Gasoline at 10 Cents a Gallon and Falling

by George Reisman
by George Reisman

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.

Copyright © 2006 George Reisman