Priced in Gold, the US Economy Is at Depression-Era Levels
by Simon Black: Squatting
on the Shoulders of Midgets
As we slide
into the end of yet another year in which the nominal price of gold
has posted a positive return, I thought it would be interesting
to take a look back on history to get a better understanding of
where we are today.
that, for many reasons, the size of the global economy is far greater
than it was decades ago. We learn in any basic economics course
that, over the long run, enhanced productivity and increased technology
drive long-term production gains.
an economy can produce more widgets if youre a lean, mean,
as opposed to a blacksmith with a hammer
But there are
other factors as well. Population growth. Accounting standards.
And of course, the continued inflation of the currency. $1 today
buys a whole lot less today than it did a century ago, so when comparing,
its important to find a better standard of measurement.
There are a
number of pricing yardsticks we could use
like the cost of
a New York City cinema ticket (25 cents in 1935, $20 today). But
it would be awkard to calculate GDP in terms of billions of cinema
Gold is a much
more appropriate (though still imperfect) long-term standard of
pricing, with its history as a store of value dating back to the
With this in
mind, I collected the appropriate data on gold prices, population,
and GDP in the United States since 1791 and plotted GDP per capita
denominated in ounces of gold.
smooths out changes in economic growth due to currency inflation
and changes in the population, making it much easier to compares
apples to apples.
are rather startling. In its earliest days, US GDP per capita was
a mere 2.6 ounces of gold per person per year. But this grew quickly,
effectively doubling in the 20 year period from 1791 to 1811.
Most of the
19th century proved difficult for growth, as it took another seven
decades (over three times as long) for GDP per capita to double
again. This makes sense given that the 19th century was marked by
several costly wars (War of 1812, Mexican War, Civil War, etc.)
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