The price of gas is still 20 cents, in 90% silver dimes.

[MoonShadow]

Very well summarized.  I wasn't going to bother typing up something that extensive because, as you can see above me, the majority of these guys aren't interested in reality.

AyeYo, you are the saddest example of an American.  You have direct access to the greatest concentration of public wealth in the history of the world, including a constitutionally founded library system that is the largest in human history, and you choose to remain willfully ignorant.

[AyeYo]

Excellent refutation of the points he made.

[MoonShadow]

Excellent refutation of the points he made.

He did make good points.  I was talking to you.

[MoonShadow]

As to addressing his comments...

Who decided where to set the $1 baseline on that chart and what are they using to consider how value has fluctuated?  It seems like they've used gold (no surprise there).  Is a speculative metal like gold the best thing to use to determine relative purchasing power of the dollar?  Why not use eggs, milk, iron, corn, sheep, oil, etc.?

I think you're asking the right questions. Gold and the dollar need to be compared to at least one additional commodity to triangulate stability, but ideally you should compare multiple commodities with substantial historical data. Similar to your suggestion, I might include cement, steel, copper, wool, maize, sulfuric acid, sodium hydroxide, and coal. This includes construction materials, industrial metals, plant and animal farm products, commodity chemicals, and energy. Everything in the collection has been produced and traded on a large scale for at least 100 years.

Gold is compared to everything, continuously.  That is the very point of using the standardized unit of value measurements that we call 'currency', to have a common reference to base those comparisions on.  Since we are no longer on a gold standard, that reference floats, so there must be a 'gold price' in the fiat currency in order to make said comparision.  Steel, copper, wool, maize, industrial chemicals of all sorts, most agricultural products, and coal have dropped in their relative value due to massive improvements in productivity over the past 100 years.  Thus, using any or all of these things would give you a distorted perspective, as the value of the currency dependent upon them would change with every significant improvement in any of those industries, thus making the economic calculations (and thus predictive capacity of economic calculations) vastly more complex and inaccurate.

Once you have the basket of items to compare, you can see how different prices correlate over time. If gold is more stable than the dollar then you should see a stronger positive price correlation coefficient, with lower standard deviation, between gold and the members of the basket of commodities than between the dollar and the basket members. That is, if 1 gram of gold buys 150 kilograms of steel today, and 1 dollar buys 2 kilograms of steel today, the gold to steel ratio should deviate less over time (past and future) than the dollar to steel ratio, and the changes should be positively correlated: steel moves up when gold moves up, steel goes down when gold goes down, and by similar amounts. You can even perform the correlation exercise with pairs of mundane commodities: maybe it turns out that sulfuric acid tracks other commodity prices more closely than dollars or gold, and cautious savers should actually clamor for an acid-backed store of value.

The productivity issues undermine your theory here.  The costs of production of raw steel is one such example.  Another is, what kind of steel?  There are hundreds of standard steels in use in modern industry, most of which were not yet invented 100 years ago.  The grades of steel that were available 100 years ago, for the most part, are no longer produced in any significant quantity.

Even without running the exercise over a full century of data -- which I don't have to hand, alas, else I would have -- I don't think gold is going to perform too spectacularly. The tremendous gold price volatility around 1980 was not, so far as I know, reflected nearly to the same degree in mundane commodities like coal and wool. It may well be that gold holds its value better over long periods if you smooth the time series, but people can't (directly) trade in smoothed time series: someone who decided to convert all their saved dollars (or steel, coal, wool...) to gold in July 1980 would have taken a heavy loss only a year later and would have needed to wait 10+ years to recover anything like their previous holdings, converting back from gold to useful commodities. The same specious arguments (scarcity, durability) sometimes advanced now to justify an irreversible value increase for gold were being touted just a few years ago about real estate. Value is always relative.

Yes, value is always relative.  And a gold standard is a simple metric for common valuations.  Real estate backed currencies have been attempted, but they all failed.  Why?  Because unlike refined gold, not every acre of unimproved real estate is interchangable with another.  Said another way, real estate is not fungible.

Let's get back to silver dimes and silver as a value store for a moment. Mercury is rarer in the Earth's crust than silver, it's been known since antiquity, it's shiny and dense, it can be neither created nor destroyed, and supplies and production rate from mining are limited. It even has more desirable properties for commerce: since it's a liquid at room temperature, it can be subdivided for any transaction as needed, down to the limits of the traders' scales. So why do the traditional coinage metals have their privileged position, if (as sometimes claimed) precious metals are "natural" monetary standards rather than reflections of human psychology and historical inertia? Despite all these wonderful attributes of mercury which should make it equally or more precious than silver, it currently trades at less than 5% of silver's price, and no nation has ever backed its paper notes with mercury.

The fact that no nation has ever backed a paper currency with mercury is actually irrelevent.  Mercury has been used as a trade medium on occasions.  However, mercury does not have better properties for commerce than gold silver or copper.  The first and most obvious, is that the liquied state of mercury is a problem for trade, as it requires that those who trade in it have both vessels to hold it and scales to measure it, but also a means to verify that it's all mercury in the bottles.  You can weight the bottles full, and then empty them into another container using a strainer to make sure that tere is no lead dust mixed in, but that is a lot of work for the common trade.  The minted coin, with a recognizable size and weight, and the mark of a trusted (bank, government, king, whatever) tells the casual trader the value of the thing pretty fast.

[ansible adams]

Gold is compared to everything, continuously.  That is the very point of using the standardized unit of value measurements that we call 'currency', to have a common reference to base those comparisions on.  Since we are no longer on a gold standard, that reference floats, so there must be a 'gold price' in the fiat currency in order to make said comparision.  Steel, copper, wool, maize, industrial chemicals of all sorts, most agricultural products, and coal have dropped in their relative value due to massive improvements in productivity over the past 100 years.  Thus, using any or all of these things would give you a distorted perspective, as the value of the currency dependent upon them would change with every significant improvement in any of those industries, thus making the economic calculations (and thus predictive capacity of economic calculations) vastly more complex and inaccurate.

The Whiskey and Gunpowder post you used to start this thread says Largely forgotten the silver version of the currency is keeping its value relative to things you buy. A gallon of gas is still less than $0.20. Twenty REAL cents. Not the forgeries that pass for money in the minds of the unwary. If you think that’s something, realize that a gallon of gas is just five or six cents in terms of the old dollar bills that were also gold certificates. (One pre-1934 dollar was good for 1/20 ounce of gold, or about 80 of today’s dollars.) That’s an even more impressive holding of value than the silver coins. That's a claim that is subject to empirical scrutiny. It is not a distortion to cross-correlate exchange rates of different commodities, precious metals, and currencies. It's a test of the hypothesis that silver and gold have characteristically high exchange rate stabilities that justify their use for savings and for backing currencies used in day to day transactions. If you have a better test, please explain it and your reasoning.

The fact that no nation has ever backed a paper currency with mercury is actually irrelevent.  Mercury has been used as a trade medium on occasions.  However, mercury does not have better properties for commerce than gold silver or copper.  The first and most obvious, is that the liquied state of mercury is a problem for trade, as it requires that those who trade in it have both vessels to hold it and scales to measure it, but also a means to verify that it's all mercury in the bottles.  You can weight the bottles full, and then empty them into another container using a strainer to make sure that tere is no lead dust mixed in, but that is a lot of work for the common trade.  The minted coin, with a recognizable size and weight, and the mark of a trusted (bank, government, king, whatever) tells the casual trader the value of the thing pretty fast.

Coins could be and were debased, forged, and clipped. If the trader actually measured coin mass and density to check its composition and value, there is no reason he could not do the same with mercury. In any case, I have the (perhaps mistaken) impression that enthusiasm for a return to gold or silver standards does not literally imply that every transaction would involve the trading of metals in person. It simply means that the issuing agency of a currency would maintain a fixed metal:currency unit exchange rate, and would trade its currency (paper, coins, electronic records...) for the metal on demand. There's no reason that we would have to give up electronic bank transfers or lightweight paper bills for everyday use as long as users always have the option to exchange for metals.

By that same reasoning, it is strange that enthusiasm for silver does not extend to other materials whose availability is limited by geological facts. Why no bismuth, indium, or mercury standard cheerleaders? Silver is more abundant and currently mined at a higher rate than any of those elements. Geologically speaking none of them is any more likely to go inflationary than silver. I think there is a substantial amount of magical thinking that leads people to specifically value gold or silver, and advance justifications for those metals as currency standards after they've already made up their minds. If they were starting from their claimed justifications, and simply looking for durable, rare substances whose production is limited and cannot be rapidly increased, then I'd expect as many cries for the Selenium Standard as the Silver Standard.

[AyeYo]

I think there is a substantial amount of magical thinking that leads people to specifically value gold or silver, and advance justifications for those metals as currency standards after they've already made up their minds. If they were starting from their claimed justifications, and simply looking for durable, rare substances whose production is limited and cannot be rapidly increased, then I'd expect as many cries for the Selenium Standard as the Silver Standard.

That hits the nail on the head.  They're bandwagon metals, which is why they have a history of multi-hundred percent price spikes.

I find it highly ironic that the crowd which blasts the dollar for being valued far in excess of its intrinsic worth is the same crowd that champions gold and silver, two metals (especially gold) that are valued grossly in excess of their intrinsic worth.  The industrial demand for gold take alone would place its price at only a fraction of a fraction of where it currently is, and the same goes for silver (which is why it's historically traded around the $5 mark, except when bandwagons form).

[NghtRppr]

I think there is a substantial amount of magical thinking that leads people to specifically value gold or silver, and advance justifications for those metals as currency standards after they've already made up their minds. If they were starting from their claimed justifications, and simply looking for durable, rare substances whose production is limited and cannot be rapidly increased, then I'd expect as many cries for the Selenium Standard as the Silver Standard.

There's nothing magical about it. Gold and silver have thousands of years of historically being accepted as money therefore it's likely to continue that way. Whenever the free market decides what it will use as money, it settles on gold and to a lesser degree, silver and other metals. That's what I'm more interested in, free market money, rather than any specific metal. Let the market decide. Historically, it's been gold. What's the point in trying to fight that? Just so you can seem sophisticated?

[ansible adams]

I think there is a substantial amount of magical thinking that leads people to specifically value gold or silver, and advance justifications for those metals as currency standards after they've already made up their minds. If they were starting from their claimed justifications, and simply looking for durable, rare substances whose production is limited and cannot be rapidly increased, then I'd expect as many cries for the Selenium Standard as the Silver Standard.

There's nothing magical about it. Gold and silver have thousands of years of historically being accepted as money therefore it's likely to continue that way. Whenever the free market decides what it will use as money, it settles on gold and to a lesser degree, silver and other metals. That's what I'm more interested in, free market money, rather than any specific metal. Let the market decide. Historically, it's been gold. What's the point in trying to fight that? Just so you can seem sophisticated?

I'm a scientist, or at least I was until I discovered that employment writing software offers steadier and better pay. I was first interested in Bitcoin as a field experiment in economics. Later I realized that with wide enough adoption it could be a truly disruptive technology, due to its international reach and lack of central control. The deflationary nature of Bitcoin has never been especially important or interesting to me, but it seems to have attracted people who make wild, unsubstantiated claims about deflation, the nature of money, precious metals, and related topics. My bullshit detector goes off when someone makes a claim contrary to empirical evidence, without empirical evidence, or of such a nature that it cannot be tested. Examples of popular bullshit in this vein include "vaccines cause autism," "a truly free market will care for the destitute better than government," and "God created the universe 6000 years ago but doctored the evidence to make it look older."

In the United States it has been legal since 1977 to write contracts specifying payment in gold and it has been legal to acquire and keep any quantity of gold in any form since 1974. These changes reversed the 1934 Roosevelt order that outlawed private gold hoarding and gold clauses in contracts. Yet gold is still only storing a small fraction of US savings and enters into only a tiny fraction of contracts involving payment. If the market always "decides" gold is great, why don't cell phone contracts, insurance policies, mortgages, employment agreements, car leases, etc. specify payment in gold? It's legal right now and has been for 30+ years.

I'm not interested in promoting mercury or selenium as the basis for currencies, only poking holes in the stories told about gold and silver. I do it in the same spirit as Richard Feynman: "The first principle [of science] is that you must not fool yourself -- and you are the easiest person to fool." If I'm fooling myself I hope that gold/silver promoters will rise to the challenge and provide empirical evidence for the great stability of their metals. If I'm seeing clearly and others are being fooled, I hope that I can convince others to at least approach economics and economic theories with the same scientific, empirical mindset that we'd apply to chemistry or physics.

[MoonShadow]

I find it highly ironic that the crowd which blasts the dollar for being valued far in excess of its intrinsic worth is the same crowd that champions gold and silver, two metals (especially gold) that are valued grossly in excess of their intrinsic worth.  The industrial demand for gold take alone would place its price at only a fraction of a fraction of where it currently is, and the same goes for silver (which is why it's historically traded around the $5 mark, except when bandwagons form).

There is no such thing as 'intrinsic worth'.  All value is a subjective calculation.  Gold is worth what someone will trade for it.  The same thing is true about steel, mercury, salt or real estate.  The fact that gold & silver are both valued well beyond what their market price would be absent their monetary value is entirely irrelevent.  Actually, that is also an argument for gold over any industrial commodity, including silver, since the establishment of a commodity backed currency upon an industrial input is going to increase the market value of that same commodity beyond it's industrial value because someone will always choose to store some of it for it's monetary/capital preservation characteristics.  Thus increasing monetary demand.  This means that gold, having few industrial uses, is ideal as a monetary base even lacking it's 5K year history of same.  For a monetary crisis would be unlikely to upset the supply of any industrial inputs.  Do the same for mercury, (or any of the 'rare earth' elements) and products that depend upon those inputs functionally become out of reach economicly.  CFL's require trace amounts of mercury in their manufacturing processes.  Good or bad, they would not be possible as a consumer product under a mercury standard.  Many forms of vaccines, until recently, required trace amounts of mercury as part of a perservative.  A mercury standard might have cut millions of lives short due to polio and whatever else if it had existed over the past 100 years.

[MoonShadow]

I'm a scientist,

Aren't we all?

Well, not AyeYo.  One would have to be willing, on some level, to challenge one's own belief systems to be a scientist.  At least a good one.

[NghtRppr]

If the market always "decides" gold is great, why don't cell phone contracts, insurance policies, mortgages, employment agreements, car leases, etc. specify payment in gold?

Because of legal tender laws and Gresham's law.

You can write a contract and specify payment in gold but if the other party doesn't pay and you sue them, you're required to accept payment in legal tender. You can't say "but I wanted gold!" Likewise, since you are forced to take legal tender if you want protection from the courts, according to Gresham's law, people would rather save their gold and pass off their paper currency to you. All of this serves to reduce the amount of gold in circulation as money and we get to the state of affairs like today where very few people could even pay in gold without first buying some with paper. That makes it hugely inconvenient and businesses don't want to shrink their market share. Remove the legal tender laws and have courts honor gold contracts and then you can make an argument. As it stands, when there is a truly free market, without government threats, the market prefers gold. You claim to be big on evidence so let's not ignore thousands of years of history.

[ansible adams]

If the market always "decides" gold is great, why don't cell phone contracts, insurance policies, mortgages, employment agreements, car leases, etc. specify payment in gold?

Because of legal tender laws and Gresham's law.

You can write a contract and specify payment in gold but if the other party doesn't pay and you sue them, you're required to accept payment in legal tender. You can't say "but I wanted gold!" Likewise, since you are forced to take legal tender if you want protection from the courts, according to Gresham's law, people would rather save their gold and pass off their paper currency to you. All of this serves to reduce the amount of gold in circulation as money and we get to the state of affairs like today where very few people could even pay in gold without first buying some with paper. That makes it hugely inconvenient and businesses don't want to shrink their market share. Remove the legal tender laws and have courts honor gold contracts and then you can make an argument. As it stands, when there is a truly free market, without government threats, the market prefers gold. You claim to be big on evidence so let's not ignore thousands of years of history.

You may have to take legal tender, but you can link the amount of tender to the exchange rate with gold. A gold clause still lets you do that and it's been perfectly legal to enforce since 1977. See 216 Jamica Ave. LLC v. S&R Playhouse Realty Co.. Gresham's Law makes sense but it also contradicts the idea that the market will always choose gold. You just named some important reasons that market participants will continue to contract in fixed quantities of fiat currencies instead of gold-linked quantities, such as convenience and retaining market share, even though it is legal to specify payments in terms of gold.

If market participants prefer gold, it's even more puzzling that gold doesn't dominate savings. Right now Apple is sitting on more than $75 billion in cash. Microsoft has more than $50 billion and Google more than $35 billion. They don't appear to be in a hurry to spend it. There are many large companies with multiple billions in cash on hand. Why not convert it to gold if gold is stable and fiat currencies are unpredictable? They don't need to worry about any market share loss or customer inconvenience from what they do with their savings.

[NghtRppr]

You may have to take legal tender, but you can link the amount of tender to the exchange rate with gold.

That's a complete non sequitur. What does that have to do with anything?

Gresham's Law makes sense but it also contradicts the idea that the market will always choose gold.

I never said that the market "will always choose gold". Where do you come up with that? I said that, in a truly free market, the market prefers gold and by that, I mean gold backed currency. Give someone the option for paper backed by gold and paper backed by nothing and they'll choose the gold backed currency. That's historically speaking and this isn't a truly free market. When there is a truly free market again, the market could settle on palladium. I predict it won't, however.

[AyeYo]

I find it highly ironic that the crowd which blasts the dollar for being valued far in excess of its intrinsic worth is the same crowd that champions gold and silver, two metals (especially gold) that are valued grossly in excess of their intrinsic worth.  The industrial demand for gold take alone would place its price at only a fraction of a fraction of where it currently is, and the same goes for silver (which is why it's historically traded around the $5 mark, except when bandwagons form).

There is no such thing as 'intrinsic worth'.  All value is a subjective calculation.  Gold is worth what someone will trade for it.  The same thing is true about steel, mercury, salt or real estate.  

And fiat currencies, but that item is conveniently always left off the list.

In fact, as ansible adams point out, fiat currencies seem to be the value store of choice for all major corporations and, quite frankly, nearly everyone else as well.  Why is that, given that you're claiming gold and silver are the most stable stores of value?




And just FYI, when people refer to intrinsic value they're not talking about some magical, a priori worth; they're referring to the item's actually usefulness as a life-sustaining commodity.  Paper dollars can be used to start a fire, so that's some small amount of intrinsic value.  Gold can be used for... well not much of anything outside of advanced industry. 

[MoonShadow]

If the market always "decides" gold is great, why don't cell phone contracts, insurance policies, mortgages, employment agreements, car leases, etc. specify payment in gold?

Because of legal tender laws and Gresham's law.

You can write a contract and specify payment in gold but if the other party doesn't pay and you sue them, you're required to accept payment in legal tender. You can't say "but I wanted gold!" Likewise, since you are forced to take legal tender if you want protection from the courts, according to Gresham's law, people would rather save their gold and pass off their paper currency to you. All of this serves to reduce the amount of gold in circulation as money and we get to the state of affairs like today where very few people could even pay in gold without first buying some with paper. That makes it hugely inconvenient and businesses don't want to shrink their market share. Remove the legal tender laws and have courts honor gold contracts and then you can make an argument. As it stands, when there is a truly free market, without government threats, the market prefers gold. You claim to be big on evidence so let's not ignore thousands of years of history.

You may have to take legal tender, but you can link the amount of tender to the exchange rate with gold. A gold clause still lets you do that and it's been perfectly legal to enforce since 1977. See 216 Jamica Ave. LLC v. S&R Playhouse Realty Co.. Gresham's Law makes sense but it also contradicts the idea that the market will always choose gold. You just named some important reasons that market participants will continue to contract in fixed quantities of fiat currencies instead of gold-linked quantities, such as convenience and retaining market share, even though it is legal to specify payments in terms of gold.

If market participants prefer gold, it's even more puzzling that gold doesn't dominate savings. Right now Apple is sitting on more than $75 billion in cash. Microsoft has more than $50 billion and Google more than $35 billion. They don't appear to be in a hurry to spend it. There are many large companies with multiple billions in cash on hand. Why not convert it to gold if gold is stable and fiat currencies are unpredictable? They don't need to worry about any market share loss or customer inconvenience from what they do with their savings.

Maybe 10% of those reserves are actually in cash.  Maybe.

[MoonShadow]

I find it highly ironic that the crowd which blasts the dollar for being valued far in excess of its intrinsic worth is the same crowd that champions gold and silver, two metals (especially gold) that are valued grossly in excess of their intrinsic worth.  The industrial demand for gold take alone would place its price at only a fraction of a fraction of where it currently is, and the same goes for silver (which is why it's historically traded around the $5 mark, except when bandwagons form).

There is no such thing as 'intrinsic worth'.  All value is a subjective calculation.  Gold is worth what someone will trade for it.  The same thing is true about steel, mercury, salt or real estate.  

And fiat currencies, but that item is conveniently always left off the list.

A fair point.  I had assumed that this was an obvious fact, and that it didn't need to be pointed out.  Sorry for overestimating you once again.  I'll try to do better next time.

In fact, as ansible adams point out, fiat currencies seem to be the value store of choice for all major corporations and, quite frankly, nearly everyone else as well.  Why is that, given that you're claiming gold and silver are the most stable stores of value?

I challenge you to find a single US corporation or major investor that keeps more than 10% of their savings in cash.  They value it in cash, but very little of it is actually kept in cash.  There is an obvious reason for this.

And just FYI, when people refer to intrinsic value they're not talking about some magical, a priori worth; they're referring to the item's actually usefulness as a life-sustaining commodity.  Paper dollars can be used to start a fire, so that's some small amount of intrinsic value.  Gold can be used for... well not much of anything outside of advanced industry. 

As noted, I have to be careful with you, AyeYo.  I can't assume that you understand what this economic terms actually mean.  As for gold's 'use value', it makes for a hell of a ship ballast.  Good for bullets as well.  And silver has well known anti-bacterial properties, which are useful to everyone should the collapse of civilization destroy the monetary value of silver.  I challenge you to tell me what use a pint of mercury has to Mad Max.

[AyeYo]

If the market always "decides" gold is great, why don't cell phone contracts, insurance policies, mortgages, employment agreements, car leases, etc. specify payment in gold?

Because of legal tender laws and Gresham's law.

You can write a contract and specify payment in gold but if the other party doesn't pay and you sue them, you're required to accept payment in legal tender. You can't say "but I wanted gold!" Likewise, since you are forced to take legal tender if you want protection from the courts, according to Gresham's law, people would rather save their gold and pass off their paper currency to you. All of this serves to reduce the amount of gold in circulation as money and we get to the state of affairs like today where very few people could even pay in gold without first buying some with paper. That makes it hugely inconvenient and businesses don't want to shrink their market share. Remove the legal tender laws and have courts honor gold contracts and then you can make an argument. As it stands, when there is a truly free market, without government threats, the market prefers gold. You claim to be big on evidence so let's not ignore thousands of years of history.

You may have to take legal tender, but you can link the amount of tender to the exchange rate with gold. A gold clause still lets you do that and it's been perfectly legal to enforce since 1977. See 216 Jamica Ave. LLC v. S&R Playhouse Realty Co.. Gresham's Law makes sense but it also contradicts the idea that the market will always choose gold. You just named some important reasons that market participants will continue to contract in fixed quantities of fiat currencies instead of gold-linked quantities, such as convenience and retaining market share, even though it is legal to specify payments in terms of gold.

If market participants prefer gold, it's even more puzzling that gold doesn't dominate savings. Right now Apple is sitting on more than $75 billion in cash. Microsoft has more than $50 billion and Google more than $35 billion. They don't appear to be in a hurry to spend it. There are many large companies with multiple billions in cash on hand. Why not convert it to gold if gold is stable and fiat currencies are unpredictable? They don't need to worry about any market share loss or customer inconvenience from what they do with their savings.

Maybe 10% of those reserves are actually in cash.  Maybe.

Then what are they kept in?  I guess you aren't familiar with accounting, but cash means cash.

Cash

    ASSET account on a balance sheet representing paper currency and coins, negotiable money orders and checks, bank balances, and certain short-term government securities.

Regardless, you've sidestepped the question.  If gold and silver are the ultimate mediums of stable value storage, when why aren't all these massive cash stores converted to gold and silver bullion?

[The Script]

Stuff like that is misleading.  There is FAR FAR more to the monetary control debate than "zomg the dollar is worth only a fraction of what it was!!!"  Charts like that designed to get an emotional reaction out of people that don't think.  Without even getting into details, just consider for a second that in 1900 people worked for pennies an hour.  So, yes, the dollar was worth more, but that's only a tiny part of the story.  You can't just look at relative value of a dollar and ignore all other factors.

I understand that it is a complex issue and that wages were lower in the 1900s than they are now, but the decline in the purchasing power of the dollar still means something.  I want to learn more about the complex issues and discuss them with people.  I'm willing to discuss them with you if you are interested. 

The best place to start is to ask yourself... lost purchasing power against what?  Who decided where to set the $1 baseline on that chart and what are they using to consider how value has fluctuated?  It seems like they've used gold (no surprise there).  Is a speculative metal like gold the best thing to use to determine relative purchasing power of the dollar?  Why not use eggs, milk, iron, corn, sheep, oil, etc.?

Absolutely.  But I haven't heard anyone argue that the US dollar has lost value versus things in general, are you saying it hasn't?  Here is how much a 1774 dollar was worth in 1913 based on multiple indicators (CPI, value of consumer bundle, nominal GDP per capita, etc.) and here is how much a 1913 dollar is worth in 2009.  Finally, here is how muach a 1971 dollar is worth in 2009.

So you would agree that the US dollar has lost value, right?

A loaf of bread cost $0.05 1930 and it costs $3.00 today, but is that the whole story?  $0.05 was a couple hours' wage back in 1930.  $3.00 is less than half of minimum hourly wage today.  So yea, you could purchase a nice car for $2,500 back in the day, but that was a year's salary for many people.  So were people really better off when the dollar's purchasing power was higher?  Obviously a good bit of that chart is exaggeration and hyperbole, because the average American wasn't exactly rolling in wealth when the dollar was at its supposed peak.


The dollar's purchasing power is entirely relative.  If real wages increase at the same rate the dollar declines in value, then the decline isn't really a big deal - stuff costs more, but everyone makes more. If real wages increase at a slower rate than the dollar declines (or decline themselves), then we've got issues.  Obviously that's only the tip of the iceberg (foreign trade really messes everything up), but it's a good place to start to decide whether the decline is of concern or not.

The problem with a decline in purchasing power is that it hurts people who are saving and discourages it.  Wages will adjust to inflation, but they don't adjust right away, so the middle and lower classes are hurt by this kind of monetary policy.

[MoonShadow]

If the market always "decides" gold is great, why don't cell phone contracts, insurance policies, mortgages, employment agreements, car leases, etc. specify payment in gold?

Because of legal tender laws and Gresham's law.

You can write a contract and specify payment in gold but if the other party doesn't pay and you sue them, you're required to accept payment in legal tender. You can't say "but I wanted gold!" Likewise, since you are forced to take legal tender if you want protection from the courts, according to Gresham's law, people would rather save their gold and pass off their paper currency to you. All of this serves to reduce the amount of gold in circulation as money and we get to the state of affairs like today where very few people could even pay in gold without first buying some with paper. That makes it hugely inconvenient and businesses don't want to shrink their market share. Remove the legal tender laws and have courts honor gold contracts and then you can make an argument. As it stands, when there is a truly free market, without government threats, the market prefers gold. You claim to be big on evidence so let's not ignore thousands of years of history.

You may have to take legal tender, but you can link the amount of tender to the exchange rate with gold. A gold clause still lets you do that and it's been perfectly legal to enforce since 1977. See 216 Jamica Ave. LLC v. S&R Playhouse Realty Co.. Gresham's Law makes sense but it also contradicts the idea that the market will always choose gold. You just named some important reasons that market participants will continue to contract in fixed quantities of fiat currencies instead of gold-linked quantities, such as convenience and retaining market share, even though it is legal to specify payments in terms of gold.

If market participants prefer gold, it's even more puzzling that gold doesn't dominate savings. Right now Apple is sitting on more than $75 billion in cash. Microsoft has more than $50 billion and Google more than $35 billion. They don't appear to be in a hurry to spend it. There are many large companies with multiple billions in cash on hand. Why not convert it to gold if gold is stable and fiat currencies are unpredictable? They don't need to worry about any market share loss or customer inconvenience from what they do with their savings.

Maybe 10% of those reserves are actually in cash.  Maybe.

Then what are they kept in?  I guess you aren't familiar with accounting, but cash means cash.

Not really.  Mostly it means highly liquid investments, such as money markets.  That said, the 'cash' position of any particular corporation; or even all of them taken together, is only part of the equation.  You have to consider their debts as well.  Although most large corporations are net positive, they aren't by much.  They tend to own each others' debts via money markets, which are basicly mutual funds for corporate bonds.  This is very similar to how the banks all seem to owe each other money.  The idea that there is corporate cash sitting on the sidelines, or even private investor cash, waiting for the right moment to jump into the market is a sad myth.  That money doesn't, for the most part, actually exist.  And what doesn't exist can't be traded for gold.

Regardless, you've sidestepped the question.  If gold and silver are the ultimate mediums of stable value storage, when why aren't all these massive cash stores converted to gold and silver bullion?

As stated above, mostly because it doesn't really exist.  And for that which does exist, much of it is invested in bullion, either directly or indirectly via the 'paper' metal funds.  The thing about gold, is that it is as untraceable for corporate entities and very wealthy individuals as Bitcoin is for us.  There are estimates about how much refined "above ground" gold exists in the world, but the thing about that is that no one can really ever know with any certainty how much actually exists.  And if we can't know how much there is, we can't ever know who is trading the "shadow" supply on the margins.  Also, there are other highly liquid investments that can do as well or better than gold; such as oil futures, or ag futures.  With value levels at the top of the corporate food chain, it would be unprofessional for the CFO to invest all of the net 'cash' of the company in any single commodity, no matter how wise that particular investment might be.

[AyeYo]

Not really.  Mostly it means highly liquid investments, such as money markets.  That said, the 'cash' position of any particular corporation; or even all of them taken together, is only part of the equation.  You have to consider their debts as well.  Although most large corporations are net positive, they aren't by much.  They tend to own each others' debts via money markets, which are basicly mutual funds for corporate bonds.  This is very similar to how the banks all seem to owe each other money.  The idea that there is corporate cash sitting on the sidelines, or even private investor cash, waiting for the right moment to jump into the market is a sad myth.  That money doesn't, for the most part, actually exist.  And what doesn't exist can't be traded for gold.

Again you've sidestepped the quesiton.

WHY IS THE MONEY NOT KEPT IN GOLD?  If the money can be used to purchase commercial paper, it can be used to purchase gold.  WHY IS THE MONEY NOT IN GOLD?

As stated above, mostly because it doesn't really exist.  And for that which does exist, much of it is invested in bullion, either directly or indirectly via the 'paper' metal funds. 

Claim not evidenced.  Citation required.

With value levels at the top of the corporate food chain, it would be unprofessional for the CFO to invest all of the net 'cash' of the company in any single commodity, no matter how wise that particular investment might be.

Totally contradicts your statement that gold and silver are the ultimate stores of value.  If that claim was true, it would be criminal to NOT store all the company's excess cash in gold and silver.