A gas station in Ashland, Oregon, May 2011

…If you pay with un-debased U.S. currency.

One gas station in Ashland, Oregon, is accepting payment for gas in the old, un-debased version of the currency.

The more prices change, the more they remain the same. At least when the currency is sound.

A gallon of gas was nearing $5 per gallon at the time the above picture was taken. Two old 90% silver dimes were worth about $5.00 of the newer 0% silver dimes and quarters. If you’d saved your money in plain ol’ currency back before the Treasury pulled another fast one, you’d be able to buy about a gallon and half of gas for $0.20.

We often tell people to start saving their nickels. This is why. This isn’t a get-rich-quick scheme. It’s not even a get-rich-slow scheme. It’s a don’t-get-hosed-by-central-bankers scheme.

Note that for all the years that dimes and quarters were 90% made of silver, the price of gas was around two of those (mostly) silver dimes.

Also note that there is a red line that shows the inflation adjusted gas prices. When the currency was sound and stable and the dollar price of gas was stable, people were better able to afford gas. This is because prices were stable as incomes were rising, a condition that Keynesians generally can’t stand.

(And heaven forbid prices actually fall slightly while incomes stay the same or even rise slightly. That sort of “deflation” is to be stopped at any cost.)

But see what happens when the silver is removed from the coinage in 1964? The price trends up a bit. And then after the U.S. dollar is entirely cut from gold in 1971, the price of gas really started to move in dollar terms. There was a spike leading up to 1980, a slight drop and leveling off for years (for various reasons we won’t go into now) and then it was back off to the races.

In 1918, a gallon of gas was about two 90% silver dimes. In 1928 about the same. And in 1948. Fast forward to 2011 and a gallon of gas is still about two 90% silver dimes, despite the rise in price in terms of the debased currency that really got going in 1974.

Even with all the Hunt Brothers drama and attendant price drops after 1980, silver’s price movements in dollars looks suspiciously like that of a gallon of gas…

Source: SilverPrice.org

You see, a gallon of gas isn’t getting expensive. Your currency is getting cheaper. Has been for a long time, since the official closing of the gold window. The speed at which it’s getting cheaper appears to be accelerating, too, as the central bank creates unprecedented amounts of new cash–unbacked by anything commodity or productive activity of course–to inject into the economy.

Meanwhile, the REAL currency is doing pretty well. Largely forgotten the silver version of the currency is keeping its value relative to things you buy. A gallon of gas is still less than $0.20. Twenty REAL cents. Not the forgeries that pass for money in the minds of the unwary.

If you think that’s something, realize that a gallon of gas is just five or six cents in terms of the old dollar bills that were also gold certificates. (One pre-1934 dollar was good for 1/20 ounce of gold, or about 80 of today’s dollars.) That’s an even more impressive holding of value than the silver coins. (Though silver still stands to surpass gold as the winning bet for beating currency debasement.)

Even the lowly penny has gotten in on the act. Say you missed out on (illegally) hoarding gold before 1934…and then again (legally) with silver coins before 1964…if you’d diligently saved your copper pennies before they were replaced in circulation with that shabby zinc substitute, you’d have protected your purchasing power quite well.  The metal in about $1.25 worth of pre-1983 pennies would buy you a gallon of gas today, priced at about $4.75 of today’s dollars.

Again, roughly a $5 gallon of gas in today’s money is five or six cents of the old dollar gold certificate, twenty cents of the silver dimes, a buck twenty-five of the copper pennies. There appears to be a strong correlation between length of debasement and multiplication of purchasing power.

The dollar was partially debased in 1934, the gold it represented made illegal for private American ownership, then completely cut free from gold in 1971. Dimes, quarters and half dollars started being debased in 1963 and were completely de-silverized by the end of the year (40% silver-clad half dollars were available for a few years after that). The penny got the same treatment and was completely de-copperized during 1983.

The old gold certificate dollars are worth 80 times their face value in the current currency…Well, technically they are collector’s items and museum pieces; the gold they represented is what has value today. The old dimes, quarters and half dollars more than 25 times. The old penny only three times.

The same thing that happened to gold certificates, quarters, dimes and pennies is happening to the cupronickel nickel. The value metal in the five-cent piece is staying steadily above the face value of the currency in which it’s minted. Put another way, a five-cent piece is worth quite a bit more than five cents. About 35% more, or 1.35 times face value as of this writing.

We expect all these factors above in bold to increase over time.

A market for pre-1963 90% silver coins is well established. These coins trade for the aforementioned 25x-plus their metallic content. A market for trade has only just begun to develop for pennies like it has for old silver coins. It hasn’t yet for nickels. It will.

The government figuratively took the gold out of the paper dollar. They literallly took the silver out of the dime, quarter and half dollar, and the copper out of the penny. The nickel is the only thing the U.S. has left to debase. It will probably be getting around to doing just that very soon. So now would be a good time to stock up.

This is your last chance to protect yourself from dollar weakening (and perhaps dollar destruction) by merely saving your money in the right form. No premiums attached! Just go to the bank and exchange whatever dollars and cents you have for nickels. They will give you 100% of your money back in nickel form without taking a cut.

Go to any bank right now and hand them $100 and ask for nickels. The teller will gleefully give you back about $135 in metal (as of this writing). We suggest you do this as regularly as you can.

No, you can’t take advantage of that now by turning around and selling these cupronickel pieces (“nickels” are actually only 25% nickel and 75% copper) for an immediate 35% gain. Not yet. But that time is coming. It could take years, but we doubt it will be that long this time around. The pace of debasement is accelerating over time. It’s taking on the classic “hockey stick” form on the charts.

You should still be buying gold and silver because there is plenty of dollar debasing left to go. But you should also be gathering nickels because they are so damned easy to acquire (go to the bank and see) and because they insure against both dollar strengthening (which could still happen) and declining.

In the unlikely event that the dollar gets stronger over the course of the rest of your life, you have merely saved money that you can still use at face value. In the much more likely event that the central bank keeps printing up new money, the metal content of the nickels will continue to climb far above their face value.

When the metal value gets way above the face value, the Treasury will surely do what they always do: issue a new, debased version of the currency with a much cheaper metal (probably zinc). This could happen as early as next year. This opportunity will not last forever. We strongly urge you get on a program of regular nickel-gathering now.

Perhaps best of all, any substantial wealth is virtually theft-proof in nickel form. As I recently noted on the Whiskey Bar Panel: if you have $10,000 in nickels in your house, no one who breaks in is going to get more than about forty bucks of that. At least not without lots of time, help and planning.

Nickels have very low value per unit. So even a fairly tiny amount of purchasing power in nickel form is very heavy. Forty dollars worth is heavy and awkward enough to make the effort and risk to reward ratio low enough to deter most thieves.

Now if a devoted thief plans a competent heist…if he gathers accomplices and makes sure he has a reliable getaway car and plenty of loading time, then you’re probably out of luck. But I suspect that thieves with that level of skill and dedication would be targeting all the gold bugs, not the nickel-hoarders.

You should absolutely be buying gold, silver or both. Silver especially still looks like the best way to multiply purchasing power instead of just protecting it. But you should also hold some cash, just in case, and much of that cash really ought to be in a form that will do just fine whether the dollar goes up or down. It ought to be in nickels.

Regards,

Gary Gibson
Managing editor, Whiskey & Gunpowder

Gas Prices Don’t Move Much In Good Currencies was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

One of the Last Outposts

The premise of World Made by Hand, James Kunstler’s new book, is apocalyptic. For a variety of reasons related to Peak Oil and economic collapse, American civilization simply broke down. The wheels just fell off. The economy collapsed. Commerce broke down. The entire social construct of over 200 years vanished.

The small, 19th Century town of Union Grove, New York was a lost backwater during the buildout of modern American suburbia. But in post-Peak Oil America, Union Grove became one of the last remaining outposts of some small measure of stability. But what sort of stability?

In Kunstler’s vision, Union Grove is a futuristic, yet in many respects colonial, frontier society. But Union Grove is no Fort Apache. Indeed Union Grove is isolated, and that is its saving feature. It is so small that few bother to go there. Like Ireland during the Dark Ages, it is too remote and isolated for the barbarians to want to conquer. And that suits the locals just fine.

The contact between Union Grove and the outside world comes through the occasional traveler, or via water-borne commerce down the Hudson River with the city of Albany — or what’s left of it, which makes for a scary couple of chapters.

And what is left of civil society in Union Grove is a ragtag group of citizens who barter with each other over goods they’ve ransacked from the ruins and landfills of 20th Century America. People live in utter simplicity, farming as best they can and living off the land.

A New Form of Social Construct

But life in Union Grove is far from primitive. There are houses with fairly tight roofs. There are brick ovens and fresh-baked bread. There is a small-scale hydropower system that both channels running water and delivers a modicum of electricity. There’s a sawmill, and metal-forging operation. And there is a modest-scale farming, dairy and poultry operation staffed by a new sort of laboring class that resembles serfs of old.

Serfs? Kunstler offers a quick summary of social regression in a low-energy community:

“All the (Union Grove) trustees were men, no women and no plain laborers. As the world changed, we reverted to social divisions that we’d thought were obsolete. The egalitarian pretenses of the high-octane decades had dissolved and nobody even debated it anymore, including the women of our town. A plain majority of the townspeople were laborers now, whatever in life they had been before. Nobody called them peasants, but in effect that’s what they’d become. That’s just the way things were.”

Indeed, in previous days there were ample amounts of cheap energy. Cheap energy was, both literally and figuratively, a great force for social mobility, and political harmony. And over time the social-enabling process of cheap energy became second-nature. Using energy released by ancient deposits of coal and oil, the U.S. built much of its 20th Century social construct.

But in World Made by Hand, Kunstler asks us to reconsider the entire concept of our social arrangement in the vanishing light of a low-energy existence. There is no “Americans with Disabilities Act” in Union Grove. Indeed, most Americans with disabilities have died off.

The new world is hard, if not harsh. The old world of niceness has vanished. The society that has taken its place offers a living example that is reminiscent of the Old Testament.

The implications of this can shock the unprepared mind. But don’t blame Kunstler, who merely poses the questions and invites the reader to extrapolate the answers.

The Aesthetic Sense

Kunstler explores another key issue of post-Peak Oil modernity as well. Can people recover a sense of aesthetics in the low-energy world of the future? In Kunstler’s book, Union Grove is cut-off from its larger past, as both part of a great nation and as part of a mass-culture.

In the new world, Union Grove is not subject to any outside dictates of contemporary standards — whatever those may be. So any aesthetic sense now has to come from within. In other words the days of the mass-culture, of aesthetics being handed-down and blessed — if not jammed down one’s throat — by the likes of Oprah or Martha Stewart (let alone the architects on retainer with McDonalds or Midas Muffler) are over.

The simple lawn of Kunstler’s narrator Robert, for example, is a raised-bed garden. Yet it may as well have been designed by Palladio, if not the ancient Imhotep. “It was geometrical, a cruciform pattern, the beds transected on the diagonal as well, with brick paths carefully laid. With our many material privations, it was not possible to live without beauty anymore.”

The Personal Life — the Pursuit of Happiness

In Kunstler’s Union Grove, life is local. It has to be. And for this reason alone, people actually know how to party. They get together for local festivals, at which people eat real barbecue — something of a rarity and delicacy in a low-energy society.

Lacking the boom-boom tools of sound amplification, old-fashioned folk music emanates from simple instruments and sincere voices. People get drunk, smoke pot (cannabis plant grows wild) and make eyes at each other — all of which leads to some interesting hookups in a world where people are a diminishing and endangered species.

And in Union Grove there is even intellectual opportunity. There are books to read, although a limited selection of titles. In one short scene, for example (and Kunstler at his best in his use of micro-detail) the narrator ponders the meaning of Inside the Third Reich by Albert Speer, architect and Minister of Armaments under Adolph Hitler. Really. Kunstler chose to highlight Albert Speer, of all people. It’s brilliant.

Things Can Get Worse — and They Do

At the end of the world, though, things can still get worse. A fundamentalist sect rolls into Union Grove and begins to assert a creeping, if not creepy, sort of control. In one instance, the sect members confront townspeople on the street and force them to cut their shaggy beards. It’s sort of a post-Peak Oil version of the modern PETA activists hurling blood-balloons at people who wear fur coats.

Yet the religious sect offers an angle to Kunstler’s story that is nothing if not intriguing. Most of the sect members are decent folk with important mechanical skills. And some are warriors. That is, some former soldiers are tough-as-nails and well-worth having on your side in a fight. And Kunstler’s narrator Robert gets into a fight or two in this book.

On a higher plane, Kunstler has devised a scene that is just astonishing. It actually leaves the reader wondering if God has truly channeled divine powers through one sect-member in particular. You’ll have to read the book and make your own call on that one.

A Fall from a Great Height, if Not from Greatness

Let’s stop right here. Kunstler’s book was published in March, when oil was selling near $100 per barrel. Now a few months later oil is well over $145 per barrel.

What a difference four months and $45 dollars makes. High cost oil burners are already confronting disaster. Airlines are crashing financially, and we are on the way to “Silent Spring” by next year. Trucking is breaking down under the strain of $5 diesel, while American motorists are going broke with gasoline over $4 per gallon.

So since Kunstler’s book hit the shelves, we are further away from the past we know. And we will probably never go back. And we are much closer to a future that is yet unknown. Sad to say, we may arrive there sooner than we expect.

All of which is why World Made by Hand is an important book, as well as a pleasure to read. Kunstler’s book is thoughtful. And it will push you to the edge of your comfort zone. The book is harsh, without being nightmarish. It is cautionary, without being overly judgmental. And Kunstler’s book even offers glimmers of hope.

Kunstler’s writing style is careful, in a way that is reminiscent of fine work of F. Scott Fitzgerald. No, World Made by Hand is not exactly The Great Gatsby. But like Fitzgerald, Kunstler tells a summer tale and writes with grace, elegance and astonishing attention to detail.

Through it all, as with the protagonist Nick in Gatsby, Kunstler’s narrator Robert relates the story of a fall from a great height, if not from greatness. At one point in World Made by Hand, the narrator Robert recalls how he used to fly from coast to coast — Boston to Los Angeles — as a matter of routine, with his old job at the software company.

In the days of old Robert flew so high, and moved so far. But his paradise is lost. He has been cast down to where he now dwells, near the Zip Code for Pandemonium. Robert is challenged just to journey forty miles or so, down a failing road to Albany where people might kill him for his shoes.

How far has Robert traveled in his life? And how far has he been brought down? Now in Union Grove — and fortunately for him — Robert is surviving. He is a troubled man, living a post-apocalyptic life in a low energy world. His daily existence is filled with dark shadows of a lost past. And you finish the book wondering if you will one day be so lucky.

Until we meet again…
Byron W. King
July 14, 2008

P.S.: Kunstler’s fictional story is certainly enough to scare us. Imagining a world where Peak Oil has ravaged our current lifestyle is just the incentive we need to start coming up with a solution now. That’s where the oil vacuum comes in. This new invention is one of the best innovations of the past decade and could easily be a big part in the Peak Oil solution.

“World Made by Hand” Book Review was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.