Split from Bush Stomps Rights: Fiat Money

[Hogeye]

I see the problem - you are using the wrong definition of "specie." In this context, specie is "a commodity metal backing money; historically specie was gold or silver." (from Economics glossary)

What clued me in was your assertion that specie is metallic money such as coins backed by the US Treasury. The US uses token coins, a type of fiat money, and has been since 1965. Before then, dimes, quarters, and half dollars were 90% silver, so at least partially hard money (0.7234 troy ounces of silver per dollar of face value). I understand your confusion, since in the context of hard money vs. fiat money, "specie" uses the technical economics definition.

Now, lets try again with this in mind:

Q: Can you turn in your dollars to the United States and receive a specified amount of a commodity metal such as gold or silver in return?

The "specified" part is important. The backing entity must have a specific weight of commodity metal it guarantees. Promising to pay the current market price doesn't get it. This point seemed unclear to you, judging from your last post.

A related erroneous assumption: Your last comment implies that you think fiat money is "worthless" and has no exchange value. You frivolously offer to take my "worthless" dollars off my hands. I guess the frivolous counter-offer is: Please bring your gold to the meeting, and sell it to me for $20.67 per troy oz.! (the last official US exchange rate offered to citizens.)

[Doug]

I see the problem - you are using the wrong definition of "specie." In this context, specie is "a commodity metal backing money; historically specie was gold or silver." (from Economics glossary)

DOUG
I was using the U.S. legal definition from an online law dictionary.

What clued me in was your assertion that specie is metallic money such as coins backed by the US Treasury. The US uses token coins, a type of fiat money, and has been since 1965. Before then, dimes, quarters, and half dollars were 90% silver, so at least partially hard money (0.7234 troy ounces of silver per dollar of face value). I understand your confusion, since in the context of hard money vs. fiat money, "specie" uses the technical economics definition.

DOUG
I still have not seen you explain how gold and silver are not fiat money too. You are now calling them "hard money" as if they were more legitimate than fiat money.

Now, lets try again with this in mind:

Q: Can you turn in your dollars to the United States and receive a specified amount of a commodity metal such as gold or silver in return?

The "specified" part is important. The backing entity must have a specific weight of commodity metal it guarantees. Promising to pay the current market price doesn't get it. This point seemed unclear to you, judging from your last post.

DOUG
No, I can't do that. But so what? I can't turn in gold and get dollars either. However, I can buy gold with U.S. dollars on the gold market. Your point seems to be a non sequitur. What does it matter if we can't trade in paper money for metal money anymore? Who cares? The superstition that paper money isn't real money is a silly bias that I had hoped had died out a generation ago.

A related erroneous assumption: Your last comment implies that you think fiat money is "worthless" and has no exchange value. You frivolously offer to take my "worthless" dollars off my hands. I guess the frivolous counter-offer is: Please bring your gold to the meeting, and sell it to me for $20.67 per troy oz.! (the last official US exchange rate offered to citizens.)

DOUG
It is you who seem to be saying that paper money is illegitimate.

What you need to show is that gold and silver have a value in a way that U.S. money does not. You have yet to do this.

And you did not respond to my evidence that market forces determine the value of government money, and especially my example of post-WWI Germany and the devaluation of the mark.

By the way, do you think bank checks are worthless? They aren't even issued by the U.S. government, and they have no metal in them. I guess I wouldn't be able to buy anything from you with a check.

[Hogeye]

I was using the U.S. legal definition from an online law dictionary.

That explains it. States generally want to obscure the fact when they debase money. That's why we use the economics definition.

I still have not seen you explain how gold and silver are not fiat money too.

Gold and silver are used, and have been used historically, as a medium of exchange independently of government decree. Ergo, they are not fiat money. (Furthermore, it would be silly, superfluous, and senseless for a government to offer to exchange an ounce of gold for an ounce of gold.)

You are now calling them [gold and silver] "hard money" as if they were more legitimate than fiat money.

I'm not sure what you mean by "legitimate" in this context. All I'm saying is that gold and silver derive their value totally from the subjective preferrences of people and relative scarcity - supply and demand. OTOH dollars derive their value (originally, but not completely) from government decree. This does not mean that dollars have no market value. Nor does it imply that dollars aren't "backed" in some loose non-technical sense by their acceptibility for payment of taxes.

Q: Can you turn in your dollars to the United States and receive a specified amount of a commodity metal such as gold or silver in return?

Doug> No, I can't do that.

Then by definition, dollars are fiat money. QED

What does it matter if we can't trade in paper money for metal money anymore?

Ah! Excellent question. It matters because paper money can be printed up virtually without limit, whereas the supply of gold can only be increased with great difficulty. Thus goverments can and usually do impose a hidden tax by debasing the money - increasing the supply of dollars in this case. If a govt doubles the money supply with a printing press, it has robbed holders of dollars of half their value. (More or less, with various technical qualifications.)

A classic economics mental experiment: Suppose there is an island with a self-contained economy. Suppose there exist 100,000 fiat money Isle-Dollars in the economy. Suppose a helicopter flies over the island and drops 100,000 new Isle-Dollars onto the island. Islanders happily collect all the new money. What happens to prices? What happens to the savings of an islander who was sleeping during the drop, and missed out on collecting any new Isle-Dollars?

[Dardedar]

Suppose there is an island with a self-contained economy. Suppose there exist 100,000 fiat money Isle-Dollars in the economy. Suppose a helicopter flies over the island and drops 100,000 new Isle-Dollars onto the island.

DAR
And if you substitute gold bits for "Isle-Dollars" in the above example, the difference is....

D.

[Hogeye]

The effect on prices is the same. A major difference, as I've already said, is in the relative ease of printing ink on paper compared to the extreme difficulty of finding and mining gold.

I think that you understand what fiat money is now, but I have one more way to explain it that I should have used earlier - especially since it is historical and easy to grasp. Think of hard money as warehouse receipts for gold. If you can't turn your paper in to a warehouse for gold (or some commodity) then it's fiat money.

[Doug]

I still have not seen you explain how gold and silver are not fiat money too.

Gold and silver are used, and have been used historically, as a medium of exchange independently of government decree. Ergo, they are not fiat money. (Furthermore, it would be silly, superfluous, and senseless for a government to offer to exchange an ounce of gold for an ounce of gold.)

DOUG
Who cares whether it is independent of government decree? Both gold AND silver AND other precious metals AND gems AND dollars AND pounds AND other currency ALL get their value in a social context that works roughly in the same way. Market forces and related factors are what determine the value. Gold does not have some "intrinsic" value anymore than do works of art or other things valued. (YOU HAVE STILL NOT REPLIED TO MY EVIDENCE IN THIS RESPECT, about market forces and currency. See above.)

You are now calling them [gold and silver] "hard money" as if they were more legitimate than fiat money.

I'm not sure what you mean by "legitimate" in this context. All I'm saying is that gold and silver derive their value totally from the subjective preferrences of people and relative scarcity - supply and demand. OTOH dollars derive their value (originally, but not completely) from government decree. This does not mean that dollars have no market value. Nor does it imply that dollars aren't "backed" in some loose non-technical sense by their acceptibility for payment of taxes.

DOUG
The difference between dollars and gold regarding value begins to disappear the more you examine them.

By the way, dollars are accepted in more contexts than gold. Did you know that?

Q: Can you turn in your dollars to the United States and receive a specified amount of a commodity metal such as gold or silver in return?
Doug> No, I can't do that.
Hogeye wrote: Then by definition, dollars are fiat money. QED

DOUG
But I can turn my dollars into gold, just not at the local federal reserve bank. WHERE you change your dollars into gold is important to you, but why?

What does it matter if we can't trade in paper money for metal money anymore?

Ah! Excellent question. It matters because paper money can be printed up virtually without limit, whereas the supply of gold can only be increased with great difficulty. Thus goverments can and usually do impose a hidden tax by debasing the money - increasing the supply of dollars in this case. If a govt doubles the money supply with a printing press, it has robbed holders of dollars of half their value. (More or less, with various technical qualifications.)

DOUG
And people can hoard gold and make its value go up artificially. But so what? Governments don't just print up money without limit. That's ridiculous. Even if they CAN do so, they DON'T.

You have a very simplistic view of economics. And, I might add, a very outdated one.

A classic economics mental experiment: Suppose there is an island with a self-contained economy. Suppose there exist 100,000 fiat money Isle-Dollars in the economy. Suppose a helicopter flies over the island and drops 100,000 new Isle-Dollars onto the island. Islanders happily collect all the new money. What happens to prices? What happens to the savings of an islander who was sleeping during the drop, and missed out on collecting any new Isle-Dollars?

DOUG
If the island has a self-contained economy, the new bills are counterfeit and therefore worthless. Your example fails.

And if you own gold, and someone discovers a cache of gold and puts it on the market, your gold is worth less money. Same thing.

You still have yet to indicate any property of gold that would make it somehow less "fiat money" than dollars, except for the question-begging property of being created by a government. Gold is mined, of course.

[Hogeye]

Gold does not have some "intrinsic" value anymore than do works of art or other things valued. (YOU HAVE STILL NOT REPLIED TO MY EVIDENCE IN THIS RESPECT...)

Sure I did. I agreed with you. I explained the subjective theory of value. But this has nothing to do with fiat money.

Who cares whether it is independent of government decree?

Holders of money care. Many of them anyway. It matters whether the bills in your pocket lose exchange value. Even unsophisticated people figure it out; in countries with double-digit inflation rates, even the peasants try to hold less inflationary currencies or silver.

I can turn my dollars into gold, just not at the local federal reserve bank. WHERE you change your dollars into gold is important to you, but why?

You're missing the point here. I don't care where I can exchange dollars for gold; I care about the exchange rate. If Walmart convinced me that they would always exchange dollars for X ounces of gold, X fixed and unchanging, then I would consider dollars to be hard money.

To emphasize the critical point: Hard money (by definition) can be exchanged for a guaranteed fixed weight of a commodity. It is a "warehouse receipt" for a fixed amount, not for an unknown amount determined on the market. Pounds sterling, shillings, and dollars were historically units of weight.

Governments don't just print up money without limit.

Apparently you are unfamiliar with the many hyperinflations of the past.

If the island has a self-contained economy, the new bills are counterfeit...

Also you are unfamiliar with ceteris paribus analysis? Assume legit bills the Isle govt printed up, or perfect counterfeits. Or chunks of gold for that matter.

If you own gold, and someone discovers a cache of gold and puts it on the market, your gold is worth less money. Same thing.

Yes! So you do get it. Now all you need to do is realize that it's easier to print pretty pieces of paper than find and mine gold. Then you'll know why fiat money is so dangerous - it can be inflated so easily. And no government on earth has been able to resist the temptation.

[Dardedar]

DOUG
Are you honestly suggesting that precious metals are better money because they are harder to make in relation to paper money?

DAR
He seems to, yet I don't even agree with this. It is not at all easy to make copies of todays American money with the water marks, detail and metal inserts. At least not good ones.

HOGEYE
If Walmart convinced me that they would always exchange dollars for X ounces of gold, X fixed and unchanging, then I would consider dollars to be hard money.

DAR
But since the value of the gold will go up and down just as much as the value in an American currency (unless the currency is printed by a flakey group of Somalians), the difference is an illusion. And of course, the value of Wal-Mart and their assertions are also based upon some faith and how much people value the company and products in the future. I would have to check but gold has probably fluctuated much more than the American dollar over the years.

DAR said:
And if you substitute gold bits for "Isle-Dollars" in the above example, the difference is....

HOGEYE responded to Doug, later:
Assume legit bills the Isle govt printed up, or perfect counterfeits. Or chunks of gold for that matter.

DAR
So it doesn't matter? This seems to conceed the whole point. Dollars, gold or cowpies, what matters is not the item but rather if people decide to collectively assign a value to something and use it as a currency.

Very likely someday in the future all money will be stored and transacted electronically. Hogeye's desendants will call this "fiat electrons" and wish for the day when it was all backed up with good old paper.

D.

[Doug]

I had a post in reply to Hogeye's Sat Jul 22, 2006 4:25 pm post.

Where did it go?

[Dardedar]

Savonarola wrote to Dar privately:
Regarding this post, is it possible that you accidentally deleted his post? Moderators have the extra buttons at the top of each post next to "edit" and "quote," one of which shows the IP of the poster and the other deletes the post. I don't think I did, but I have missed the intended button in the past and hit the big X, so I know it's possible to do by mistake. I'd rather know that this is what happened instead of trying to chase down some weird problem.
--Sav

DAR
Ha, there was a glitch and here's what happened. I responded to a post in that thread and it credited me as being Doug and had the contents of my post. I thought this was quite bizarre. So I opened the post to edit it and copied the info and then made another post. So there were two of my posts, one as "Doug" and was as me. They were identical otherwise. I thought perhaps Doug and I had tried to post something at the same moment and the wires got crossed. At this point, I deleted the extra post that had my info with Doug's name on it and his sign off. This left my post.
I am 100% sure of the above. Very bizarre. How this could have deleted a post of Doug's that had original Doug information, I have no idea.

D.

[Hogeye]

It is not at all easy to make copies of todays American money with the water marks, detail and metal inserts.

You're totally missing the point here. It is easy for the US government to print up more dollars. And indisputable that they do, early and often. It's called inflation.

But since the value of the gold will go up and down just as much as the value in an American currency, the difference is an illusion.

Boy, will you be surprised at this graph!



As you know, Nixon "closed the gold window" (made the US$ completely fiat) in the 1970s. So now you know: The US dollar has lost value wrt gold. Gold is undoubtably a better inflation hedge than dollars.

I'm not sure why you seem more concerned with fluctuations rather than price. It is clear that, even with fluctuations (which are normal), dollars lose value over time with respect to gold and most other commodities. If you want more evidence of the dollar supply rising faster than gold discovery, look at graphs of M1, M2 and other measures of money supply, and look at the US "national debt" over the years. This debt is financed by promises (called "T-notes") to print up even more dollars in the future.

The point of the helicopter dropping money scenerio is that prices of goods change according to the amount of money 'chasing' the goods. Thus if you have currency that can simply be printed up (generally by governments; illegal counterfeiters are insignificant), then that is a grave danger to people who hold wealth in this currency.

Very likely someday in the future all money will be stored and transacted electronically. Hogeye's desendants will call this "fiat electrons" and wish for the day when it was all backed up with good old paper.

There is already money stored and transacted electronically, with cryptographic protection and pseudonymity no less! It's called e-gold, and it is backed by gold (silver, platinum, or palladium; your choice.) There are many other digital money firms, too. This is the wave of the future.

[Doug]

You're totally missing the point here. It is easy for the US government to print up more dollars. And indisputable that they do, early and often. It's called inflation.

DOUG
No one disputes that the government prints up a lot of money. They also take millions of bills out of circulation when they wear out, get damaged, etc.

But you aren't actually suggesting that inflation is caused by too much money being printed up, are you?

[Dardedar]

Boy, will you be surprised at this graph!

DAR
Why would I be surprised by this graph? It shows, when compared along side the following gold value chart below, that except for an artifically created period of transition from '70-'74, the dollar has been much more stable in value than gold.

So I should revise my statement and make it stronger: the value of gold, excepting the above note, is much more volatile than American currency. This was my point.

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[Savonarola]

It shows, when compared along side the following gold value chart below, that except for an artifically created period of transition from '70-'74, the dollar has been much more stable in value than gold.

Darrel, can we get a link to the source of that graph, or at the very least a way to know explicitly what is being represented on the y axis? The graph is pretty meaningless when we don't know what it means.

[Dardedar]

DAR
Sure, here is the blurb and link for it:

"Average annual price of gold per troy ounce in United States dollars since 1793. Note for much of this time the gold standard was in effect, hence the lack of volatility during these times."

LINK

[Savonarola]

"Average annual price of gold per troy ounce in United States dollars since 1793. Note for much of this time the gold standard was in effect, hence the lack of volatility during these times."

Well then, the two graphs are identical: both show the value of the dollar compared to gold, only (effectively) with an axis reversed and rescaled. I find it curious that the volatility evident in Darrel's image is not evident in Hogeye's graph. Not that I'm accusing anyone of lying, just that it seems the data sets are not identical. Does either of you have multiple sources with which a cross-comparison can be done?

Regardless, let us note that comparing the value of the dollar with respect to gold over time tells us neither whether the actual value of the dollar has gone down nor whether the actual value of gold has gone up, nor does it tell us which one (if not both) is volatile in actual value. To show this, one needs an independent, inflation-adjusted (not in terms of gold or USDollars) denomination or commodity.


A qualitative glance at this chart loosely suggests that

• The value of gold is increasing
• The value of the dollar is decreasing
• The value of gold is mildly volatile, although data from a longer period would be preferable

Again, more data would give a better representation of actual trends.

[Dardedar]

DAR
Good points SAV. Seems this is rather more complicated than I thought. I knew gold had doubled within a year or two in the late 70's and then shot back down as shown by this chart:




But that's too simple. This article talks of the complexity:




In 1983 a new financial risk management tool was developed to mitigate the impact of gold price volatility on mining companies: hedging. Total gold hedging increased from four tonnes in 1983 to forty five tonnes in 1986. But from 1987 to 1990 a total of eight hundred and seventy six tonnes were hedged.

Around the same time, between 1989 and 1993, M3 growth increased by only six percent. Gold inflation, on the other hand, was eight percent during that period and so the gold price should have declined two percent over the course of those four years.

This downward pressure on the gold price, coupled to the expansion of hedging, which increases the supply of gold in the market, caused the actual gold price to drop nineteen percent from 1987 to 1993 -- fifteen percent below its theoretical value.

Although gold peaked in February 1996 at almost $420 an ounce, the average price for that year ($388) was fifteen percent less than its theoretical price of $458. It was already undervalued, yet the gold price still declined to almost $250 an ounce in 2001.

Compounding demand for dollars, following a series of currency crises that tightened supply and strengthened the dollar against almost all other currencies, was behind the decline in the gold price. We have discussed this before, but it is worth reviewing again.

Capital flight from Brazil between 1992 and 1994, as the real effectively went to zero, created significant demand for dollars. In response, the dollar increased by about ten percent against the PVE Dollar Index (a GDP-weighted index of thirty five currencies; see “A New Gold Index” – January 16, 2004).

The worst financial crisis in Mexico since the Revolution occurred from 1994 to 1995; the peso lost over fifty percent against the dollar. More capital moved into the United States and this further increased demand for dollars.

The Japanese yen lost twenty four percent against the dollar from 1995 to 1996, and still more capital fled to the United States, but the “Big One”- the South East Asian Crisis - didn’t hit until 1996.

From 1996 to 1998 the Indonesian rupiah lost seventy six percent of its value against the dollar, setting off a domino effect that dragged the South Korean won down fifty six percent and the Malaysian ringgit and the Philippine peso each down by forty percent. A truly massive flight of capital ensued, most of it destined for the United States. The US dollar increased by almost thirty percent against our GDP-weighted index.

In 1998 Russia defaulted on its foreign debt, sending the ruble down over seventy percent in that year alone. The euro’s launch in 1999 was also the beginning of its twenty eight percent decline against the dollar. Back in 1998 the “new” Brazilian real collapsed again, the Turkish lira fell in 2000 and the Argentine peso followed in 2002… you get the picture.

In all these cases capital poured into the United States. As a result, the dollar increased by more than one hundred and ten percent from 1990 to 2002 against our GDP-weighted currency index.

Gold in dollars is inversely related to the dollar exchange rate. Just like any other import, if the dollar gets stronger the gold price goes lower. There is an almost perfect correlation between the decline in the gold price between 1996 and 1998 and the increase in the dollar exchange rate.

Our model shows that accounting for both dollar and gold inflation, gold is worth about $740 an ounce as of 2003. Yet gold is trading for only $400 an ounce. Just as the actual gold price did not deviate from its theoretical price for very long after the Iranian Hostage Crisis, the current gold price cannot remain below its theoretical price.

Were it not for the dollar’s tremendous increase over the past decade, the actual gold price would differ by less than ten percent from its theoretical price. This can be shown by recalculating the gold price in constant 1990 dollars, i.e. keeping the US dollar exchange rate constant since 1990.

You can see the result of this exercise represented in the chart above by the modified gold price line. Notice how well it tracks the theoretical gold price, and keep in mind that these two lines were derived completely independently of each other. The theoretical price is based on gold being $20.67 in 1933 and adjusting for both dollar and gold inflation. The adjusted gold price is merely backing out the exchange rate from the actual gold price since 1990.

The undeniable correlation is no coincidence, and begs the question whether the dollar can sustain its current exchange rate. I have already addressed that issue in a previous article (see “Predicting the Gold Price”, February 6, 2004) and concluded that gold is likely to exceed $1,000 an ounce within five years, regardless of whatever short term volatility we encounter on the way. We should, however, not be too sanguine; a nasty short term correction in the gold price can severely damage one’s portfolio, which is often accompanied by a general sense of humor failure.

LINK

[Barbara Fitzpatrick]

Hogeye, I am not saying the same thing you are when I say the dollar didn't decrease in value, gold increased in value from the artificial (government "fiat") value of $32/oz. Another example would be - getting away from the very debateable value of various recognized monies to something very "concrete" - I am 5'5". I have been 5'5" for about 42 years. In that time period I had 2 sons. For the first 13 years of each of those boys' life I was taller than they. At age 13, each of my sons equalled me in height. Now I am shorter than they. My height hasn't diminished, theirs has grown.

The value of money will always fluctuate, depending on the economy - market forces combined with people's perception of the economy. The value of a dollar can be determined many ways - how many units of another country's money it equals, how much labor it purchases or how many dollars x amount of labor buys, how much food or other merchandise it purchases. Whether it's paper money or specie, it will always fluctuate because money itself is a variable concept.

[Hogeye]

You aren't actually suggesting that inflation is caused by too much money being printed up, are you?

Yes; that is not far off from the very definition of inflation.

Merriam-Webster gives:
inflation - a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services

Biz-ed gives:
inflation - The rise in general prices and the reduction in value of money.

Online Glossary of Research Economics:
inflation: Reduction in value of a currency. Measured often by percentage increases in the general price level per year.

There is a terminology problem here. Historically, "inflation" referred to an increase in the money supply relative to goods. Over time, (another Orwellianism?) the meaning has changed from referring to the cause to referring to the effect - the price rise resulting from the increase in money. Here's what "the man" Mises wrote:

"Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation."

For more, read this article: Defining Inflation.


Darrel, I'm interested in price. I couldn't care less about volatility - that's your red herring. The point of the graph was to show that dollars have lost value wrt gold, which you don't dispute. You seem to be off on some tangent about whether hard money or fiat money is more volatile; yet you provide solid evidence which refutes your claim: "Average annual price of gold per troy ounce in United States dollars since 1793. Note for much of this time the gold standard was in effect, hence the lack of volatility during these times." Furthermore, as Barbara recognizes but Darrel and Sav do not, graphs of dollar price of gold (or gold price of dollars) must trivially show equal volatility of gold and dollars. The only way you could claim more/less volatility would be to use another measuring stick - a different commodity than gold or dollars. But enough of this irrelevant tangent about volatility.

Hogeye, I am not saying the same thing you are when I say the dollar didn't decrease in value, gold increased in value from the artificial (government "fiat") value of $32/oz. ... The value of a dollar can be determined many ways - how many units of another country's money it equals, how much labor it purchases or how many dollars x amount of labor buys, how much food or other merchandise it purchases.

Right. We're on the same page here. So I propose an "experiment." Let's compare some prices - in gold and in dollars - from 1900 (hard money era) and today. I propose we look at 1) a pair of shoes, 2) a bushel of wheat, 3) a hand shovel, and 4) an hour of unskilled labor. I predict that the price in gold has changed very little since 1900 compared to the price in dollars. Specifically, I'll bet that the percent price change in gold is less than the percent price change in dollars for at least 3 out of 4 of these items. Let's settle the question of which maintains value better - which gained value and which lost value - gold or dollars.

[Savonarola]

Furthermore, as Barbara recognizes but Darrel and Sav do not, graphs of dollar price of gold (or gold price of dollars) must trivially show equal volatility of gold and dollars.

They must also show inverse relationships of values. If I didn't recognize these mathematical necessities, why would I have pointed out that your and Darrel's original graphs are effectively identical, and why would have I said the following?

Regardless, let us note that comparing the value of the dollar with respect to gold over time tells us neither whether the actual value of the dollar has gone down nor whether the actual value of gold has gone up, nor does it tell us which one (if not both) is volatile in actual value.

The graph I provided showed the value of gold not only in dollars but in euros and pounds as well. Only by realizing that (despite the declining value of the dollar compared to the other currencies) currencies are unlikely to inflate in precisely concert can we conclude that the graph "loosely suggests" what I said it did.

I propose we look at 1) a pair of shoes, 2) a bushel of wheat, 3) a hand shovel, and 4) an hour of unskilled labor.

Yes, these are "independent" values that -- as I explained above -- are more likely to answer the questions at hand. I think 2 and 3 would be good, but the way shoes are made nowadays has changed radically and might unfairly skew the data. Likewise, the "unskilled labor" selected for analysis would have to be comparable between the dates in question.