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24th May 2010, 11:05 AM
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Letter Re: Conjecture on the Value of Silver in Barter Transactions.
Permalink
Hi Jim,
I would like your thoughts on something. I have been stocking up on silver for many years, but I'm wondering what you think will happen to the value of it at TEOTWAWKI. Here is my thinking, right now silver is worth around $18 U.S. dollars per [Troy] ounce, that is easy to understand. But if the dollar goes away then how do we put a value on the silver? I have been told that silver will go way up if the dollar fails but I can't seem to understand how it will work. Currently I could trade silver for cash, but if there was no [functional] cash how would I know what the silver would be worth? So, right now an ounce of silver is worth, two laying hens, or $20. But what happens after the SHTF? Will an ounce of silver be worth twenty hens? Or maybe just a can of beans? How will it all work? Any insight? Thanks for all you do. - M. in Utah
JWR Replies: I think that a better long term perspective on "prices" versus "values", we should examine four points of reference: Wages, manufactured goods, services and real property (houses.) First, let's look at wages. Back "in the old days"--say before World War I--the average wage for a working man was around one silver dollar a day. One day's wage right now for someone that works at a minimum wage job (at $7.25 per hour) is $58 for an eight hour work day. A more typical wage for a workman with experience is around $11 per hour ($88 per day.) One dollar (face value ) in 90% silver pre-1965 coinage contains 22.67 grams of silver, or 0.728857 of a Troy ounce. Today's spot price of silver is $17.55 per Troy ounce. So that makes a pre-inflation Dollar (a true dollar in silver coin) worth $12.79. (Or just think of it as roughly 13 times $1 in face value -- "13 times face", whether it is silver dimes, quarters, or half dollars.) So, to put things in perspective, it takes $6.76 in Pre-'65 silver coinage to equal one typical day's wages ($88 in the current fiat paper money). Thus in terms of wages silver should have a spot value about five or six times it current value. By this measure, silver appears to be grossly under-valued.
Next, let's discuss manufactured goods. As I mentioned once before in SurvivalBlog: In 1964 (the last year that silver coins were in general circulation in the U.S.), a basic blued steel Colt Model 1911 .45 automatic pistol cost around $65 retail. Today, a comparable Colt M1911 (a Series 80) costs around $775 retail. So if you were to sell $65 face value of your cache of silver coinage at your local coin shop, and they offered you 12 times "face"--that would net you $780 in the current funny money. You could then easily go buy a .45 at your local gun shop with the proceeds. The bottom line: it is not autopistols that have gone up in "price". Rather, it is paper dollars that have gone down in purchasing power.
How about services? In 1964, a haircut cost around 75 cents, or perhaps $1 in the big city. Today it costs $14.
Now let's look at the relative values of silver coinage and real property: In 1964, the median house price in the U.S. was around $18,000. Today, it is around $170,000. (A 9.4x increase.) If you had set aside $18,000 face value in silver coins in 1964 (18 bags of $1,000 face value each), and held them until the present day, they'd net you around $216,000 if you sold them to a bullion coin dealer. That is enough for an above average house. So obviously silver coins have held their value far better than paper dollars. Anyone who sits on paper dollars for very long--at least dollars that aren't earning much interest--is a fool.
In my opinion, you can trust tangibles (like silver and guns), but you shouldn't put much trust in paper currency in the long term. To safeguard your net worth in the inflationary days to come, always remember: Don't leave your earnings in paper money for long. As quickly as possible, convert it into tangibles, to protect your savings from the ravages of inflation. Consumer price inflation is mild now, but that probably won't be the case in the near future. Adjust your monetary mindset and you modus operandi!
Yes, I realize the foregoing is simplistic. Among other things, it overlooks factors such as compounding interest and stock market values. But the essence of it is clear: In the long run paper currencies that are not genuinely redeemable for specie lose value. Inflation is a hidden form of taxation. Cui bono? Who benefits from currency inflation? The organization that runs the printing press.
In closing, let's return to that hypothetical practical barter in a Schumeresque world. You asked: "...how would I know what the silver would be worth?" I surmise that it will probably buy you about the same value goods or services as it does today, give or take. The exact value is not important. Those things sort themselves out rapidly, in a free market. (Free markets reach price equilibrium very quickly.) Within a few weeks after a currency crisis, the "in silver" price of beans, rice, .22LR and gasoline will already be established and become common knowledge. The important thing to remember is that the relative values of precious metals and irredeemable paper currency. Metals hold their value, whereas paper currencies do not. You know where I stand, and where I suggest that you place your trust
http://survivalblog.com/
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Letter Re: Conjecture on the Value of Silver in Barter Transactions.
Permalink
Hi Jim,
I would like your thoughts on something. I have been stocking up on silver for many years, but I'm wondering what you think will happen to the value of it at TEOTWAWKI. Here is my thinking, right now silver is worth around $18 U.S. dollars per [Troy] ounce, that is easy to understand. But if the dollar goes away then how do we put a value on the silver? I have been told that silver will go way up if the dollar fails but I can't seem to understand how it will work. Currently I could trade silver for cash, but if there was no [functional] cash how would I know what the silver would be worth? So, right now an ounce of silver is worth, two laying hens, or $20. But what happens after the SHTF? Will an ounce of silver be worth twenty hens? Or maybe just a can of beans? How will it all work? Any insight? Thanks for all you do. - M. in Utah
JWR Replies: I think that a better long term perspective on "prices" versus "values", we should examine four points of reference: Wages, manufactured goods, services and real property (houses.) First, let's look at wages. Back "in the old days"--say before World War I--the average wage for a working man was around one silver dollar a day. One day's wage right now for someone that works at a minimum wage job (at $7.25 per hour) is $58 for an eight hour work day. A more typical wage for a workman with experience is around $11 per hour ($88 per day.) One dollar (face value ) in 90% silver pre-1965 coinage contains 22.67 grams of silver, or 0.728857 of a Troy ounce. Today's spot price of silver is $17.55 per Troy ounce. So that makes a pre-inflation Dollar (a true dollar in silver coin) worth $12.79. (Or just think of it as roughly 13 times $1 in face value -- "13 times face", whether it is silver dimes, quarters, or half dollars.) So, to put things in perspective, it takes $6.76 in Pre-'65 silver coinage to equal one typical day's wages ($88 in the current fiat paper money). Thus in terms of wages silver should have a spot value about five or six times it current value. By this measure, silver appears to be grossly under-valued.
Next, let's discuss manufactured goods. As I mentioned once before in SurvivalBlog: In 1964 (the last year that silver coins were in general circulation in the U.S.), a basic blued steel Colt Model 1911 .45 automatic pistol cost around $65 retail. Today, a comparable Colt M1911 (a Series 80) costs around $775 retail. So if you were to sell $65 face value of your cache of silver coinage at your local coin shop, and they offered you 12 times "face"--that would net you $780 in the current funny money. You could then easily go buy a .45 at your local gun shop with the proceeds. The bottom line: it is not autopistols that have gone up in "price". Rather, it is paper dollars that have gone down in purchasing power.
How about services? In 1964, a haircut cost around 75 cents, or perhaps $1 in the big city. Today it costs $14.
Now let's look at the relative values of silver coinage and real property: In 1964, the median house price in the U.S. was around $18,000. Today, it is around $170,000. (A 9.4x increase.) If you had set aside $18,000 face value in silver coins in 1964 (18 bags of $1,000 face value each), and held them until the present day, they'd net you around $216,000 if you sold them to a bullion coin dealer. That is enough for an above average house. So obviously silver coins have held their value far better than paper dollars. Anyone who sits on paper dollars for very long--at least dollars that aren't earning much interest--is a fool.
In my opinion, you can trust tangibles (like silver and guns), but you shouldn't put much trust in paper currency in the long term. To safeguard your net worth in the inflationary days to come, always remember: Don't leave your earnings in paper money for long. As quickly as possible, convert it into tangibles, to protect your savings from the ravages of inflation. Consumer price inflation is mild now, but that probably won't be the case in the near future. Adjust your monetary mindset and you modus operandi!
Yes, I realize the foregoing is simplistic. Among other things, it overlooks factors such as compounding interest and stock market values. But the essence of it is clear: In the long run paper currencies that are not genuinely redeemable for specie lose value. Inflation is a hidden form of taxation. Cui bono? Who benefits from currency inflation? The organization that runs the printing press.
In closing, let's return to that hypothetical practical barter in a Schumeresque world. You asked: "...how would I know what the silver would be worth?" I surmise that it will probably buy you about the same value goods or services as it does today, give or take. The exact value is not important. Those things sort themselves out rapidly, in a free market. (Free markets reach price equilibrium very quickly.) Within a few weeks after a currency crisis, the "in silver" price of beans, rice, .22LR and gasoline will already be established and become common knowledge. The important thing to remember is that the relative values of precious metals and irredeemable paper currency. Metals hold their value, whereas paper currencies do not. You know where I stand, and where I suggest that you place your trust
http://survivalblog.com/