inflation than dollars. As expected. The US has inflated dollars like crazy since then. For gold prices I used the London "fix" year average from Kitco.

Gold price: 1935 2006 1948
$/Oz 34.84 635 34.71


Unskilled labor/hr 1935 2006 %Chg
US$ 0.25 6.5 25
TrOz Gold 0.00717566016 0.01023622047 0.42651968504

Milk/quart 1935 2006 %Chg
US$ 0.15 2.49 15.6
TrOz Gold 0.0043053961 0.00392125984 -0.08922204724

House 1948 2006 %Chg
US$ 6000 78000 12
TrOz Gold 172.86084702 122.83464567 -0.2894015748

Lew Rockwell must have heard us talking. He wrote a good article about the gold standard yesterday: The Case for the Barbarous Relic.