According to the latest spot prices from Kitco Metals, an ounce of gold costs more than two thousand United States dollars, an increase of 37.2% from gold's March 2020 low point. This is an important metric, as gold is the ultimate store of value: Scarce and constantly in demand, it has uses both practical and ornamental.
Gold is actually the ultimate form of money, properly defined. As I note in my July 21, 2020 editorial on Dr. Judy Shelton: "We trade goods (including our labor) for money, which -- in turn -- allows us to obtain things that we want and value. However, in order for money to function, it must be valuable for the parties involved." Gold is prized by nearly everyone and it has long been recognized as an appropriate intermediary between other things of value.
Thus, the surge in the price of gold indicates a diminution in the purchasing power of the dollar relative to real money. The data suggest that this is the result of Federal Reserve policy. Between February 24th and July 20th, the M1 money stock -- which includes currency, bank deposits, traveler's checks, and other instruments immediately convertible to dollars -- ballooned by 34.7%. The M2 money stock, a slightly broader measure that includes money market accounts and time deposits, expanded by a more muted 18.7%. The market is awash in dollars and consumers are saving at an elevated rate, but demand for the Fed's scrip has not risen.
The connection between the price of gold and the surge in the money supply is not imaginary. The New York Times, hardly a hotbed of supporters of sound money, reports, "[I]nvestors are ... determining that buying gold — which is traditionally considered an investment that holds its value over time — is the best thing they can do to shield themselves from inflation and weakening of so-called fiat, or paper, currencies."
Godspeed to the investor class, but most Americans have neither the wherewithal nor the savings required to protect themselves from a depreciating dollar. Enter Jon Schweppe, the director of governmental affairs for the American Principles Project. The group's primary focus is the preservation of the two-parent family, a fundamental predicate for societal flourishing, but they have an avid interest in the reintroduction of the gold standard.
Uniquely, Schweppe links the family with monetary policy. He notes that in the 1950s, it was feasible for one working parent to financially support a household. However, the decline in the dollar's purchasing power makes that proposition unrealistic in today's day and age. Even with two parents in the labor force, working-class families must scrimp and save to divide their finances between competing obligations: basic expenditures, medical and educational costs, and savings.
Schweppe's argument is supported by the data. In 1950, the median home cost $7,400 and the median rent payment was $42. In 2010, when home prices were depressed as a result of the financial crisis, the median home cost $221,800 and the median rent was $901. After adjusting 1950 dollars to 2010 terms with the help of the Bureau of Labor Statistics' consumer price index (CPI), the price of the median home in 1950 was $66,955 and the median rent was $380.
Another thing to consider is the cost of education. A 2017 article from the Catholic weekly The Wanderer quotes a woman who, in the 1950s, enjoyed free grade school and high school at an annual cost of $260. Adjusting for inflation with the CPI, that is $2,781 in 2020 terms. Her grandson's high-school tuition? $33,000 per annum.
Thanks to the diminution of the dollar's purchasing power, the children of working-class Americans (who were formerly able to receive a good Catholic education) are being consigned to hit-or-miss public schools.
Even in the 2010s, when the average rate of inflation was nominally less than two percent per annum, Americans' purchasing power steadily declined. Their healthcare and educational costs continued to rise, but these increases are not measured by the CPI and they greatly exceeded the official rate of inflation. Accurately, Schweppe dismisses the CPI as a "state-set metric."
It is no surprise that marriage and family-formation rates have collapsed since the cancelation of the gold and silver standards by Presidents Richard Nixon and Lyndon Johnson, respectively. The financial calculus dooms families without one of the following: (1) income from two working parents, (2) outsize income from one working parent, or (3) transfer payments from the government.
The first option limits parental involvement in children's lives, the second option is not widely available, and the third option is antithetical to the American credo of self-reliance. Inflation is clearly not a victimless crime.
Schweppe and the APP are working to reverse a half-century of decline in the metrics that matter: the value of the dollar, the rate of family formation, and the proportion of children who live in two-parent homes. Most germane to this article is their advocacy for sound money.
In the short term, the APP is lobbying for the exclusion of gold and silver from the capital gains tax. In other words, if someone converted $200 into gold by buying a 1/10th-ounce coin, kept it until the value of an ounce reached $3,000, and then converted it back into dollars, the APP does not want the taxman to take a portion of that $100 "profit." Schweppe believes that canceling the tax on gold-and-silver profits could lead to their widespread circulation as media for exchange.
The APP's ultimate goal is the reintroduction of the gold standard, wherein each dollar could be converted into a fixed amount of gold. Schweppe concedes that there is no real constituency for such a move in today's Washington, D.C., though Senator Rand Paul (R., Kentucky) has pushed for a monetary commission.
Absent real congressional action, the reckoning will come only when the dollar loses its status as the world's reserve currency. Schweppe notes that this may occur sooner than later, with China and Russia hoarding gold in an attempt to displace the dollar with the renminbi and the ruble.
The Constitution gives Congress the power to "to coin Money" and "regulate the Value thereof." Will they retake control of the dollar before it is too late? With merit, Schweppe would argue that American families hang in the balance.
All unsigned FDL Review content is the product of Declan M. Hurley.