Greenbacks ain’t what they used to be

Let us turn to the mailbag:

"No, our money is just fine, Vin," writes in one correspondent, answering my column of Nov. 21. "In spite of what the gold bugs would have you believe; the value of the dollar is still, historically and relatively speaking, at the place it was a century ago."

It's hard to believe anyone who's allowed unsupervised use of a computer can think the dollar is worth as much as it was a century ago -- or even 50 years ago, for that matter. You don't have to be a degreed historian or a doddering geezer to know that gasoline cost about 25 cents a gallon in 1960, that a new Ford Mustang cost $2,500 to $4,500 when introduced in 1965. A Coca-Cola cost a nickel in 1910, but today it's a dollar in a far less expensive disposable plastic bottle. (Yes, today's "single" bottles hold more -- though not that much more. Besides, shouldn't the price have dropped after Uncle Sam made them take out the coca?)

In 1910, the grocery store sold steak for about 15 to 20 cents per pound (two dimes then comprising about a seventh of an ounce of silver, you understand). Today, each pound will run you five to 10 new greenback "dollars," assuming you don't pay extra for the fancy stuff at Whole Foods.

Between 1909 and the 1920s, Henry Ford drove down the cost of a new car from $850 to $290 through efficiencies of scale. By 1940 a competing Plymouth coupe still cost only $645, with most of that cost increase explained by added features -- you couldn't have much real inflation while the dollar was tied to gold and silver.

The result? If you put your money in the bank at 3 percent interest, way back then, and let it compound awhile, when you withdrew the balance it would actually buy more than your initial principle! So people invested and the economy grew.

Inflation -- and "capital gains taxes" -- can discourage that behavior.

I've never bought a new car, but I'm told average list these days is $29,000 -- even with discounts and other gimmicks, you'll probably pay $23,000 plus a lot of interest charges unless you've got that much in cash.

Is today's car a better value because it's got disc brakes and an automatic transmission and a heater? Sure. A fifty-times-better value? No. In fact, given that they've added efficiencies of scale, figured out how to use less steel and fewer human work-hours to build each one, the cost of cars should have dropped. The inescapable conclusion is that the dollar is worth two to four cents compared to the 1910 or 1930 dollar.

So the rhetorical trick here must lie in that all-purpose qualifier "relatively" -- as in, the value of the dollar is still "relatively" at the place it was a century ago.

"Relative" to the escudo-euro, the drachma-euro, or the pound? Europe largely abandoned gold and silver even earlier than America, in the 1920s, declaring de facto domestic bankruptcy and printing up coins out of junk metal when they found they couldn't cover the ruinous cost of the World War with real money. But saying we're "in as good a shape as the Europeans, today, currency-wise" is supposed to be reassuring?

Or perhaps our correspondent means the fact that a dollar will only buy 4 cents worth of merchandise compared to 1910 is OK, because we all make salaries 25 times higher than we would have been paid in 1910.

That sounds good, except that a single wage-earner could support a family of five in a free-standing house up through the 1950s, while now it takes two adult full-time incomes to support the average family of four in a free-standing house. Why is that? (And meantime, as currency inflation continues to erode our purchasing power, who will we soon have to send out to earn a third salary to see us through? The dog? The 12-year-old?)

Yes, we've got nicer TVs and laptop computers, today, but I don't think that's the whole answer -- or even most of it. Food, rent or mortgage and utilities are still the bulk of our costs.

Meantime, if your grocery and electric bills go up by 10 percent in the next year -- and I fear that's conservative -- try telling your boss you need a 10 percent annual raise.

Maybe where our correspondent lives, bosses go, "Ten percent? No problem! In fact, we were planning on bumping you 15 percent again this year! After all, we have to keep the dollar value of all our salaries 'relatively' the same after inflation!"

But back here where most of us live, inside the orbit of Uranus, assuming the boss doesn't say, "Actually we're closing our doors next week -- at least it'll save you on commuting costs," the best-case scenario in the private sector these days is likely to be something more like "Sales are flat and profits are down. We're lucky to get 1 percent."

Still, I suppose there's no convincing anyone who insists on believing their paper dollars have not lost value, that someone who was promised years ago their widow would be fine on a $2,000-a-year railroad pension was not cheated in any way by the banksters printing up all their new Monopoly money at the Federal Reserve.

So perhaps I'll just conclude with this invitation: If you're convinced your grandma's 18-carat gold wedding ring and sterling silver flatware have the same value in "dollars" as they had in 1960 or 1940 or 1910, because "the value of the dollar is still, historically and relatively speaking, at the place it was a century ago," bring them by. We'll caravan to a nearby pawn shop where your goods can be checked for purity, at which point I'll gladly pay you in 2010 greenbacks $15 an ounce for the 18-carat gold and 90 cents an ounce for the 90 percent pure sterling silver -- pretty much the fixed going rate in 1910, 1940 and 1960, when you could go to the bank and turn in a one-dollar greenback for a 90 percent silver dollar, on demand.

That's a good deal, given that our 2010 greenbacks have "relatively" the same value today as they had back then ... right?

The Germans were "released from the chains of gold" in favor of a fiat paper currency in the early 1920s. By 1923 they had to pass their paychecks over the factory fence to their wives at lunch time, so the wives could go turn them into a wheelbarrow full of Marks to buy a loaf of bread right away, since the price would go up again by suppertime.

Wait for it.

Vin Suprynowicz is assistant editorial page editor of the Review-Journal, and author of "The Black Arrow." See www.vinsuprynowicz.com.