by Peter Schiff, Schiff Gold:
Labor Day is coming up. That means we will hear a lot about the plight of American workers. And we will undoubtedly hear calls for new policies to help make their lives better. But we don’t really need more government policies to help workers.
We need better money.
The biggest problem facing American laborers is a devaluing currency that steals a little bit of their purchasing power every single day.
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And why is the value of money declining?
Because monetary policy devalues our currency, and that means less purchasing power for you and me. Simply put, when the government creates money out of thin air, a dollar no longer buys the same amount of stuff it once did. Quantitative easing and artificially low interest rates debase the currency and the Federal Reserve has engaged in the practice for decades.
The government needs the central bank to create money (inflation) and manipulate interest rates (the cost of money) in order to prop up its borrowing and spending. This kind of spending and accompanying budget deficits would be impossible if the Federal Reserve was not keeping interest rates lower than they otherwise would and monetizing the debt through QE.
This government policy is at workers’ expense.
We felt the results in the form of rampant price inflation after the Fed created trillions of dollars out of thin air to cope with the government shutdowns during the pandemic. (Piled on top of more than a decade of easy money after the Great Recession.) But even when price inflation is “under control,” the government and the Fed continue to steal 2% of your purchasing power every year.
The powers that be will tell you inflation doesn’t really matter because wages go up along with prices and everything balances out. But as we saw over the last two years, wages don’t go up nearly as quickly as prices. Workers are always playing from behind.
Two examples vividly illustrate how bad money hurts workers.
Wages and Productivity
Before President Richard Nixon closed the gold window and eliminated the last vestiges of the gold standard, workers’ hourly compensation generally went up with increases in their productivity. The more they produced, the more they could consume.
Then in 1971, Nixon ordered Treasury Secretary John Connally to uncouple gold from its fixed $35 price and suspended the ability of foreign banks to directly exchange dollars for gold. During a national television address, on Aug. 15, 1971, Nixon promised the action would be temporary in order to “defend the dollar against the speculators,” but this turned out to be a lie. The president’s move permanently and completely severed the dollar from gold and turned it into a pure fiat currency.
With the dollar floating free from all restraints, the central bank and the federal government could create money at will.
And they did.
When he announced the closing of the gold window, Nixon said, “Let me lay to rest the bugaboo of what is called devaluation,” and promised, “Your dollar will be worth just as much as it is today.”
This was also a lie.
The dollar has lost more than 85% of its value since Nixon’s fateful decision, based on the CPI calculator. The purchasing power of a 1971 dollar is equal to less than 14 cents today.
The devaluation of the dollar has crushed real wages. As you can see from this chart, after the final blow to the gold standard, hourly compensation flatlined in relation to productivity.
The Minimum Wage in Silver
We can also see the impact of government monetary policy on workers when we look at the minimum wage before and after silver was removed from US coinage.
Prior to 1965, US dimes, quarters, and half-dollars were primarily made out of silver. That changed when President Lyndon B. Johnson signed the Coinage Act of 1965, setting into motion five decades of currency debasement that continues today. Under the law, coins no longer contain silver. Instead, the Treasury mints coins made of “composites, with faces of the same alloy used in our 5-cent piece that is bonded to a core of pure copper.”
