The price of gold recently hit $4,000 per ounce. That means a lot to economists. When the U.S. government created the Federal Reserve in 1913, gold was worth just $22 per ounce. What happened?
Gold has had value for thousands of years. So, people have taken care of it and only insignificant amounts have been lost. Almost all the gold ever mined still exists in someone's vault. Mining companies continue to add to the stock, but in comparison to the amount existing, their contributions are small. Central banks hold most gold.
So if the stock of gold in the world, changes little, why has the price soared from $22 to $4,000 per ounce? The answer is that the value of gold hasn't changed; the value of the dollar has crashed. But how did that happen? It happened because the volume of dollars in existence increased much more rapidly than the volume of gold.
A good example is the demand for chicken versus pork in China. Chinese love their pork. Chicken not so much. When the swine flu hit, millions of pigs died and the supply of pork collapsed. Economists thought that people would substitute chicken for pork. The price of pork sky rocketed. Chicken prices barely budged.
Before swine flu decimated pig farms, a pig might have been sold for the same amount of cash as say 20 chickens. Afterwards, the price of pigs rose to the level that a pig might have had the same price as 100 chickens. The point is that, other things remaining the same, or ceteris paribus, a change in the quantity of a commodity produced will change its value.
In the Chinese example, the reduction in the quantity of pigs caused their price to soar relative to chickens. But what if the swine flu hadn't happened and instead, China had imported as many pigs from the U.S. so that the number of pigs was twice as many? In that case, the opposite would have happened. The price of pigs would have been halved, roughly, and might cost the equivalent of ten chickens.
As mentioned, the amount of gold in existence has not fallen, so we can rule that out as a cause of its amazing price increase. Anyway, additions to the gold stock by miners would cause its price to fall, not rise. So what happened? The other side of the equation in the price of gold is the U.S. dollar. If gold prices are rising, the value of the dollar must be falling. And that's what has happened.
The U.S. once tied the value of the dollar to a specific amount of gold. But in 1971 President Richard Nixon took the country off the gold standard because the U.S. was losing tons of gold to Europe to pay for imports. By 1971, the U.S. gold stock had fallen to less than half its post-war peak. European countries preferred to be paid in gold rather than dollars because they no longer trusted the dollar. Nixon wanted to preserve the U.S. gold stock. So, he insisted Britain and France accept dollars instead of gold.
Britain and France had lost confidence in the dollar because President Johnson had chosen to borrow to pay for the Vietnam war and his Great Society socialist programs rather than raise taxes. The Federal Reserve accommodated him by printing the necessary money. Technically, the Fed doesn't print money. The treasury does. But the effect of the Fed's interest rate and bond buying policies expanded the money supply and had the same effect as printing vast amounts of counterfeited paper money. The tsunami of new dollars created by the Fed against a fixed stock of gold caused the value of the dollar to fall in proportion, just as the value of pigs in China would fall if the supply increased dramatically.
Expanding the money supply as the Fed has done is a silent killer. Few people notice. But everyone complains about the effects. Fewer people can afford homes or cars. Food is more expensive and people must give up buying other things to afford food. Inequality increases because the new money goes to the wealthy before prices rise while the poor get the money last.
God foresaw the evil of increasing the money supply in the Torah, 1,500 years before Christ. The Fed didn't exist and silver was money. Instead of coins, people measured out a weight in silver on a scale to pay for items. In Biblical times, money was weighed in shekels. A shekel was about the same weight as 180 barley grains. So, the Lord prohibited merchants from using unjust weights or measures. If the weights on a scale were heavier than the standard, the merchant would cheat customers into giving him more in silver than he was owed. In other words, he devalued the silver.
Money like the dollar isn't a measure of value. But it is a measuring rod, like the shekel, that people can use to compare the costs of different products from apples to airplanes. As the Fed floods the world with new dollars, the value of those dollars collapse, just as if the Fed were using false weights and measures. We see the results in prices across the board rising, especially in the price of gold, housing and food.
Gold having risen to $4,000 an ounce violates God's command to use honest weights and measures. Much of the social evils people complain about result for it.
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