In Wednesday's night GOP debate Ron Paul responded to Michele Bachmann's campaign promise to get gasoline prices back down to $2.00/gallon. Dr. Paul said we could have gas for a mere dime per gallon. He was referring to a silver dime -- those struck by the Treasury before 1965 which contain 90% silver.
If you check the web site http://www.coinflation.com/silver_coin_values.html you'll see what Ron Paul had in mind. The silver content in a pre-1965 dime is worth about $3.00. It was in 1965 that President Lyndon Johnson signed the Coinage Act that put an end to the striking of silver coins by the U.S. government. Never mind the fact that the Constitution requires that coins be made from gold or silver. Beginning with Johnson and concluding with his successor Richard Nixon, the federal government removed the currency from any metallic standards.
Incidentally, the word "dollar" comes from the old Czech word Joachimthaler ("thaler"), the family name of silversmiths who struck the finest one ounce silver coins in the Europe. From the beginning of this nation one U.S. dollar was composed of one ounce fine silver. One dollar silver certificates were issued by the treasury -- "dollar bills" -- that could be redeemed for a silver dollar coin. That is how our monetary system used to work.
But gold and silver exist in finite quantities. In theory, the government could issue only enough bills to correspond to the actual amounts of gold and silver held in the treasury. In reality, with the Cold War, the space program, the Vietnam War, the "Great Society," Medicare and so on, the federal government was issuing more dollar notes than could be redeemed in precious metal coins. Hence, Johnson's and Nixon's actions to remove the gold and silver backing of our currency -- in contradiction to the Constitution. The result of these acts was pure fiat currency (that is, currency by decree) which was more easily subject to monetary inflation -- that is, increasing the quantity of money in order to finance government programs.
The outcome is rather shocking; since 1971 the U.S. paper dollar has lost 82% of its purchasing power. It now takes more than one income to maintain most American households. Most of those households are servicing debt (mortgages, credit cards, etc.) because prices of housing and other goods and services are simply too high to be paid up front. College debt has strapped young adults, many of whom are returning home to live with their parents. With interest held to near zero percent by the Federal Reserve, millions of Americans have invested retirement savings in 401(k) accounts, most of which are held in mutual funds. But adjusted for inflation, stock market investments have actually lost value since 2000. With the dollar no longer tied to gold or silver, the government has "printed" up trillions in an (unsuccessful) effort to rescue the collapsing real estate market and finance bailouts, entitlements, and the "War on Terror."
All of these are results of a basic economic law -- the more money chasing a limited number of goods, the higher the price.
The Washington Post chided Ron Paul's reference to the silver dime as some archaic notion from the 18th century. But scoffers should look closely at what Paul is saying. A silver dime can easily be exchanged for three paper dollars. Here in the southern Piedmont of North Carolina the price per gallon of gasoline measured in terms of silver is only about 12 cents.
In 1964 gasoline ran about 27 cents per gallon. Silver has actually increased in value since that time while the purchasing power of the paper dollar has plummeted like a falling satellite. This is what monetary inflation does to an economy.
But Ron Paul is a "kook." We have grown too accustomed to an inflationary world. We expect the sun, moon and stars from our government. We especially dislike someone who tells us there are limits, that we simply can't do everything we put our minds to.