Sunday, May 15, 2011

Today's Record LOW Gas Price

Over the past several weeks there has been a ton of reports about the high price of gas. Right now I would have to fork over nearly four dollars just to buy one gallon of gas. And it's true, if you're paying for gas in dollars, the price is almost at a record high. But I bet you haven't heard anything about how today's price of gas is at a record low. In reality, gas has never been cheaper in America. The problem is that in order to enjoy these record low prices you'll have to pay for that gas with real money, which the government quit issuing a few decades ago.

Before 1965 the government issued quarters and dimes that were made out of 90% pure silver. Before 1968 a dollar bill was really a silver certificate. That is, you could bring that bill to a Federal Reserve branch and get an ounce of silver in return. A quarter was made out of 1/4 ounce of silver and a dime was made out of 1/10 ounce of silver.* Today the coins are made out of whatever metal happens to be the cheapest and is then coated with another cheap metal to give it a silver color, making them have almost no intrinsic value. If someone asked for a quarter and you gave them a couple grams of copper and nickel that was worth 5.7 cents, I doubt that they would accept it, which is odd because that's all a quarter is. As for dollar bills, we don't even have those any more. What we have are Federal Reserve Notes, which are basically green pieces of paper that are backed by government debt. If you don't believe me then just take any bill out of your wallet and read the top of it. If you bring a FRN to a Federal Reserve branch and ask for anything in return they'll laugh in your face. Modern money in all its glory!

But back to the record low gas price. In 1931 the price of gas hit the all-time low price of about 17 cents per gallon. But remember, our money at that time was, quite literally, gold and silver. Now suppose you have a dime that was minted before 1965. You could take that coin to your local precious metal store and exchange it for about $3.50, since silver is currently at about $35/ounce. You could then drive to a gas station and get nearly a gallon of gas with those FRN's that a single dime bought you. In fact, if you paid for gas with those silver coins, gas would only cost you about 11 cents a gallon.**

What has happened here is obvious to anyone who cares to think about it. It's not the price of gas that is soaring. It's the value of the Federal Reserve Notes that are plummeting, causing you to fork over more of them just to buy the same amount of gas.*** We don't need presidential investigations or a special task force to understand why prices are rising, we just need to understand what money really is. Sadly, those of us that do understand this and, consequently, would like to return to a gold standard, are viewed in the same light as people who claim to have seen Elvis in a Tennessee truck stop, have a story about being abducted by aliens or harbor a rabid desire to blow up government buildings after spending a couple decades of isolation in a two-room shanty in Montana.

I think it's time to stop complaining about high gas prices and start complaining about the Federal Reserve purposely devaluing the money we use to buy gas. And Justin Bieber. Seriously.

*Actually, since they're only 90% silver they don't actually contain 1/10 an ounce of silver. I'm oversimplifying a little bit to avoid explaining a whole bunch of pointless math, but doing so doesn't alter my point. Feel free to do the math yourself.

**Interesting fact here. Today's price of gas is $3.90, and measured in depression-era currency it's $0.11. Do the math and you'll see that is a 97% difference. That's exactly how much the value of a dollar has declined since the Federal Reserve was instituted in 1913. This is no coincidence.

***One reason those on the political left who are more passionate about combating the widening wealth gap and, at least on a surface level, want to directly aide the poor, should support the gold standard is that the inflation of the monetary supply disproportionately benefits the most wealthy in society. When new money is created, the wealthiest people get it first. That means they get the benefits of spending or investing this new money before the monetary inflation causes prices to rise. Once the inflation eventually benefits poorer people in the form of higher wages, the prices have already risen, meaning that their income doesn't necessarily go up in real terms.

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