Comment by Aurornis
21 hours ago
> Gold is considered to have relatively consistent value over time.
Not really. It has fluctuated a lot. You can pick starting and ending points a few years apart and come up with very different results relative to actual inflation.
> A new car still costs around 13oz of gold.
Now take this idea and average it across a large number of different items and you arrive at inflation statistics, which are better than using 1 commodity or 1 purchasable item as a benchmark.
The key word is relatively. Compared to cash or index investing gold has been far more consistent, while cash has devalued loads even after adjusting for the government indexes, and stocks have gone up loads in real terms assuming you did something passive and reinvested dividends.
The reason it's been fairly constant is that over the long term the cost is driven by the cost of mining it and costs of say getting an acre of land, digging up earth and processing it remains somewhat comparable to the cost of getting an acre of land and building a house.
Cash depreciates because voters say we need more wages and it's easier for governments to print money than make everyone richer in real terms. They can try to generate the illusion of richer in real terms by fiddling the inflation stats, say focusing on a basket of vegetables and not medical costs or beachfront property,
Stocks go up because companies make profits and reinvest.
> Now take this idea and average it across a large number of different items and you arrive at inflation statistics
If only it was as simple: you will need to introduce weights between different items, and account to the change of those weights too. Also gold isn't just commodity, it's monetary commodity.
If you use official inflation dollars you get 1$ 1940 ~= 23$ 2025. You can see how magnitude wrong it is for housing or cars in the example above.
Here's food prices from 1940 diner: > A 25-cent platter, 5-cent hotdog, and 10-cent hamburger. Also doesn't really work with official inflation dollars either. And again works much better with gold prices.
Median household income in the 1940’s seems to be something like $2,600. Using your inflation figure that is ~$59800 in today’s dollars.
2024 there seems to be an estimated ~$75,000 median household income.
Housing and cars are also apples and oranges seeing that the average family size and sq footage for even 50’s homes is completely different than today. Today fewer people are living in significantly larger spaces than was normal back then.
Good points.
For houses I think I expect to get better product for same “real” dollars, like with cars or TV. But given somewhat limited supply of houses this can be wrong assumption.
As for income tbh I read it more like real income fell a lot, rather than a proof that inflated dollars reflect reality well. I.e i think if income inequality didn’t grow as much as it did 2024 median household income would have been much higher which would have increased different between inflation figure from real one further.
Today fewer people are living in significantly larger spaces than was normal back then
That's just because everyone is fat now, so larger living spaces are required.
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Using core, required assets actually makes more sense considering recurring purchases tend to change over time.
Gold was a standard for a reason
Yeah people like shiny rocks. Luckily we switched to a more stable system after the great depression. Although with this major tarrifs war who knows maybe Trump will decide to really collapse us economy and switch to the gold syatem
>Not really. It has fluctuated a lot. You can pick starting and ending points a few years apart and come up with very different results relative to actual inflation.
I think he's talking about really long periods of time. It's true that gold is an extremely volatile investment, whose price can seemingly quadruple or be cut in four at any time. But if you look over periods where the price of gold increased by more than 20x, this becomes a lot less important when you try to estimate things like the average rate of inflation. If you work with a ten-year moving average of the price of gold the problem is also reduced. Gold is the only metal whose sulfide is unstable under standard conditions (101.3/293.15).
In other fields, this is called a "low-pass filter".