Kaboom?

Editorial of The New York Sun 
December 23, 2014 

“Kaboom! Dow 18K” is the headline atop the Drudge Report. It links to a story on the Bloomberg wire reporting that the Dow Jones Industrial Average “rallied past 18,000 for the first time, after data showed the world’s largest economy grew at the fastest pace since 2003 last quarter.” By 4 p.m. the Dow had gained 64.73 points and hit 18,024, while Standard and Poor’s 500 Index hit a record 2,082.17 and the American economy was expanding at an annualized 5% in the third quarter as, the Bloomberg noted, “consumers and businesses spent more than was previously estimated.” What the story failed to note is that the value of the Dow — that is, its worth in ounces of gold — is nowhere near a record. 

This can be glimpsed in the charts that are kept by pricedingold.com. The chart illuminates that even with the kurrent kaboom, the current value of the Dow, at just under 350 ounces of gold, is below where it was at the start of the Obama administration, when it was near 450 ounces, and way down from its record of 1,400 ounces part way through 1999. 

The value of the Dow has certainly been trending upward in recent months, the chart of pricededgold.com suggests. It ducked under 200 ounces of gold at one point during the Great Recession. It is, however, nowhere near a record. We note this not in the spirit of parceling out stock market tips (the only suggestion we’ve ever made to investors is “never take financial advice from a newspaperman”). 

Rather we are interested in the principles of political economy — in the regulation of the value of the dollar by Congress in the spirit in which the Founders intended. The Congress was granted the power to coin money and regulate the value thereof (and of foreign coin), we like to point out, in the same sentence of the Constitution in which it was granted the power to fix the standard of weights and measures. 

 The current trends remind us of the time — we’ve often remarked on it — when our Julie Satow reported on the latest report by the real estate industry of the soaring price of Manhattan apartments. She focused on a report that within the past six years the average price of a Manhattan apartment has soared to what was then a staggering $1.4 million. Her lead was that the average value of apartments in the same period had actually been plunging, as much as 29%, to what was then 1,727 ounces of gold. How the protests over that story rolled in, though they stopped abruptly sometime in September 2008 and we haven’t heard them since. 

Whether we will have in respect of the Dow the kind of reversal we saw in the real estate markets, it’s not our place to say. But we do think the question would not be so mysterious were our monetary system based on the constitutional dollar, a dollar defined as a legislated amount of specie. These were dollars as the word dollars was used in the Constitution itself.

If we had such dollars today, then headlines such as the one at the top of the Drudge Report this afternoon would be speaking in a universal language, one requiring less deciphering by mandarins of our hedge funds and economics departments. Then the 18,000 Dow would really mean something.