Monthly silver to gold ratio 1896 - 1924 0

[RWB]

The silver-to-gold value ratio has long been a subject of confusion and emotional debate. Although this ratio has long been largely fictitious, it remains an interesting artifact of economic and numismatic history. Below is a table from the U. S. Mint Bureau showing the silver to gold market ratio from 1896 to 1924. Ratios were calculated using the statutory value of gold versus the average monthly silver market price in London.

“During the period December 1916 – June 1920 it is probable that the world’s basic silver price was that of New York rather than that of London. The normal relationship between the two prices – New York a fraction of a cent below London quotation with exchange considered – did not prevail during this period, when the average monthly New York price varied between approximately 3-cents above and 6-cents below the London price. This period appears to have been initiated by enormous coinages to meet wartime needs, and large shipments from the United States to the Orient. Its close was coincident with the removal of the product of United States mines from the world market, purchases under the Pittman Act of April 23, 1918, having begun in June 1920.” [Excerpt from letter of April 4, 1924 to Prof. J. Lawrence Laughlin, Boston.]

The period December 1916 – June 1920 roughly coincides with a period of increasing labor and supply expenses for gold mining companies. Many such businesses could not make a profit with gold fixed at $20.67+ per fine ounce and chose to close mines, or divert work to lead, silver, copper and other metals. During the War miners petitioned Congress for an increase in the gold price to $40 per ounce, or addition of surcharges on newly mined gold. None of these proposals went very far, but miners had legitimate economic complaints.

Similar tables covering a longer period appear in scattered issues of the Director’s Annual Reports. All indicate fundamental instability of the silver-to-gold ratio, its absurdity as monetary policy, and impossibility as a fixed commercial relationship.

Edited May 25, 2020 by RWB

[numisport]

Do you think it is telling that when money was backed by real gold and silver the ratio was 20 or 30 to one ? Compared to today when it is unclear how much gold (or silver) is still ours, at 100 to one you would think silver is a good buy. Boy how wrong I was !

[World Colonial]

Relative prices change all the time.  My explanation for the more recent gold-silver ratio since 1980 is that silver is no longer viewed as an equal monetary equivalent, especially by those with the  most economic influence.  Silver is viewed as money by "metal bugs" and "poor man's gold'" elsewhere (such as in India) but most of the time, these people lack the market influence to make a difference in the market price.

The only reason the relative ratio between fiat hard currency and the general price level is "stable" is because the supply can be artificially increased (it's never decreased) to maintain the illusion of stability.  It's actually a perpetual con job designed to transfer wealth from savers and taxpayers to debtors and spenders.  It primarily benefits those with the most access to low cost credit who can buy assets on margin but also enables a noticeable proportion of the population to live beyond their means at someone else's expense.

Second, because most "money" today (especially in developed countries) is actually someone's debt.  (That's the reality with bank "deposits".)  It's psychological which is why the credit inflation of the 1970's to early 1980's resulted in noticeable price inflation while monetary policy since 2008 has not.  Most "money" since the early 1980's has inflated asset prices; primarily bonds, stocks and real estate but also collectibles such as coins. 

This illusion of stability will only last as long as an accommodative psychology permits it.

[RWB]

6 hours ago, numisport said:

Do you think it is telling that when money was backed by real gold and silver the ratio was 20 or 30 to one ? Compared to today when it is unclear how much gold (or silver) is still ours, at 100 to one you would think silver is a good buy. Boy how wrong I was !

Well, yes....in part because silver was never a U.S. monetary standard. Silver had its own value relative to products and services, but any meaningful ratio between silver and gold was fiction. There cannot be two "standards" unless both are tightly controlled and that is not possible for any governmental entity. (Think of the tension and confusion between the two so-called "grading standards" - neither controls and thus neither is reliable.)

A monetary standard of today is closer to ancient production value. That is, the value of any currency depends on the aggregate of economic activity in relation to economic activity of others, plus open market stability and market faith in the issuing entity. This has a larger "opinion" bias than production value by itself, but has the flexibility to deal with multiple non-integrated economies....it tends to smooth sharp changes.

[World Colonial]

2 hours ago, RWB said:

Well, yes....in part because silver was never a U.S. monetary standard. Silver had its own value relative to products and services, but any meaningful ratio between silver and gold was fiction. There cannot be two "standards" unless both are tightly controlled and that is not possible for any governmental entity. (Think of the tension and confusion between the two so-called "grading standards" - neither controls and thus neither is reliable.)

A monetary standard of today is closer to ancient production value. That is, the value of any currency depends on the aggregate of economic activity in relation to economic activity of others, plus open market stability and market faith in the issuing entity. This has a larger "opinion" bias than production value by itself, but has the flexibility to deal with multiple non-integrated economies....it tends to smooth sharp changes.

Most "money" today isn't what most of the population thinks of as currency but someone else's debt.  It is "near money" which functions as a currency substitute.  As one example, most people don't know that their checking account isn't really money.  Calling it "money" is a misnomer, as it is actually a loan to the bank and the bank customer is an unsecured creditor.

The supply of debt monetary instruments (aggregate credit) which is what matters most in the modern economy has far outstripped any increase in actual production and productive capacity since the US closed the "gold window" in 1971.  That's when credit and debt started increasing parabolically. 

Production as measured by GDP is also a very poor way to measure economic activity.  A noticeable proportion of economic activity in today's economy not only has no positive economic value, it is negative.  These transactions destroy value and make the society in which the activity occurs poorer, not wealthier.  In ancient times relative to recent history, societies didn't support very many people who couldn't carry their own economic weight.  They would have starved if this had been attempted.

[kbbpll]

15 minutes ago, World Colonial said:

A noticeable proportion of economic activity in today's economy not only has no positive economic value, it is negative. 

I think you're talking about scammers and middlemen. I'm not sure that it's changed much since "ancient times" though - there have always been "high priests" on top of the pyramids who don't actually do squat.

[GoldFinger1969]

Interesting, thanks for the post Roger....and obviously, it's a GOLD to silver ratio (not the other way).  I guess silver was under $1 for most of that time.

BTW, why are the miners having so much difficulty making money at $20.67/oz. ?  Are they able to make $$$ on other PM's ?  Usually, mines have multiple metals....so unless you're a pure gold mine, you made other money on other PMs and that helped defray costs that you attribute to gold (much like natgas can be sold as associated gas when produced in oil wells).

Maybe there were too many miners still hoping for riches post the 1849 Gold Rush ?  I'm not sure, never really researched this period.  Just seems strange that most PM prices were flattish over many decades but only gold miners would struggle.

Edited May 26, 2020 by GoldFinger1969

[RWB]

RE: "BTW, why are the miners having so much difficulty making money at $20.67/oz. ? "

Gold was the only mineral product that was subject to price control. Had the market price been allowed to float, gold mines would have been profitable. As it was, anyone who wanted gold could buy it from the government (or get coins) at $20.67+ per fine ounce.