In 1939, the year I was born, gasoline was ten cents per gallon. A new car cost $700. A new house cost $3,850, and the average rent was $28 per month. Harvard tuition was $420 annually.
A loaf of bread from the bakery was eight cents. Hamburger was 14¢ per pound, eggs were 19¢ per dozen, coffee was 40¢ per pound, and sugar was 59¢ for 10 pounds. The average annual income was $1,729.
I don’t remember these prices. By the time I was six years old, World War II had ended, and the postwar U.S. inflation was about to begin. Still, I remember as a five- or six-year-old being sent to the bakery with 9, 10 or 11¢ to get a loaf of bread, and to the grocery store with 15¢ to get a quart of milk.
Milk and bread were not ordinarily purchased in stores. In the Atlanta of my youth the breadman and milkman made home deliveries in horsedrawn vehicles. Mathis Dairy was so clean that the milk was not pasteurized. The cream was at the top.
Movie admission was 10¢ for 12 years old and under, and 25¢ for adults. A Coca-Cola or a Pepsi (which was twice the size of the Coke), was 5¢, and so was a candy bar. A case (24) of Coke or Pepsi was one dollar. I flinch every time I see a person put a dollar into a machine for one Coke. There was deposit on the bottles.
Kids could collect discarded bottles from construction sites or park garbage bins. At grocery stores, three bottles traded for a candy bar and two pieces of bubble gum. Five bottles brought ten cents, enough for the Saturday-afternoon double-feature. Our movies were not violent.
Roy Rogers, Gene Autry, Hopalong Cassidy, and the Lone Ranger never killed anyone. They shot the pistol out of the hand of the bad guy, knocked him out with a right to the jaw, tied him over his horse, and delivered him to the sheriff, who never seemed to be up to catching the outlaws.
I still remember how shocked we were the first time the good guy killed the bad one on screen. If memory serves, it was a Randolph Scott movie, which in the late 1940’s displaced the more gentle cowboy films. Still, it was a long way from the Clint Eastwood westerns, such as The Good, the Bad, and the Ugly, let alone Unforgiven.
We rode our bikes everywhere. No one had a lock, which would have cost five movies. We could even ride our bikes at night to Ponce de Leon ballpark to watch the Atlanta Crackers.
We just dropped our bikes outside the entrance, and they were there on our return.
No one bothered us. The only danger we faced was from our own recklessness on two wheels, jumping curbs
and dodging obstacles.
We were never inside except when rainy days confined us to reading and board games.
Despite the postwar inflation, by the time I had a driver’s license and was of dating age, one dollar would buy three gallons of gasoline, enough for a Saturday-night date. Five dollars would fill the tank. Movies had gone up to 50¢.
A steak sandwich at a drive-in afterward was 35¢, and a coke was a dime. A three-bedroom, one-bath home could be purchased for ten or eleven thousand dollars. Anyone with one million dollars was very rich. Even in the mid1960’s, a $10,000 annual income was enough for a one-earner family and a good credit rating.
Today, my tale sounds like legends from a distant past, and the Bush/ Obama inflation is not yet under way. Today, the cost of a home in the 1960’s wouldn’t remodel a kitchen.
Franklin Delano Roosevelt, a still much-beloved U.S. president, might go down in history as the man who destroyed America. Roosevelt confiscated America’s money. He forced Americans to turn in their gold money and accept fiat paper in its place at
20 paper dollars to the ounce. Once he had all the gold, he raised the price to $35 per ounce.
Gold can’t be printed, but paper money can. Reflecting this fact, today gold is $1,000 per ounce and could be $2,000 per ounce by year’s end or the end of next year.
With Roosevelt and thereafter until President Nixon, gold was the backing for the U.S. dollar in international trade, but not for the money in domestic commerce. America retained some commodity money. Silver certificates in one-dollar and five-dollar denominations existed until the mid-to-late 60’s, when the silver was taken out of the coins. The copper penny survived until the Reagan administration.
I remember the U.S. Treasury meeting in 1981 when I, as assistant secretary, tried to save the copper penny with the argument that if we could not afford an honest penny, why would anyone believe we were going to cure stagflation? How could the Treasury expect Wall Street to believe that we would subdue double-digit inflation when we were about to announce that we could not afford a copper penny?
Supply-side economics saved the day. The monetary/fiscal policy mix was reversed, inflation was subdued, and employment picked up. That was then. Today, policymakers have nothing with which to save us from a twotrillion-dollar budget deficit in FY 2009 and another two-trillion-dollar budget deficit in 2010, and unknown but undoubtedly massive deficits in subsequent years. In FY 2008 the official federal budget deficit was $455 billion. In 2009 it is four times larger.
In the past our budget deficits have been financed by our trading partners, who recycle their trade surpluses by purchasing U.S. debt instruments.
Their trade surpluses can handle $400 billion deficits, but not deficits four or five times as large.
If the U.S. stock market has another leg down to a Dow Jones average of four, five, or six thousand, fear may send investors fleeing equities into “safe” U.S. treasuries. Unless this happens, the only other way to finance a two-trillion-dollar budget deficit is to print money.
When a Treasury bond auction is not successful, the Federal Reserve steps in and buys the bonds. It pays for the bonds by creating demand-deposit accounts for the Treasury. Thus, the money supply increases by the amount of the Fed’s bond purchase.
Currently, the U.S. money supply is about $1.4 trillion as measured by M1 (the total amount of currency in circulation, plus checkable deposits, plus travelers’ checks) as of April 2008. If the 2009 budget deficit is monetized, the U.S. money supply will double in one year. If the 2010 deficit is monetized, the U.S. money supply will have tripled in two years.
Despite double-digit unemployment and falling real-estate and equity prices, this means inflation. Our foreign creditors, on whom we are dependent, will cease to extend credit. The United States, an import-dependent economy, will not be able to pay for her imports.
Shortages will appear, which will aggravate the inflation. Fuel deliveries will be disrupted, and grocery stores will at times have empty shelves.
The next step could be that wholesalers would sell to people who have gold and silver, bypassing retail stores, unless the retail stores follow suit and sell to customers who have gold and silver instead of depreciating paper.
Fear and unrest would grow.
The U.S. military, which could not successfully occupy Baghdad, would not be able to occupy the United
If Roosevelt had not destroyed the gold basis of the U.S. dollar, we would not be facing these horrors. Once the Romans debased their currency, they were finished. I have a “silver” denarius from the later empire period. Essentially, it is lead.
But even the Roman lead is worth more than the paper that will be printed to finance the U.S. government’s annual budgets for 2009 and 2010, which are 50 percent in the red.
In one lifetime the United States will have passed from superpower to Third World beggar. An amazing compression of history. The fall of Rome took centuries.
Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. Roberts' latest books are The Failure of Laissez Faire Capitalism and The Failure of Laissez Faire Capitalism and Economic Dissolution of the West and How America Was Lost.