A previous tutorial showed how the purchasing power of the US dollar has actually increased over the years for the most part, when measured in terms of how much labor is required to buy something.  However, that only held true when things were bought with money earned from recent labor.  Money that was put into savings became devalued through the years due to inflation.

This raises an interesting question: Was gold a better form of money when it came to longer-term savings?  Was it better than the “fiat currency” that we use today?

Here is a chart which shows the relationship between gold and housing, when our nation was still on the gold standard:



We see that gold maintained a price around $20/oz.  It did so simply for the reason that it was our monetary standard.  Everything else changed in relation to it.  Housing prices more than doubled in price from 1899 to 1929, going from $2,150 to $4,825.  Data also shows that milk more than doubled in price, and bread almost doubled in price.

Let’s pretend that you started to save $20 gold coins in 1899, which the goal of buying a house.  You can see where your savings would keep getting devalued by inflation – even though gold (or gold-backed paper) was the store of value during that time.

The purpose of the chart shown above is twofold:

1) Both gold AND fiat currency have been very poor “stores of value” in our economy – when they get used as our currency.  This is due to the fact that they are held to a fixed value over time.  Gold has shown itself to be a better store of value (sometimes) in recent decades – but that’s only because it is not longer used as money, and can fluctuate freely as a commodity.

2) Price inflation is not caused by people buying and selling in normal transactions.  The only way that inflation can occur is if the underlying money supply is increased, or if the amount of goods and services are decreased while the existing supply of money stays the same.

There’s a video that is currently popular in some economic circles.  It’s called: “The Secret of Oz” – and it contains the following quote from the man who put the video together: “It's not what backs the money that's important, it's who controls its QUANTITY.”

This quote is not entirely accurate.  Let’s see if we can improve upon it.

First, it’s VERY important what “backs” a currency.  And the answer is not gold – it is completed labor.  Our nation’s currency is completely backed by claims on future labor – not completed labor.  This was even true during the gold standard days after the enactment of the 1913 Federal Reserve Act.  Currency must ALWAYS be backed by completed labor in order to have an honest economy.  Debt-based economies do nothing except to empower the international bankers and create debt servants and slaves out of the rest of us.

Second, it’s very important who controls the quantity of money in our nation’s money supply.  Creating new money that increases the supply adds inflationary pressure.

Who’s responsible for the largest increase in our money supply?  It’s actually a multi-faceted answer.  The Federal Reserve must first increase the “core” money supply, and then the bankers offer loans to businesses and consumers based on bank deposits.  This means that the largest inflationary increases to our nation’s money supply come from those that complain about it most – businesses and consumers.  After all, every new loan creates new money.  We’re (speaking as a group) the ones doing the most to destroy the purchasing power of our long-term savings.

But, there’s also another side.  Banks still control the availability of credit.  We can’t take out new loans to increase the money supply if the banks won’t make new loans to us.  Herein lies the evil nature of international banking institutions.

What if you were an international banker, and you desired to get incredibly wealthy without having to do very much in the way of labor?  Let’s further say that you want others to do your labor for you, and then you want to take a large portion of the assets from their labor.  How would you do it?

First, you would begin by increasing the “core” money supply in order to get the inflation ball rolling.  Then you would offer loans with very lenient terms – causing the masses to greatly inflate the money supply for you, and devaluing their savings at the same time.   Next, you put all of this on the back burner and let it simmer for a period of time.  You’re now free to browse your favorite retail yacht catalog.

Now it’s time to make your wealth.  You begin be tightening credit standards and reducing the credit availability on business and consumer credit cards.  Then you pull the easy standards for “commercial paper”, so that businesses cannot get short-term lending to meet their payrolls.  You watch as all of this comes to a boil – ending with massive bankruptcies on the loans that you created out of nothing.  Of course, those loans were backed by the underlying assets that people had been laboring over – so now those assets belong to you.  Congratulations!  You’re rich beyond your wildest imagination!

Of course, you still have the pesky government to deal with.  They saw this debt tsunami hit them between the eyes, so they’ve undertaken a “spend like a drunken sailor” plan in an effort to stop the credit destruction that you’re causing.

You can merely sit and laugh at the folly of the government.  After all, EVERY time they increase their debt spending means that YOU own the future claims on the taxpayers labor!  You look at the government as the fools that they are – groveling about trying to maintain their power structure at the expense of their citizenry.

Meanwhile, the middle-class in our nation gets destroyed.