Image from Central Bank of The Bahamas web site
With the price of gas now at $4.55 to $4.85 per gallon here in The Bahamas, we need to remind ourselves what the price, adjusted for inflation would be.
Using the formula as outlined by Dr. George Reisman, back in 2006, the price of our gasoline today is really only one gold dime.
If you want to check my maths, the price of gold today at Gold Price is $917.15. When the dollar was worth an ounce of gold, one dollar would have been worth $45.85 and a gold dime would be worth $4.59.
Dr. Reisman points out that:
The key point here is that our money is getting cheaper and that’s why prices are rising. Don’t be surprised if in the future, gasoline is a lot more expensive in paper money than it is today and, at the same time, cheaper than it is today in our Constitutional gold money. Look for $5 per gallon gasoline in the paper and 7 cent per gallon gasoline in gold. That’s a real possibility.
I still maintain however, that the faster the price of gas rises, the sooner an alternative will be found.
Read on for Dr. Reisman's entire post, reprinted with permission.
WEDNESDAY, MAY 10, 2006Gasoline at 10 Cents a Gallon and Falling
by Dr. George Reisman
Does gasoline at 10 cents a gallon and falling sound impossible in today’s world? Well, if you think it’s impossible, you’re wrong. Because that’s where gasoline actually is, and it looks like it’s going even lower.
Of course, it’s not 10 cents a gallon in today’s paper money. But it is 10 cents a gallon in the Constitutional money of the United States, which is gold coin and bullion.
Gold is now at $700 per ounce, and rising. Above is a picture of a $20 United States gold coin known as a Double Eagle. If you look carefully, at the bottom of the coin, you can actually see where it says “Twenty Dollars.”
This coin contains approximately one ounce of actual gold, which means that at today’s market price of gold, it’s worth $700. And this means that one gold dollar is worth $35 of today’s paper dollars. And that means that one gold dime is worth $3.50 in today’s paper money. This last, of course, is roughly what a gallon of gasoline costs in today’s paper money. Which means that a gallon of gasoline costs just 10 gold cents.
So why does a gallon of gasoline cost $3.50 in the paper money? Well, one explanation is that we’re expressing the price of gasoline in terms of a money that is itself very cheap and getting cheaper. Just think: if $20 gold dollars are worth $700 paper dollars, one paper dollar is worth only one thirty-fifth of a gold dollar. That’s less than 3 cents. It shouldn’t be surprising that buying things with 3-cent dollars is going to require a lot of such dollars.
The key point here is that our money is getting cheaper and that’s why prices are rising. Don’t be surprised if in the future, gasoline is a lot more expensive in paper money than it is today and, at the same time, cheaper than it is today in our Constitutional gold money. Look for $5 per gallon gasoline in the paper and 7 cent per gallon gasoline in gold. That’s a real possibility.
This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.
