Nothing Has Changed
I was not planning on blogging today, until I read this comment to the post "The Greatest Lie Ever Told".
Devoish wrote: "it is almost like you believe things like the erie canal, the panama canal, and the transcontinental railroad did not contribute to lower costs in the 1800s. Or land grabs, and oil power. Or electricity.
Nope - prosperity (such as it was) was all about being on a gold standard."
What I find fascinating about the response is that the argument is trying to compare productivity with the type of currency in use. The two have nothing in common, but it brings up a fascinating point. How can we figure out if we're better off today if we still had a gold standard vs our fiat currency.
There is no simple formula because of our position in the world - where would we be if the dollar wasn't made the defacto currency after WWII (though if we didn't have a gold standard then, albeit only for foreign bankers, we wouldn't have been made the defacto currency). What would the value of the dollar be today if we lost a major battle? Sadly, few people realize that our currency today is tied to our military power (due a little history research on the city state Florence and you'll discover they had a paper currency that literally became worthless in a few months after losing a battle - admittedly that battle was most of their army).
So while we can argue that our position makes our fiat currency stronger than it otherwise would be, it's not possible to argue the opposite, that our position makes our fiat currency WEAKER than is otherwise would be.
It's very important not to use the gov'ts CPI number, since they switch out products. Butter too expensive, than the CPI will replace it with margarine. I don't believe they do this to keep the people from revolting since most people don't know what the CPI is, but rather to keep Social Security payments that are linked to the CPI from moving astronomically upward.
In a discussion with a friend he said (paraphrased) "Wages have gone up from $1,000 in 1913 to $25,000 today. That's a 25x increase in purcharsing power, thus the FED is doing a good job. Even Ron Paul says that the dollar has lost 93% of its value since 1913, but since wages are up about 25x, nothing has really changed."
Unfortunately he hung himself with this simple argument. "Nothing has really changed." EXACTLY RIGHT! In the course of almost 100 years, the buying power of one's labor has not changed. We have doubled household incomes by sending our wives to work and we may start sending our children to work or getting Grandma to end her retirement to earn a few bucks as a WalMart greeter to futher increase our household incomes, but NOTHING HAS REALLY CHANGED.
Think about what has changed since 1913:
1) Ford invents the assembly line
2) Electricity becomes available nationwide
3) The automobile is invented, and is actually VERY reliable
4) Air Conditioning
5) The computer age
I'm leaving a ton of stuff out, but the point is that prices dropped during the 1800's due to productivity increases, a nationwide train system (privately financed), and yet 100 years after the Federal Reserve, the average American worker is in roughtly the same place. A century of technological innovation and increased productivity has gotten us NO WHERE!
But wait - don't I have a flat panel TV, the guy in 1910 certainly did not. Yes you do, just like the man in Italy in 1290 AD who wore glasses as he looked upon the crumbling old infrastructure of the Roman Empire. Or the American in 1933 that bought an electric guitar - he obviously didn't have it easier than his parents, but he did have a new invention that no one else had just five years earlier. Technology gives us things that previous generations didn't have, but you are working just as hard today for your food and housing as your great-great grandparents did. They worked less hours for their food and housing then their parents and that's progress.
But gold has increased in value by approximately 50x its 1913 value. What this means is that under a gold standard your income would be DOUBLE what it is today. And by working 1/2 as hard for your basic necessities, it would FREE every American to use that additional time for what they want. You could work 20 hrs/week, instead of 40. You could spend your leisure time on vacation or inventing something new or to write a book. Think about it, Thomas Edison doesn't exist in 1654 - all his time is spent in the fields.
One could argue we've already lost a lot more than 2x our earning power in 100 years, we may have forced thousands of Americans to keep their nose to the grindstone who may have invented time saving devices. There's no way of knowing.
Fiat currency's have taken away more than our earning power, they are reducing the speed of innovation and entrepeneurship.