Does gasoline at 10 cents a gallon and falling sound impossible in todays world?
Well, if you think its impossible, youre wrong. Because thats where gasoline actually is, and it looks like its going even lower.
Of course, its not 10 cents a gallon in todays 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 todays market price of gold, its worth $700. And this means that one gold dollar is worth $35 of todays paper dollars. And that means that one gold dime is worth $3.50 in todays paper money. This last, of course, is roughly what a gallon of gasoline costs in todays 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 were 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. Thats less than three cents. It shouldnt 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 thats why prices are rising. Dont 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. Thats a real possibility.
May 12, 2006