A thought worth far more than a fiat penny

Joe Huffman notes that the recent spike in gold prices doesn’t mean that value of gold has gone up, it’s just that the dollar is suddenly worth less with the latest round of “quantitative easing“. HerrBGone points out that the effective purchasing power of gold has basically remained flat for nearly 100 years.

In 1920 […] the base price of a Ford Model T was $260 (according to Wikipedia).
The dollar was backed by Gold at an exchange rate of $22 per Ounce Troy (oz/T).
So the cost of the car was 11.81 ounces Troy if paid for in gold.

The invoice price of a base 2013 Ford Fusion is $20,235  […]  Today the spot price of one ounce Troy of Gold is $1693.70 (according to Kitco).  So the cost of the car is 11.94 oz/T if paid for in Gold.

You’ll notice a slight difference in the gold price between the two cars, but then again they’re not really directly comparable – the Ford Fusion is much more complex, and requires a greater amount of materials. On the other hand, manufacturing capability and efficiency have both increased exponentially in the interval. A true direct cost comparison that accounted for these changes would be long, complex, and difficult.

But it still makes a good illustration of the effective drop in purchasing power of the dollar – the same amount of gold will buy you an average car now as would buy you an average car about 100 years ago, while the number of dollars required to do so has increased by a factor of more than 75.

Just think about it.

END OF LINE

(h/t SayUncle)

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