whereaminow (77.22)

The Purcahsing Power of Gold Continues to Rise.. and that is a good thing

October 21, 2009 – Comments (9)

As Gold continues its assault on 4 digit territory, priced at $1058 per ounce currently, it is redundant to say that its price is rising. However, it's not the price of gold that is important, but rather what it can purchase that is important.  In other words, the purchasing power of gold continues to rise, and that is what matters.  The value of any money is based on what it can purchase.

In 1909, Henry Ford released the first Model-T. The price in dollars was $850.  The price in gold was 41.12 ounces.  That's $20.67/ounce, the spot price of gold at the U.S. treasury in 1909. Today, 41.12 ounces of gold buys you $43,507.50 worth of car.  Pardon me for saying so, but I think you can buy something a little nicer than a Model-T at that price, with air conditioning included.  Your puchasing power in gold has risen considerably.

Don't believe me?

Ebay search $43,000-$44,000, dealer owned, new

I think that's a better selection than a simple Model-T Ford.

What did one ounce of gold get you back in the day?  In 1971, not much.  At $35/ounce, the fixed price set by government officials, an ounce of gold might have bought you a dozen 8 tracks.  Today, a single ounce of gold could outfit your entire home stereo system, or purchase you a mid-level laptop computer.  Not too shabby huh?

The median home price in 1971 was $25,000, or 714.29 ounces of gold.  Today, the median price of a home is $174,100 as of 2nd quarter 2009, or 164.56 ounces of gold.   Today, 714.29 ounces of gold would buy you a $755,718.82 worth of housing.  That's a lot of housing!  And way above the U.S. median.  Suddenly, you're big time!

Do you see what I'm getting at with this?  I needed to do this thought experiment for myself, but perhaps you will enjoy it too.  What other examples can we think of.  

When people engage in productive behavior, prices fall.  So why do prices keep rising in dollars, but falling in relation to gold?  Deflation, or falling prices, when it happens in the marketplace means that more goods are chasing fewer monies (fewer dollars or fewer ounces of gold.)  Prices drop, but your standard of living rises.

How about the price of labor?  What was the salary of a computer programmer in 1971?  Today, a mid level computer programmer makes about $85,000 (though it varies tremendously based on experience, specialty, etc).  That's 80.34 ounces of gold per year.  In 1909, that 80 ounces of gold would have paid an employee $1660/year, which would have placed him among the top wage earners.  In other words, that employee in 1909 could have afforded two Model-T Fords (almost!)  Today, he can afford two Corvettes!  I think his purchasing power has increased, no?

In fact, the average worker in the first decade of 1900 made $12.98/week for a 59 hour work week or $675/year, or 32.66 ounces of gold per year.  Today, 32.66 ounces of gold would net you $34,554/year.  Average salaries have not risen all that much.  But the purchasing power, or what you can buy with those 32.66 ounces of gold has increased dramatically, as I've shown above.

The point of all this is to show that gold is money, as TMFSinchiruna and binve have shown over and over again.  Second, as productivity increases over time, prices are supposed to fall.  That is how the marketplace works.  And they do, at least when measured against something stable like gold.  They don't fall when measured against Keynesian fantasies of stimulus packages and quantitative easing.

The downfall of liberals, neo-conservatives, socialists, progressives, and marxists, is that they can not see or refuse to see that the poor they supposedly are so compassionate about are helped more by falling prices than they are by inflation.  In fact, inflation has the opposite effect, rewarding the rich at the expense of the poor and middle class.

Nothing, and I mean nothing on Earth, not charity, not welfare, not Social Security, nor any wet dream of a liberal do-gooder or the psychological aberrations of a sicophantic politician helps the poor more than a stable currency and economic freedom.

Nothing.

David in Qatar