On the Other Hand. . .

There is a lot—a whole lot—that Ron Paul advocates that I agree with. So much in fact, it’s easier to mention where I differ. Paul’s true-believer libertarian purist backers were dismayed to see his new anti-illegal immigration ad today, but I thought it was fantastic.

Among those differences I mentioned, here’s two:

Paul’s neo-isolationism—Sure, we’d be more popular in the U.N. and save a lot of money if we just withdrew, but I don’t think we’re living in world where that’s possible. I sure don’t think we’d like the one that would result.

His monetary reform—This is almost an obsession with Paul. He mentions in constantly. I know where he’s coming from when I hear “fiat money” decried and the Federal reserve system condemned. I used to get all those gold bug newsletters.

 The newletter writers were all Ludwig Von Mises Institute types and they all had gold coins and bullion to sell. The also all were predicting imminent economic apocolypse fueled in large part because America’s money had been taken off the gold standard and the Federal Reserve’s house of cards was going to collapse at any moment. This was 1985, ’86, ’87. But in these newsletters it was always 1929 all over again.

Like the broken clock that is right twice a day. Their predictions of an eventual spike in the price of gold has finally come to pass—two decades later.

Supposing I’d had $10k to invest back in 1986 (which I didn’t), how would I have faired in gold bullion vs. an S&P 500 index fund?

Gold was about $400 an ounce in January of ’86, so I could have purchased roughly 25 oz. of bullion.

A share price of an S&P 500 index fund on January 1, 1986 was $211.78, so I could have purchased 47 shares.

The value of these investments today would be:

25 oz. Gold Bullion @ $847.70  =              $21,442

47 Shares S&P 500 Index @ $1411.63 = $66,346 (with no dividend reinvestment. Reinvisting dividends would have made the return much, much greater.)

To be fair, the gold was and is supposed to be a hedge in the event of that imminent economic collapse and ensuing breakdown in social order that’s been just around the corner for 20 years now.

I’m not an economist. I’m just a simple unfrozen caveman writer. But it seems to me that David Frum has written a pretty devestating take down of the whole “fiat money” is the devil argument. Read it here.

It’s clear and compelling. But I’d be happy for someone to point out any flaws in his logic or facts. Otherwise, a key component of Ron Paul’s appeal for a lot of people is the thing that is flawed.