About the shrinking U.S. dollar

A newspaper clipping from the July 17, 1936 Spokesman-Review contains a photograph of a gold nugget from the Murray, Idaho "Beehive" claims, valued at $544. The nugget weighed 20-3/16th ounces, of which 15.54 ounces were gold.

Gold in 1936 was valued at $35 per ounce. Gold today is valued at $1368 per ounce. At that price, the "Beehive" nugget would be worth $21,259, about 39 times its 1936 value. The U.S. dollar, as authorized by the Continental Congress, came into use in the form of coins and currency prior to the Declaration of Independence in 1776. After the Constitution was passed, Alexander Hamilton was named Secretary of the Treasury. Under his leadership, the Coinage Act of 1792 was passed, establishing the U.S. Dollar as the basic unit of account for the United States.

From 1792 until 1874, the value of the dollar was tied to gold and silver. The term "bimetallism" was used to describe the U.S. monetary system. Bimetallism continued until March 14, 1900, with the passage of the Gold Standard Act which established gold as the standard, valued at $20.67 per ounce; the same as under bimetallism. The Great Depression forced most major currencies off the gold standard as people, fearful of bank failures, demanded gold in exchange for currency. The banks didn't have enough gold to convert all currency into gold. In 1933, Congress and President Roosevelt suspended the gold standard except for foreign exchange, ended use of gold as legal tender for payment of debts, and banned private ownership of "significant amounts of gold coin."

The set value of $20.67 per ounce value of gold in the dollar was lifted. The dollar was allowed to float in foreign exchange markets with no set value for gold. The Gold Reserve Act of Jan. 30, 1934 required that all gold and gold certificates held by the Federal Reserve be surrendered and vested in the sole title of the U.S. Department of the Treasury. The Gold Reserve Act also changed the nominal price of gold from $20.67 per troy ounce to $35. You can view the history of gold prices between 1793 and 2008 at: http://goldinfo.net/yearly.html The Gold Standard kept the U.S. dollar stable in value for 140 years, from 1793 through 1933. Following is what happened to the U.S. dollar after 1933:

• An ounce of gold was worth $32.32 in 1933; it is now worth $1,368.00.* An ounce of silver was worth $0.44 in 1933; it is now worth $24.32.

• What $100 purchased in 1933 requires $1,680 dollars in 2010.* One hundred 2010 dollars will purchase as much as $5.95 in 1933 dollars.

• What $100 purchased in 2000 requires $126.80 in 2010 dollars. That represents 26.8 percent inflation in 10 years. Crude oil is another commodity priced in U.S. dollars that is more important to most people than gold or silver. 1946 is the first year for which price information was found.

• In 1946, crude oil was priced at $1.63 per barrel; now it is $81.25 per barrel.So, who is to blame for the financial mess we are in? People tend to blame retailers for price increases. In turn, retailers blame their suppliers. Big Oil is blamed for gasoline price increases. In my opinion, fiat currency deserves most of the blame.

I am not an economist. I defer to knowledgeable people to comment on the pros and cons of various theories of currencies such as having a gold standard or a gold and silver standard. Those systems would minimize wide swings in the purchasing power of money. For those interested in more information about fiat currency, check the following site: http://dailyreckoning.com/fiat-currency/

Bob Launhardt is a Pinehurst resident