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Vin Suprynowicz
Greenbacks ain't what they used to be
Let us turn to the mailbag:
"No, our money is just fine, Vin," writes in one correspondent, answering my column of Nov. 21. "In spite of what the gold bugs would have you believe; the value of the dollar is still, historically and relatively speaking, at the place it was a century ago."
It's hard to believe anyone who's allowed unsupervised use of a computer can think the dollar is worth as much as it was a century ago -- or even 50 years ago, for that matter. You don't have to be a degreed historian or a doddering geezer to know that gasoline cost about 25 cents a gallon in 1960, that a new Ford Mustang cost $2,500 to $4,500 when introduced in 1965. A Coca-Cola cost a nickel in 1910, but today it's a dollar in a far less expensive disposable plastic bottle. (Yes, today's "single" bottles hold more -- though not that much more. Besides, shouldn't the price have dropped after Uncle Sam made them take out the coca?)
In 1910, the grocery store sold steak for about 15 to 20 cents per pound (two dimes then comprising about a seventh of an ounce of silver, you understand). Today, each pound will run you five to 10 new greenback "dollars," assuming you don't pay extra for the fancy stuff at Whole Foods.
Between 1909 and the 1920s, Henry Ford drove down the cost of a new car from $850 to $290 through efficiencies of scale. By 1940 a competing Plymouth coupe still cost only $645, with most of that cost increase explained by added features -- you couldn't have much real inflation while the dollar was tied to gold and silver.
The result? If you put your money in the bank at 3 percent interest, way back then, and let it compound awhile, when you withdrew the balance it would actually buy more than your initial principle! So people invested and the economy grew.
Inflation -- and "capital gains taxes" -- can discourage that behavior.
I've never bought a new car, but I'm told average list these days is $29,000 -- even with discounts and other gimmicks, you'll probably pay $23,000 plus a lot of interest charges unless you've got that much in cash.
Is today's car a better value because it's got disc brakes and an automatic transmission and a heater? Sure. A fifty-times-better value? No. In fact, given that they've added efficiencies of scale, figured out how to use less steel and fewer human work-hours to build each one, the cost of cars should have dropped. The inescapable conclusion is that the dollar is worth two to four cents compared to the 1910 or 1930 dollar.
So the rhetorical trick here must lie in that all-purpose qualifier "relatively" -- as in, the value of the dollar is still "relatively" at the place it was a century ago.
"Relative" to the escudo-euro, the drachma-euro, or the pound? Europe largely abandoned gold and silver even earlier than America, in the 1920s, declaring de facto domestic bankruptcy and printing up coins out of junk metal when they found they couldn't cover the ruinous cost of the World War with real money. But saying we're "in as good a shape as the Europeans, today, currency-wise" is supposed to be reassuring?
Or perhaps our correspondent means the fact that a dollar will only buy 4 cents worth of merchandise compared to 1910 is OK, because we all make salaries 25 times higher than we would have been paid in 1910.
That sounds good, except that a single wage-earner could support a family of five in a free-standing house up through the 1950s, while now it takes two adult full-time incomes to support the average family of four in a free-standing house. Why is that? (And meantime, as currency inflation continues to erode our purchasing power, who will we soon have to send out to earn a third salary to see us through? The dog? The 12-year-old?)
Yes, we've got nicer TVs and laptop computers, today, but I don't think that's the whole answer -- or even most of it. Food, rent or mortgage and utilities are still the bulk of our costs.
Meantime, if your grocery and electric bills go up by 10 percent in the next year -- and I fear that's conservative -- try telling your boss you need a 10 percent annual raise.
Maybe where our correspondent lives, bosses go, "Ten percent? No problem! In fact, we were planning on bumping you 15 percent again this year! After all, we have to keep the dollar value of all our salaries 'relatively' the same after inflation!"
But back here where most of us live, inside the orbit of Uranus, assuming the boss doesn't say, "Actually we're closing our doors next week -- at least it'll save you on commuting costs," the best-case scenario in the private sector these days is likely to be something more like "Sales are flat and profits are down. We're lucky to get 1 percent."
Still, I suppose there's no convincing anyone who insists on believing their paper dollars have not lost value, that someone who was promised years ago their widow would be fine on a $2,000-a-year railroad pension was not cheated in any way by the banksters printing up all their new Monopoly money at the Federal Reserve.
So perhaps I'll just conclude with this invitation: If you're convinced your grandma's 18-carat gold wedding ring and sterling silver flatware have the same value in "dollars" as they had in 1960 or 1940 or 1910, because "the value of the dollar is still, historically and relatively speaking, at the place it was a century ago," bring them by. We'll caravan to a nearby pawn shop where your goods can be checked for purity, at which point I'll gladly pay you in 2010 greenbacks $15 an ounce for the 18-carat gold and 90 cents an ounce for the 90 percent pure sterling silver -- pretty much the fixed going rate in 1910, 1940 and 1960, when you could go to the bank and turn in a one-dollar greenback for a 90 percent silver dollar, on demand.
That's a good deal, given that our 2010 greenbacks have "relatively" the same value today as they had back then ... right?
The Germans were "released from the chains of gold" in favor of a fiat paper currency in the early 1920s. By 1923 they had to pass their paychecks over the factory fence to their wives at lunch time, so the wives could go turn them into a wheelbarrow full of Marks to buy a loaf of bread right away, since the price would go up again by suppertime.
Wait for it.
Vin Suprynowicz is assistant editorial page editor of the Review-Journal, and author of "The Black Arrow." See www.vinsuprynowicz.com.
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No being an economist and all, I guess whatever I think it will be doesn't mean much; kind of like those people you refer to as Austrians. And, yes, QE2 is doing just what it was supposed to thank you very much. The stock market is up over 17% since the program was initiated and bond yields are down. This was the goal, and it is being accomplished. Oh, and to the abject horror of the Austrians, and undoubtedly to Ayn Rand who I've always thought was one of the undead anyway, inflation is nearly nonexistent at .1 last month. Those damn Keynsians what with their blasted ability to project into the future and all!
So, do tell: What will be the rate of unemployment and the bankruptcy rate after six months of QE2? Let's hear your answer, and your explanation. Of course, we all know that creating money willy-nilly and injecting it into the economy will yield good things. My question is: just how good will it get? Take a stab at it.
Broken clocks are right twice a day. And, whatever you have to say about Austrians, you have all ready admitted that "because of the millions of variables" their theories are useless to predict much of anything except in some vague way that isn't worth much. And, Peter Schiff? You can't be serious can you? Peter Schiff has predicted the end of the world since time began. Goes to show you that sometimes, some people can't even have the accuracy of a broken clock. And as to your question about the exact unemployment rate, I guess you misunderstood my question; I never asked for the exact rate I asked for a specific educated guess. As you pointed out, Austrians can't do this, because "there are too many variables". Maybe you can tell me what sort of economic "predictions" they can make where the variables aren't so many?
Actually, Austrian economists can and do make predictions about a great many things: Peter Schiff and Ron Paul, for example, predicted the housing bubble and subsequent collapse quite accurately. It is the Keynesians and other funny-money advocates who got everything absolutely wrong.
Austrian economists predicted that attempts to re-inflate the bubble through QE would fail; they were right about that, too. Keynesians discovered their theories don't work.
It seems there are those in this forum that simply cannot get these concepts into their brains. An economist--ANY ECONOMIST, Austrian or Keynesian--makes predictions about an economy based on the data they have, but NO ECONOMIST can predict, with any accuracy, what the EXACT RATE OF EMPLOYMENT WILL BE (for example) six months from now. An economist can certainly make predictions about the trends of an economy. A Keynesian will say, for example, that QE will spur employers to add employees to their payrolls. An Austrian, looking at the same data, will predict the economy will remain flat, or even contract, despite attempts to re-inflate the bubble.
In the current situation, Austrians have been proved exactly right; Keynesians have been proved absolutely wrong. This is completely understandable, given the flawed nature of Keynesian theory, and the accuracy of Austrian theory.
So tell me, brave Keynesians: "What will be the EXACT RATE OF UNEMPLOYMENT six months from now, after the current round of Quantitative Easing? What will be the EXACT RATE on June 1, 2011?"
Unfair question? Why or why not?
Since no Austrian economist is willing to make projections about anything, it cannot be considered a "science" which is what economists have pointed out as the fundamental flaw in that philosophy from the beginning. Alleging anything will follow as a result of an Austrian "theory" therefore, cannot be taken seriously; as they will freely admit that there are always "too many variables".
To further illustrate the folly of demanding an EXACT answer to the question of what the unemployment rate would be, at an exact point in time after going on to an UNDEFINED "gold standard," simply turn the tables.
If I asked a Keynesian, for example, to tell me the EXACT rate of unemployment or inflation, six months after instituting a policy of "Quantitative Easing" (aka "creating new money"), the honest Keynesian would have to answer: "I cannot give you an exact answer. There are too many variables. But I can tell you that QE will inject liquidity into the system, which will (I hope) spur employers to hire more people."
If you ask for an exact rate of unemployment in this scenario, you're not asking for an economist--you're asking for a prophet.
Again, the answer is to think in terms of principles. You need to ask the question: "In principle, does the creation of billions of dollars of new money, at whim, help or hurt the economy? And furthermore, if you answer that it helps the economy, is that short-term help, or long-term?"
Fascinating. And yet, nonsense. Only a Ayn Rand follower would "believe" that asking for specifics as to the consequences of grave decisions is "demanding an exact precise answer". The effort to distract is admirable what with so many references to Ms. Rand, and principles, and the Austrians, and what not. "Principles"? The only discernible "principles" here is the "principle" that the wealthiest people should remain so, and the rest of the world be damned. The problem with that "principle" is that the world is actually made up of people who will be thrown to the wolves and shackled with golden handcuffs. If you can't do better than this, the Federal Reserve system has a long and prosperous future ahead of it.
Demanding an exact, precise answer to a question that has a million variables is foolish. If one asks, "What will be the EXACT RATE OF UNEMPLOYMENT one month after instituting the gold standard?"--the only answer is that there are too many variables to come up with an exact answer. It MIGHT be ten percent; it might be twenty; or, if the gold standard is implemented with other important reforms, the rate might be only five percent. One of the important variables is exactly what type of a "gold standard" is instituted. For example, is the fraudulent practice of "fractional reserve banking" still allowed? If it is, then the central government is STILL able to play fast and easy with the money supply, which means they can go on playing their easy credit, easy money games. Another variable would be instituting other insane government policies, like raising the minimum wage to fifteen dollars an hour (under a "living wage" law) an act that would GUARANTEE HIGH UNEMPLOYMENT, with or without a gold standard.
Now, if you want to really talk about predicting the future, observe that Austrian School economists were practically ALONE in predicting the current economic fiasco. You might ask, "how were they able to do this, given the fantastic complexity of the economic system?"
The answer is: by thinking in terms of PRINCIPLES. Ayn Rand pointed out decades ago that the only way of grasping the totality of complex systems is by reference to principle.
If you ask, "What will be the EXACT employment rate, one year after implementing an undefined gold standard?"--the only answer is: "impossible to tell--you need further definition."
And by the way, no one is able to predict the EXACT unemployment rate, inflation rate, or bankruptcy rate for six months from now. Not Keynesians, not Friedmanites--not even Austrians. You cannot even begin to answer questions of that type until you have a lot more definition of terms, and a lot more data.
UncleAl: I hardly think asking for some details about what would happen, practically speaking, if we return to a gold standard is too much. I don't think that asking the people who support a return to a gold standard what the impact of that action would have on this country is too much. Its my opinion, and the opinion of many economists, that such a return would have significant impacts on this country and making such a decision should be an informed one. Therefore, asking the questions that I did, which were intended to find the FACTS, or at least some educated guess as to the probable results of the decision, does not seem anything more than reasonable to me. If those who support a return to the gold standard, can not answer these questions with any definiteness, then their claims are more suspect. I suggest that a proponent of a position always bears the burden of answering such questions, and if they can't, they stand little chance of having others who are skeptical, of adding their support. The question was not "nebulous" and it was not ambiguous, and it was not disingenuous, it was specific, it was clear, and it was honest. What would the immediate impact on jobs in this country be if we returned to a gold standard? What would the immediate impact on wages in this country be, and what would the immediate impact on the standard of living in this country be? Those are not vague, or ambiguous, or disingenuous, but obviously the answers are not ones that the proponents of a gold standard want to address because they are not answers that the people want to hear. Since we still have a somewhat representative government, and the people are the ones who will make the decision, if you can't convince them, it can't happen. So the floor is yours.
Mr. Aformer, you are asking a nebulous question and demanding a precise answer. The crux of your problem is that you use the phrase "a return to the gold standard" as though there were only one way to do so. Mises, Rothbard, Rockwell, Murphy, and a host of other economists have discussed quite a number of ways to eliminate the current govt monopoly on currency and money as enbodied in legal tender laws. Most explicitly state that the end result would likely be a return to the use of gold as money.
Either you know that what you are asking is nonsensical, and ask anyway because you choose to be disingenuous, or you don't know what you're asking, and ask because you are ignorant and do not know the right questions to ask.