TIVOLI, New York – The Dow plummeted 211 points – or 1.2% – yesterday.
The Shanghai Composite was flat. Gold rose $4 in New York… bringing it to $1,107.
Is gold reasonably priced? Too high? Too low?
“A Car for the Great Multitude”
In the museum in the Old Rhinebeck Aerodrome in upstate New York is an early automobile.
We didn’t get a chance to study it in detail. But the collection includes a Sears Motor Buggy built in about 1910. It was on sale then for just $395.
It is a simple vehicle – a real “horseless carriage.” It was the new technology of the time, and more promising than probably almost anyone realized. But the motor was finicky. The ride was bumpy. And it was very noisy, more of a novelty than a serious way to get around.
Still, Sears’ technology was “cutting edge.” And he was turning out hundreds of these new cars.
But more edges were being cut in Detroit.
Ransom E. Olds, the founder of Oldsmobile, had already perfected the assembly line. Henry Ford was not far behind him, taking production to a new level of efficiency and output. Ford By 1910, half of the automobiles in the U.S. were Henry Ford’s Model T’s. He priced them low and made his money on volume.
By 1925, his factories were turning out 9,000 to 10,000 cars a day. Two years later, when Model T production ceased, Ford had made 15 million of them.
Ford sold his Model T’s for just $260 – enough to make the Ford family rich and make the Ford Motor Company one of the world’s leading enterprises.
The Golden Ratio
But how much was that in today’s money?
It depends on how you adjust for inflation, which is far from an exact science.
Typically, we see estimates that the dollar has lost 95% to 98% of its purchasing power over the last 100 years. Although there are only three percentage points in the difference between the two numbers, they have a big effect on the calculation.
A loss of 95% implies that today’s dollar only has 5% of the purchasing power it had 100 years ago.
That means the price of a Model T today would be 20 times as much as it was then – or $5,200. And if the loss in the purchasing power of the dollar over that time is 98%, today’s price would be closer to $13,000.
But the price of Ford’s current everyman car, the Fusion S, is about $22,000 today. That’s 85 times more expensive than the Model T was in gold terms.
Meanwhile, in dollar terms, gold is worth 58 times more than what it was in 1915.
If gold prices had risen at the same rate as car prices (i.e., 85 times instead of 58 times), it “should” be at about $1,615 an ounce. And gold bugs would be tickled pink.
A Famous Announcement
Monday was the 101st anniversary of Ford’s famous announcement: He would pay his workers a shocking $5 a day.
With gold then priced at $19 per ounce, that was roughly an ounce of gold for every four days of work.
Today, the United Automobile Workers (UAW) union rate is $73 an hour, including health care and pension benefits.
An eight-hour day at this rate would earn you $654, including benefits. Four days at this pace gives the worker $2,616 – more than enough for two ounces of gold today.
So, in gold terms, the autoworker today earns about twice as much as he did 100 years ago, which doesn’t seem like much of an increase for an entire century.
Either the price of gold is too high… or too low. How’s that for a helpful analysis?
But had gold kept up with UAW hourly wages, it would be priced at about $2,485 today.
And at today’s gold price, it takes 20 ounces to buy Ford’s cheapest car.
That is six ounces more than it cost to buy the Model T.
Divide $22,000 (the price of a Fusion S) by 13.7 (the number of ounces of gold it cost to buy a Model T) and you get a gold price of $1,605 an ounce.
Is gold too high? Too low? Who knows? But we wouldn’t worry about it.
Read the original article on Bonner and Partners. Editor's Note: If you enjoyed Bill’s article, sign up for the Diary of a Rogue Economist and get his special report, "The One Secret You Must Know to Be Successful". Copyright 2015. Follow Bonner and Partners on Twitter.
The Birth of the Standing Liberty Quarter:
America was at war: World War I was raging in Europe, and at home industrial technology continued to advance at breakneck pace. A style of artistic construction called Art Nouveau, characterized by elegant, flowing lines, and new freedoms of expression, reached its peak of popularity in America, as the musty old conservative ethic of the long Victorian Era finally breathed its last gasps.
The Standing Liberty Quarter Design:
Of course, Mint officials didn't plot to put bare-breasted ladies on our quarters! A competition was held, and several top sculptors were invited to submit designs to be considered for use on the coinage. The design selected for the quarter dollar was Hermon A. McNeil's, which depicts Miss Liberty standing between two large pedestals, holding an olive branch in her right hand, and a shield in her left. She wears a flowing garment that slips off her right shoulder to expose her breast.
Liberty's Bared Breast - Wartime Propaganda?:
There has been much speculation into why McNeil's design was selected and what the symbolism meant. The olive branch Liberty holds is a universal sign of peacemaking. The shield is clearly a symbol of warfare and defense. And Liberty's exposed breast? Was this wartime propaganda meant to imply, "come get your succor from the breast of the world's mother?" Or was it meant to say, "I come in peace, opening myself to you in earnestness?" History does not record the answer.
Designed and Then Rushed Out the Door:
The dies for the 1916 Standing Liberty Quarter were ready for production by July of 1916. But production didn't begin until the last half of December that same year. Why the delay?
Could it be that some persons who had seen the coin design had objected, and the delay was the result of discussions and re-thinking things? Perhaps the mint was just really busy producing other coins? Two other new designs were issued that year as well. Again, history doesn't tell; we can only speculate.
The 1916 Standing Liberty Quarters Leave the Mint:
The 1916 production run of Standing Liberty Quarters consisted of 52,000 pieces, all of which were produced at the Philadelphia facility, and all of which left the mint by December 29, 1916. This small mintage made its way through the Treasury distribution system in early January of 1917, and awaited release into circulation. In the meantime, Philadelphia, San Francisco, and Denver began striking the 1917 Standing Liberty Quarters, and sent them out for distribution as well.
A Bare-Breasted Liberty Finally Meets Her Outraged Public:
On January 17 of 1917, the bare-breasted Standing Liberty Quarter finally entered circulation, and the outcry was immediate and loud. Religious leaders used words like "obscene" and "filthy" to describe the visage of our beautiful Miss Liberty with her breast exposed. Citizens' groups rallied their memberships to lobby Congress to have the disgusting coin recalled.
Congress had little choice but to submit to the clamor. The bare-breasted Liberty Quarters began disappearing from circulation.
Liberty Taken to the Opposite Extreme:
McNeil was obliged to modify his design. Miss Liberty would need to be properly covered, according to the citizens of our enlightened nation. It is easy to imagine that McNeil might have been a little resentful about the modification chore he had to undertake. Rather than simply rearrange the drapery on Liberty's shoulder to cover the offending breast, he crafted a suit of armor instead, and chastely clothed Miss Liberty nearly to the neck in chain mail!
The Three Types of Standing Liberty Quarters:
The Standing Liberty Quarter needed a third design change starting in 1925 because the date was wearing off too quickly. The design was re-cut so that the date was recessed, rather than raised. A summary of the Standing Liberty Quarter types:
Medium to high grade bare-breasted (Type I) Standing Liberty Quarters dated 1916 are not as rare as one might expect. First of all, it being the first year of a new coinage type, many people stored them away as a curiosity. Their subsequent recall ensured that even more were stashed away without seeing much circulation. Although many were presumably melted down, the 1916 Standing Liberty Quarter is fairly readily available despite its small mintage.
As an investment, however, it has been a volatile coin. Because many more specimens exist than its low mintage would lead one to expect, the asking price is often inflated over comparably scarce mid-issue, non-controversial types. As a general rule, such coins are not a good candidate for pure investors, but like any other investment decision, you must make your decision based on the price you have to pay versus the likelihood it will increase enough in value to outperform inflation plus the interest you could have earned investing elsewhere. But if you just need a specimen to complete your collection, or want to own one because of its curiosity value, buy the best grade you can afford and make sure it's in a quality slab. Hopefully, it will hold its value!
Judge for yourself whether you feel the Bare-Breasted Standing Liberty Quarter is "obscene" by viewing these enlarged images, then come share your thoughts about it on the comment page for the Bare-Breasted Standing Liberty Quarter.
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Note regarding the spelling of McNeil's name: Although many major numismatic references, including the "Red Book" spell the sculptor's name "MacNeil," a relative of his wrote to me to say that the correct spelling is "McNeil." Research into Hermon A. McNeil's artistic background seems to indicate that both spellings have been used interchangeably for decades, but I have decided to follow the family's choice of spelling.