DarkRange55
We are now gods but for the wisdom
- Oct 15, 2023
- 2,059
Part I-B (Half 1/2): The Golden Constant and Gold's Purchasing Power
Transition from Part I-A to Part I-B
The long history of gold and silver, as reviewed in Part I-A, shows that endurance is not synonymous with steady performance. Precious metals survived regime collapse, fiat experiments, and empire-wide inflations, but their track records were uneven. Rome debased silver until it was unrecognizable; Spain flooded Europe with New World treasure that fueled a century of inflation; and the 20th century's gold standard gave way to fiat paper. Each episode reminds us that gold's longevity does not automatically mean linear wealth preservation.
This tension between survival and financial reliability motivated Roy Jastram's famous study The Golden Constant (1977), later extended by Jill Leyland and critiqued by Claude Erb and Campbell Harvey. Their findings frame the most enduring metaphor of all: the "nice suit" heuristic — the claim that one ounce of gold has always bought respectable attire, whether a Roman's cloak or a modern Armani.
1. Jastram's
The Golden Constant
(1977)
Roy Jastram's The Golden Constant (1977) remains the seminal attempt to quantify gold's long-run purchasing power. Using reconstructed data from England (1560–1976) and the United States (1800–1976), he showed that gold's average real return was only about 0.5% per year. Equities compounded wealth far faster, bonds often outperformed, but gold displayed a unique pattern: its value tended to revert to long-term means over centuries, not decades.
One of Jastram's key concepts was retrievability. This meant that although gold could perform poorly for decades, its purchasing power always "retrieved" its former level once conditions shifted. For example, when fiat regimes collapsed or during systemic crises, gold snapped back to its long-term parity with consumer staples.
A second concept was purchasing power constancy. Jastram demonstrated that over the very long run, an ounce of gold bought roughly the same "basket" of goods — grain, clothing, and durable items. In other words, gold was not a growth asset but a preserver of wealth across generations.
Still, Jastram warned against over-simplification. His indices for early modern England were reconstructed from commodity lists and were prone to error. Moreover, the constancy was only visible across centuries. For individuals, gold could disappoint badly. Investors in the 1930s or 1980s saw decades of stagnation. The lesson was clear: gold's preservation works on a geologic timescale, not a human one.
An important additional nuance from Jastram was the distinction between inflation and deflation. In inflationary episodes, gold often lagged at first but then overshot once fiat credibility collapsed. In deflationary times, however, gold could stagnate or lose purchasing power relative to falling prices. This duality — strength in inflation, weakness in deflation — became central to later scholarship (Leyland, Erb & Harvey).
2. Leyland's Update (2009)
Jill Leyland extended Jastram's work through 2007 in The Golden Constant: The English and American Experience 1560–2007. Her findings confirmed his thesis: gold preserves purchasing power over centuries, but is unreliable over decades.
She highlighted the 1980–1999 bear market, when gold collapsed from $850/oz to ~$250/oz. Adjusted for inflation, this represented a 70–80% real loss. Investors who bought at the 1980 peak did not break even until the mid-2000s. This was Jastram's "retrievability" writ large: decades of despair erased only when systemic crisis struck.
The 2008 financial crisis proved her point. Gold surged from ~$800 to over $1,900/oz by 2011, even as global equities collapsed. This restored its long-term parity with consumer prices, showing how gold can snap back after long underperformance. Leyland concluded that gold works best as intergenerational wealth insurance. It is not an asset for compounding within a single lifetime, but it preserves value across family lineages.
Leyland also emphasized volatility. Gold did not rise steadily with inflation; instead, it spiked during confidence shocks. The early 2000s, with modest inflation, saw little action. But the banking panic of 2008 triggered a frenzy. Gold is thus less an "inflation hedge" than a systemic-confidence hedge.
Finally, Leyland stressed the role of central banks. In the 1990s, Western governments were net sellers: the UK infamously sold 395 tonnes at the bottom. By the 2000s, however, emerging markets — China, Russia, India — reversed course, buying heavily. This underscored gold's relevance at the national level, even when retail investors doubted it. Central banks treat gold not as a yield-bearing asset but as an uncorrelated reserve.
3. The Duke Critique (Erb & Harvey, 2013)
Claude Erb and Campbell Harvey's The Golden Dilemma (2013) challenged the mythology of gold's "5,000-year record." Their core claim: gold survives, but it does not compound wealth. Unlike stocks, it pays no dividends; unlike bonds, no coupons. When compared to productive assets, gold lags badly.
They cited Hendrik Bessembinder's landmark 2018 study, which showed that just 4% of stocks generated the entire net wealth of U.S. equities. Comparing gold to average or failed stocks flatters it; compared to compounding giants like Coca-Cola, Philip Morris, or Berkshire Hathaway, gold looks like a poor cousin.
Erb and Harvey also pointed to Brazil in the 1980s–1990s, where hyperinflation eroded fiat money. Gold did preserve value in local terms, but global equities and bonds often outperformed in real purchasing power. Gold's advantage was not returns but portability and accessibility in times of capital controls.
Their portfolio lesson was behavioral as much as financial. Because of gold's mystique, investors often overweight it. But their models showed the optimal allocation was modest — usually 2–10%. Gold is best seen not as an anchor but an airbag: dead weight most of the time, but invaluable in crashes. This reframed gold as portfolio insurance, not a core growth driver.
4. The "Nice Suit" Heuristic (Fully Expanded)
The "nice suit" heuristic is one of the most persistent claims about gold: that an ounce of gold has always bought a dignified set of clothing. Though simplified, it captures a striking cross-temporal continuity.
Ancient Rome (~1st–2nd century CE).
A centurion — a mid-ranking officer — earned about 3,750 denarii/year, or 150 aurei (gold coins). Each aureus weighed ~7.9 g, so the annual pay equaled 1,185 g ≈ 38 oz of gold. Clothing costs were modest: tunics, cloaks, sandals, and belts could be had for a few denarii each, fractions of an aureus. Diocletian's Price Edict (301 CE), though later, confirms these magnitudes: tunics for ~5 denarii, cloaks for ~20, sandals for ~3. Outfitting oneself fully consumed a few aurei — just a couple ounces of gold out of an officer's annual 38 oz salary. Thus, gold reliably purchased dignity in attire, though not with a strict 1-to-1 ounce mapping.
United States, 1890s.
On the classical gold standard, gold was pegged at $20.67/oz. A high-quality wool suit cost ~$18–20. In other words, 1 oz of gold = 1 nice suit. Bread at 5¢/loaf meant an ounce bought ~400 loaves. Shoes cost $3–5, or about 1/5 oz. Here the heuristic was almost literal: an ounce bought a full respectable outfit
Today (2020s).
Gold trades at ~$2,000–$2,500/oz. A tailored business suit costs ~$2,000–3,000. Again, the heuristic holds: 1 oz ≈ 1 suit. Bread at $3.50/loaf means an ounce buys ~570 loaves. Quality shoes at $200–400 cost 1/10–1/5 oz.
Meaning and Caveats.
The metaphor works because it expresses gold's ability to preserve dignity in material life. But it also compresses complexities. Roman sandals were not Armani leather shoes. Bread varies by subsidies, quality, and region. Still, across Rome, the 1890s, and today, gold has consistently bought dignified clothing and staple calories. That is why the "nice suit" shorthand survives.
5. Bread as a Benchmark (Fully Expanded)
Bread provides the simplest baseline for measuring survival.
Rome. A denarius could buy dozens of loaves, though the state's annona (grain dole) distorted prices. Many citizens received subsidized or free grain, making the real exchange between gold and bread stronger than market prices alone suggest.
Medieval Europe. Bread was central to survival. Prices spiked dramatically in bad harvests. During the Great Famine (1315–1317), prices tripled. Gold preserved purchasing power — an ounce bought more bread than before — but physical scarcity often made food inaccessible regardless of coin.
Global parallels. In China, rice was the equivalent; in India, rice and chapati; in Latin America, maize. Across these regions, an ounce of gold consistently bought staple calories enough to sustain a family.
Modern history. In the 1930s, bread was ~8¢, and gold pegged at $35/oz bought ~437 loaves. In the 1970s, bread doubled in price during stagflation, but gold rose tenfold, massively expanding its bread-buying power. Today, bread at ~$3.50/loaf and gold at ~$2,000 equates to ~570 loaves — roughly consistent.
Caveats. Bread prices have always varied by region, subsidy, and quality. The 1890s industrial loaf differs from an artisanal sourdough. Still, the broad consistency of "hundreds of loaves per ounce" illustrates gold's role in maintaining caloric security across millennia.
6. Shoes, Belts, and Everyday Goods
Durables better represent dignity than perishables.
Rome. Sandals cost 1–2 denarii, a fraction of an aureus. Belts and cloaks were similarly modest. An officer earning 150 aurei/year could easily buy many durable items with just a few ounces of gold.
1890s America. Shoes at $3–5 equated to ~1/5 oz of gold. Sears catalogues confirm these ratios for other everyday goods: belts for under a dollar, coats for ~$5–10.
Today. Quality shoes cost $200–400, or ~1/10–1/5 oz. Belts at $50–100 are fractions of an ounce. The ratios remain consistent: gold secures durable goods across centuries.
Durables matter because they last. The fact that gold consistently buys clothing, shoes, and belts — the materials of everyday dignity — shows that its constancy is not just about calories but about quality of life.
Transition from Part I-A to Part I-B
The long history of gold and silver, as reviewed in Part I-A, shows that endurance is not synonymous with steady performance. Precious metals survived regime collapse, fiat experiments, and empire-wide inflations, but their track records were uneven. Rome debased silver until it was unrecognizable; Spain flooded Europe with New World treasure that fueled a century of inflation; and the 20th century's gold standard gave way to fiat paper. Each episode reminds us that gold's longevity does not automatically mean linear wealth preservation.
This tension between survival and financial reliability motivated Roy Jastram's famous study The Golden Constant (1977), later extended by Jill Leyland and critiqued by Claude Erb and Campbell Harvey. Their findings frame the most enduring metaphor of all: the "nice suit" heuristic — the claim that one ounce of gold has always bought respectable attire, whether a Roman's cloak or a modern Armani.
1. Jastram's
The Golden Constant
(1977)
Roy Jastram's The Golden Constant (1977) remains the seminal attempt to quantify gold's long-run purchasing power. Using reconstructed data from England (1560–1976) and the United States (1800–1976), he showed that gold's average real return was only about 0.5% per year. Equities compounded wealth far faster, bonds often outperformed, but gold displayed a unique pattern: its value tended to revert to long-term means over centuries, not decades.
One of Jastram's key concepts was retrievability. This meant that although gold could perform poorly for decades, its purchasing power always "retrieved" its former level once conditions shifted. For example, when fiat regimes collapsed or during systemic crises, gold snapped back to its long-term parity with consumer staples.
A second concept was purchasing power constancy. Jastram demonstrated that over the very long run, an ounce of gold bought roughly the same "basket" of goods — grain, clothing, and durable items. In other words, gold was not a growth asset but a preserver of wealth across generations.
Still, Jastram warned against over-simplification. His indices for early modern England were reconstructed from commodity lists and were prone to error. Moreover, the constancy was only visible across centuries. For individuals, gold could disappoint badly. Investors in the 1930s or 1980s saw decades of stagnation. The lesson was clear: gold's preservation works on a geologic timescale, not a human one.
An important additional nuance from Jastram was the distinction between inflation and deflation. In inflationary episodes, gold often lagged at first but then overshot once fiat credibility collapsed. In deflationary times, however, gold could stagnate or lose purchasing power relative to falling prices. This duality — strength in inflation, weakness in deflation — became central to later scholarship (Leyland, Erb & Harvey).
2. Leyland's Update (2009)
Jill Leyland extended Jastram's work through 2007 in The Golden Constant: The English and American Experience 1560–2007. Her findings confirmed his thesis: gold preserves purchasing power over centuries, but is unreliable over decades.
She highlighted the 1980–1999 bear market, when gold collapsed from $850/oz to ~$250/oz. Adjusted for inflation, this represented a 70–80% real loss. Investors who bought at the 1980 peak did not break even until the mid-2000s. This was Jastram's "retrievability" writ large: decades of despair erased only when systemic crisis struck.
The 2008 financial crisis proved her point. Gold surged from ~$800 to over $1,900/oz by 2011, even as global equities collapsed. This restored its long-term parity with consumer prices, showing how gold can snap back after long underperformance. Leyland concluded that gold works best as intergenerational wealth insurance. It is not an asset for compounding within a single lifetime, but it preserves value across family lineages.
Leyland also emphasized volatility. Gold did not rise steadily with inflation; instead, it spiked during confidence shocks. The early 2000s, with modest inflation, saw little action. But the banking panic of 2008 triggered a frenzy. Gold is thus less an "inflation hedge" than a systemic-confidence hedge.
Finally, Leyland stressed the role of central banks. In the 1990s, Western governments were net sellers: the UK infamously sold 395 tonnes at the bottom. By the 2000s, however, emerging markets — China, Russia, India — reversed course, buying heavily. This underscored gold's relevance at the national level, even when retail investors doubted it. Central banks treat gold not as a yield-bearing asset but as an uncorrelated reserve.
3. The Duke Critique (Erb & Harvey, 2013)
Claude Erb and Campbell Harvey's The Golden Dilemma (2013) challenged the mythology of gold's "5,000-year record." Their core claim: gold survives, but it does not compound wealth. Unlike stocks, it pays no dividends; unlike bonds, no coupons. When compared to productive assets, gold lags badly.
They cited Hendrik Bessembinder's landmark 2018 study, which showed that just 4% of stocks generated the entire net wealth of U.S. equities. Comparing gold to average or failed stocks flatters it; compared to compounding giants like Coca-Cola, Philip Morris, or Berkshire Hathaway, gold looks like a poor cousin.
Erb and Harvey also pointed to Brazil in the 1980s–1990s, where hyperinflation eroded fiat money. Gold did preserve value in local terms, but global equities and bonds often outperformed in real purchasing power. Gold's advantage was not returns but portability and accessibility in times of capital controls.
Their portfolio lesson was behavioral as much as financial. Because of gold's mystique, investors often overweight it. But their models showed the optimal allocation was modest — usually 2–10%. Gold is best seen not as an anchor but an airbag: dead weight most of the time, but invaluable in crashes. This reframed gold as portfolio insurance, not a core growth driver.
4. The "Nice Suit" Heuristic (Fully Expanded)
The "nice suit" heuristic is one of the most persistent claims about gold: that an ounce of gold has always bought a dignified set of clothing. Though simplified, it captures a striking cross-temporal continuity.
Ancient Rome (~1st–2nd century CE).
A centurion — a mid-ranking officer — earned about 3,750 denarii/year, or 150 aurei (gold coins). Each aureus weighed ~7.9 g, so the annual pay equaled 1,185 g ≈ 38 oz of gold. Clothing costs were modest: tunics, cloaks, sandals, and belts could be had for a few denarii each, fractions of an aureus. Diocletian's Price Edict (301 CE), though later, confirms these magnitudes: tunics for ~5 denarii, cloaks for ~20, sandals for ~3. Outfitting oneself fully consumed a few aurei — just a couple ounces of gold out of an officer's annual 38 oz salary. Thus, gold reliably purchased dignity in attire, though not with a strict 1-to-1 ounce mapping.
United States, 1890s.
On the classical gold standard, gold was pegged at $20.67/oz. A high-quality wool suit cost ~$18–20. In other words, 1 oz of gold = 1 nice suit. Bread at 5¢/loaf meant an ounce bought ~400 loaves. Shoes cost $3–5, or about 1/5 oz. Here the heuristic was almost literal: an ounce bought a full respectable outfit
Today (2020s).
Gold trades at ~$2,000–$2,500/oz. A tailored business suit costs ~$2,000–3,000. Again, the heuristic holds: 1 oz ≈ 1 suit. Bread at $3.50/loaf means an ounce buys ~570 loaves. Quality shoes at $200–400 cost 1/10–1/5 oz.
Meaning and Caveats.
The metaphor works because it expresses gold's ability to preserve dignity in material life. But it also compresses complexities. Roman sandals were not Armani leather shoes. Bread varies by subsidies, quality, and region. Still, across Rome, the 1890s, and today, gold has consistently bought dignified clothing and staple calories. That is why the "nice suit" shorthand survives.
5. Bread as a Benchmark (Fully Expanded)
Bread provides the simplest baseline for measuring survival.
Rome. A denarius could buy dozens of loaves, though the state's annona (grain dole) distorted prices. Many citizens received subsidized or free grain, making the real exchange between gold and bread stronger than market prices alone suggest.
Medieval Europe. Bread was central to survival. Prices spiked dramatically in bad harvests. During the Great Famine (1315–1317), prices tripled. Gold preserved purchasing power — an ounce bought more bread than before — but physical scarcity often made food inaccessible regardless of coin.
Global parallels. In China, rice was the equivalent; in India, rice and chapati; in Latin America, maize. Across these regions, an ounce of gold consistently bought staple calories enough to sustain a family.
Modern history. In the 1930s, bread was ~8¢, and gold pegged at $35/oz bought ~437 loaves. In the 1970s, bread doubled in price during stagflation, but gold rose tenfold, massively expanding its bread-buying power. Today, bread at ~$3.50/loaf and gold at ~$2,000 equates to ~570 loaves — roughly consistent.
Caveats. Bread prices have always varied by region, subsidy, and quality. The 1890s industrial loaf differs from an artisanal sourdough. Still, the broad consistency of "hundreds of loaves per ounce" illustrates gold's role in maintaining caloric security across millennia.
6. Shoes, Belts, and Everyday Goods
Durables better represent dignity than perishables.
Rome. Sandals cost 1–2 denarii, a fraction of an aureus. Belts and cloaks were similarly modest. An officer earning 150 aurei/year could easily buy many durable items with just a few ounces of gold.
1890s America. Shoes at $3–5 equated to ~1/5 oz of gold. Sears catalogues confirm these ratios for other everyday goods: belts for under a dollar, coats for ~$5–10.
Today. Quality shoes cost $200–400, or ~1/10–1/5 oz. Belts at $50–100 are fractions of an ounce. The ratios remain consistent: gold secures durable goods across centuries.
Durables matter because they last. The fact that gold consistently buys clothing, shoes, and belts — the materials of everyday dignity — shows that its constancy is not just about calories but about quality of life.
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