Professor Elam

Gold just hit $800 + and backed off.   This writer attempts to discuss what that means now and historically. I agree with his historic analysis about abandoning the gold standard. What that really did was let politicians expand the money supply at will without any thing behind the money.  You see, before Nixon abandoned the gold standard, one could redeem actual US Greenbacks in gold or silver, dollar bills bore the title, Silver Certificate.  This assured everyone that the money really counted for something. But if you are a poiltician, always promising everything to everyone, the requirement that money be backed by gold limits how fast the money supply can expand.  The productivity of the economy limits the expansion to just that.  Without the gold backed requirement, governments can print money as fast as they want, expand government programs, and as long as everyone accepts the fiat, or value by decree, money, everything is hunky dorey.

This expansion of money supply helps explain how the US buck has dropped from 120 to the EU to 75 in the last few years. Your dollar now buys a lot less on that European vacation.  But the argument goes, that makes our goods cheaper overseas.  And that increases exports. Yes but the dollar as a store of value is going down, at least if you want to leave the US. 

The result has been an explosion of the prices of tangible things.  Why?  Because to keep a constant purchasing price or value the prices of oil, aluminum, real estate, silver, go up when the dollar goes down.  This is also true of the US Stock Market.  Again, and this is the point the writer of the article missed in talking with Wanninski.  Gold has been a ‘store of value’ for the eternity of man’s existence for one simple reason.

The supply of gold is limited. Politicians can print money made from trees all day long.  They cannot do that with money backed by gold. Hence gold is the historical standard of value, the ultimate money.  As for this nonsense that there is no inflation, well, what is it costing you to attend college?  It cost me $50-200 a semester from 1966-70.