JohnQPublic
18th June 2010, 01:03 PM
NW Territorial Mint published one of my articles in their newsletter. The introduction also introduces Gold-Silver.US. You can sign up for their newsletters here: http://bullion.nwtmint.com/investor_guide.php
The article is based on my GSUS article What Do Silver and Gold Buy? (http://www.gold-silver.us/what_silver_gold_buys.html). My article was split into to two parts to be published in two successive NWTMint newsletters. Here is part one as published:
Purchasing Power of Gold and Silver: 2010 and 1903
by John Q. Public
“John Q. Public†writes for www.Gold-Silver.US, a forum for the discussion of gold, silver and precious metals and tracking “the ongoing collapse of the financial system and all its implications.†The author has also used the nom de web, “Joe Sixpack.â€
We often hear that we could never go back to a gold or bimetallic (gold and silver) standard, because there is not enough gold and silver in the world to do so. But is this actually the case? In the 19th century and much of the 20th century, the United States used a gold standard or a bimetallic (gold and silver) standard of some type. Even then, not every dollar in circulation was minted as a coin – in fact most were not.
An analysis of the purchasing power of gold and silver in 2010 and 1903 reveals that these precious metals could perform essentially the same function now as they did at the turn of the last century.
In 1903, there was no Federal Reserve System. The US was on a gold standard, but both gold and silver circulated as money.
Silver was permitted to float relative to gold (no 16:1 or other fixed monetary ratio).
There was no income tax in 1903, so more of money earned went to the worker.
The population of the USA was around 80.8 million (US Population Statistics, Bob McCaughey). Today it is around 307 million (US Census Bureau estimate, May 2010).
Comparison of silver and gold purchasing power: 2010 and 1903
To compare the purchasing power of silver and gold today vs. 1903, please note the following data:
US population 1903 = 80.8 million
World population 1903 = 1.6 billion (www.Geography.about.com)
US population 2010 = 307 million World population 2010 = 6.9 billion (www.Geography.about.com)
The current US population is 3.8 times what it was in 1903, and the current world population is 4.3 times what it was in 1903. Since these population growth ratios are so similar, an average of the two is used for this analysis. This average ratio is 4.05.
The silver and gold market is worldwide, and there is potential for silver and gold to be used as money in many places in the world. Finally, the US has always purchased (and sold) some silver and gold in foreign markets.
As for the metals themselves, according to the USGS, the world production of silver in 2008 (nearest year available) was 4.08 times what it was in 1903; for gold, 4.6 times what it was in 1903.
Defining purchasing power of a commodity as being proportional to the population (i.e., more population is more demand), and inversely proportional to the production rate (i.e., less commodity is less supply and thus higher purchasing power) we can use these ratios to compare the purchasing power of silver and gold today (2010) vs. 1903.
2010 Purchasing Power of Silver in 1903 Scenario = Population Ratio/Silver Production Ratio = 4.05/4.08 = 0.99 or 99%. This means that 1 Troy oz. of silver in 2010 should purchase 99% of what it did on 1903. Conversely wages in 2010 should be 101% of what they were ion 1903 on a silver basis.
2010 Purchasing Power of Gold in 1903 Scenario = Population Ratio/Gold Production Ratio = 4.05/4.6 = 0.88 or 88%. This means that 1 Troy oz. of gold in 2010 should purchase 88% of what it did on 1903. Conversely wages in 2010 should be 114% of what they were in 1903 on a gold basis.
What is this analysis reveals is that, over more than a century, there has not been a huge change in the purchasing power of gold and silver. The amount of production of gold and silver per capita is actually a little higher in 2010 than it was in 1903! This means that if there was enough gold and silver to be used in 1903 to the extent it was and in the manner it was (i.e., fractional reserve basis), the same could be true today!
Disclaimer: This is a hypothetical analysis, and cannot be verified. Please do your own due diligence. The study is intended as a basis of discussion and a possible guideline for those already purchasing or considering purchasing silver and /or gold.
The article is based on my GSUS article What Do Silver and Gold Buy? (http://www.gold-silver.us/what_silver_gold_buys.html). My article was split into to two parts to be published in two successive NWTMint newsletters. Here is part one as published:
Purchasing Power of Gold and Silver: 2010 and 1903
by John Q. Public
“John Q. Public†writes for www.Gold-Silver.US, a forum for the discussion of gold, silver and precious metals and tracking “the ongoing collapse of the financial system and all its implications.†The author has also used the nom de web, “Joe Sixpack.â€
We often hear that we could never go back to a gold or bimetallic (gold and silver) standard, because there is not enough gold and silver in the world to do so. But is this actually the case? In the 19th century and much of the 20th century, the United States used a gold standard or a bimetallic (gold and silver) standard of some type. Even then, not every dollar in circulation was minted as a coin – in fact most were not.
An analysis of the purchasing power of gold and silver in 2010 and 1903 reveals that these precious metals could perform essentially the same function now as they did at the turn of the last century.
In 1903, there was no Federal Reserve System. The US was on a gold standard, but both gold and silver circulated as money.
Silver was permitted to float relative to gold (no 16:1 or other fixed monetary ratio).
There was no income tax in 1903, so more of money earned went to the worker.
The population of the USA was around 80.8 million (US Population Statistics, Bob McCaughey). Today it is around 307 million (US Census Bureau estimate, May 2010).
Comparison of silver and gold purchasing power: 2010 and 1903
To compare the purchasing power of silver and gold today vs. 1903, please note the following data:
US population 1903 = 80.8 million
World population 1903 = 1.6 billion (www.Geography.about.com)
US population 2010 = 307 million World population 2010 = 6.9 billion (www.Geography.about.com)
The current US population is 3.8 times what it was in 1903, and the current world population is 4.3 times what it was in 1903. Since these population growth ratios are so similar, an average of the two is used for this analysis. This average ratio is 4.05.
The silver and gold market is worldwide, and there is potential for silver and gold to be used as money in many places in the world. Finally, the US has always purchased (and sold) some silver and gold in foreign markets.
As for the metals themselves, according to the USGS, the world production of silver in 2008 (nearest year available) was 4.08 times what it was in 1903; for gold, 4.6 times what it was in 1903.
Defining purchasing power of a commodity as being proportional to the population (i.e., more population is more demand), and inversely proportional to the production rate (i.e., less commodity is less supply and thus higher purchasing power) we can use these ratios to compare the purchasing power of silver and gold today (2010) vs. 1903.
2010 Purchasing Power of Silver in 1903 Scenario = Population Ratio/Silver Production Ratio = 4.05/4.08 = 0.99 or 99%. This means that 1 Troy oz. of silver in 2010 should purchase 99% of what it did on 1903. Conversely wages in 2010 should be 101% of what they were ion 1903 on a silver basis.
2010 Purchasing Power of Gold in 1903 Scenario = Population Ratio/Gold Production Ratio = 4.05/4.6 = 0.88 or 88%. This means that 1 Troy oz. of gold in 2010 should purchase 88% of what it did on 1903. Conversely wages in 2010 should be 114% of what they were in 1903 on a gold basis.
What is this analysis reveals is that, over more than a century, there has not been a huge change in the purchasing power of gold and silver. The amount of production of gold and silver per capita is actually a little higher in 2010 than it was in 1903! This means that if there was enough gold and silver to be used in 1903 to the extent it was and in the manner it was (i.e., fractional reserve basis), the same could be true today!
Disclaimer: This is a hypothetical analysis, and cannot be verified. Please do your own due diligence. The study is intended as a basis of discussion and a possible guideline for those already purchasing or considering purchasing silver and /or gold.