Suppose a hundred years ago some far-sighted benefactor, someone a few generations back, wanted to leave some wealth for their descendants – including you. Would you be better off if they left you $10,000 cash in bills or $10,000 in gold?
A hundred years ago American money was gold. Americans commonly carried and conducted commerce in $20 gold pieces. They were the coins of the realm. But if you thought carrying them around – especially in great quantities – was inconvenient, you could use paper money. A US $20 note issued by the Treasury was just a claim check, or a warehouse receipt for gold. If you wanted to, you could walk into any bank or go to the Treasury and exchange that paper $20 note for real gold. No questions asked.
So your benefactor would have had a choice. Which would you have wanted then to leave, paper or gold?
You probably don’t have to think about it too hard. The US dollar has lost about 95 percent of its purchasing power since 1921. (Someone naïve argued about that with us once. “That’s impossible,” he said. But figure it out for yourself. If inflation reduces the purchasing power of the dollar by just two percent this year, and three percent the year before… add in more than a few years of double-digit inflation along the way, and soon you will find that the loss of purchasing power really adds up!)
As for the $20 gold piece, it contained just a little less than an ounce of gold, .9675 ounces to be exact. Based on a recent gold price of $1,840, just the gold content of a $20 gold piece would be $1,780 ($1,840 x .9675 = $1,780).
So the price of gold has increased 89 times! Think about that in percentage terms. Your gold has increased 8,900 percent! An average of 89 percent a year!
(The story is even better than that because, thanks to their rarity, desirability, and for other reasons, investors and collectors prize those beautiful coins beyond just their gold content. Ask your Republic Monetary Exchange gold and silver professional about this.)
As for the paper money? Well, it lost most of its purchasing power. That is the common fate of unbacked paper money throughout time.
So by now, even if you had never thought about our question before, you will have doubtlessly concluded that you would have wanted your would-be benefactor a hundred years ago to leave you real gold instead of paper money.
Our story says something about real money and wealth preservation in this day and age.
But it is only part of the story of wealth preservation. In our next post we will fill in the rest of the story with details about the durability of gold and silver through long ages. And we will tell you a story about the recent discovery of a treasure of gold and silver from 900 years ago.
Don’t miss TALK ABOUT WEALTH PRESERVATION! Part II.