Rothbard's Gold Price: $2,600/Oz

Seeking Alpha ^ | 08/10/12 | Krassen Ratchev

[TigerLikesRooster]

Rothbard's Gold Price: $2,600/Oz.

In the final pages of his 1994 book, The Case Against the Fed, Murray N. Rothbard presents an interesting example about what might happen to the price of gold should the United States revert back to a 100% gold-backed currency. Rothbard states that at the time of writing the book the market price of gold was varying between $350 and $380 per ounce while the Federal Reserve valued their gold stock (260 million ounces) at only $42.22/oz. As at April 6th, 1994, the Federal Reserve had approximately $404 billion in liabilities (mainly in the form of U.S. Government securities).

/snip

So even though the value of gold in the market is presently at $1,600/oz, the Federal Reserve still values gold at $42.22/oz in 2012. I don't understand how their annual report could have been audited properly with this obvious fallacy. In any case, returning to our analysis we can see that the Fed still posses approximately 260 million ounces of gold (most of which is in US Treasury coffers). If we divide the liabilities of $2.87 trillion by the 260 million ounces we obtain a new price of gold of $11,030/oz. Back in 1994 the "Rothbard price" of $1,555/oz was a factor of 4.3 times higher than the market price of $365/oz. Today's Rothbard price of $11,030/oz is a factor of 6.9 times higher than the market price of $1,600/oz. For the factor to fall to 4.3 again gold's price would have to rise to $2,600/oz.

[jwalsh07]

As has been wampum, beaver pelts, scalps, ears, cigarette lighters, tobacco and rum among many,many others.

[fortheDeclaration]

And the point is that other people were willing to use them for means of indirect exchange, and they originally had a use value.

[dervish]

Which countries do you favor?

I am totally confused and scared.

[dervish]

Which countries do you favor?

I am totally confused.

[palmer]

I try to stay diverse. Even well run (financially) countries like Singapore will have inflation forced upon them by the rest of the world led by us. There is an advantage being the world’s primary superpower, it gives us considerable financial pull. Basically we can print more dollars and force people to take them. Right now the dollar is a good place to be. It’s short term, but the short term might be another decade. BUt while the dollar is strong you should buy assets of lasting value like the precious metals that were disparaged for theoretical reasons above. The world doesn’t care about theory, just value, and PMs will always have value.