Gasoline at 10 Cents a Gallon and Falling

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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. To the right 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 three cents. It shouldn’t be surprising that buying things
with three-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 paper and seven cents
per gallon gasoline in gold. That’s a real possibility.

May
12, 2006

George
Reisman [send him mail]
is Pepperdine University Professor Emeritus of Economics at Pepperdine
University’s Graziadio School of Business & Management in Los Angeles,
and is the author of Capitalism:
A Treatise on Economics
. Visit
his website.

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