House Prices in a Post-Fiat World
What is a fair value in silver?
Abstract: This essay discusses some issues involved in making investment decisions if the dollar is no longer available as a medium of exchange, a unit of account and a store of value. Gold and silver will step into these roles but there will be a period of adjustment as wages and prices find new levels, presenting a rare profit opportunity. I argue that an objective price exists for a "standard" rental property against which the market price can be compared, and I attempt to determine that price in silver. While there may be shortcomings to my method, I think even an imperfect estimate is very helpful as it uses something concrete and stable - real estate - to bridge the gap between the experiences of fiat versus post-fiat environments.
Most Gold-Eagle essayists discuss why Precious Metals are going to increase in value but none, except Jason Hommel, seriously considers how valuation and analysis of traditional investments might change if fiat currency becomes worthless.1 Richard Russell wrote recently that it is too soon to worry about what comes after a fiat currency collapse. I respectfully disagree. For many PM investors, it may be too late, either psychologically or practically, to formulate a plan after the turmoil starts. I am curious how serious PM investors intend to make decisions about exchanging their gold and silver for other time-tested forms of wealth (stocks/bonds and especially real estate) once the fiat system enters its death throes.
I. A Description of the Problem
The move into real estate and (non-PM) stocks may seem to many PM investors like a trivial (and enjoyable) problem to be dealt with at leisure once PMs skyrocket. However, if fiat currency is collapsing, the traditional unit of account will be useless too. For example, if your PM holdings cost $50,000 and have risen to $500,000, is it a good time to buy a rental property that has fallen from $200,000 to $100,000? How about if the property has instead risen to $400,000? (It is not at all clear whether and to what extent a deflationary collapse in prices will be preceded by a hyperinflationary blow-off.) How is the psychology of your decision-making process affected if your $200 of weekly groceries now cost $400, and a tank of gas is $500? (Smaller consumer essentials are likely to rise under either asset price inflation or deflation merely as a result of financially disrupted supply networks.) 2
Is it therefore advisable to sit back and wait until real estate prices have stabilized before making purchases? No, because the opportunity may be less than you imagine. Allow me to explain. Unless you are already wealthy, you are holding PMs with the hope of radically improving your lifestyle. In concrete terms this usually means obtaining financial freedom - not having to work at a job you dislike. The supremacy of fiat currency stands in your way. However, the death of fiat currency may not occur in one stroke. Consider the following scenario: gold spikes to $2,500 per ounce, followed by the President announcing that the dollar is to be backed 10% by gold. This announcement might come the morning after the nationalization of all US gold mines and all foreign and domestic gold held in US banks.
My calculations indicate that a $2,500 gold price would be sufficient to achieve a 10% backing of a $1.3 trillion M1 money supply.3 (This would not be a dollar redeemable in gold, mind-you, just an actual fractional gold reserve in government hands.) This assumes that the US government still owns all its official gold reserves and that it is able to seize roughly the same amount. The result: a new "fixed" price for gold of $2,500 per oz. I say fixed because Washington might now have the market muscle, thanks to gold assets and new gold production to hold the price at that level for some time. There would perhaps be only a minimal disruption to real estate and stock prices. No disruption means no opportunity for you, unless you were already holding 500+ oz of gold. And even then, in the interest of avoiding public outcry against the profits of gold bugs, the new measures may include a special tax on "gold hoarders" as they convert their gold to dollars.
Regular readers of Gold-Eagle don't need to be reminded that such a band-aid solution will not last unless the government simultaneously abandons the idea of the (ever-growing) welfare state. But it might inject enough calm into the financial system to last another 3 or 5 or even 10 years. If we assume that such an initial PM price event is 12-24 months away, would you prefer to retire then or in 2016? If you prefer the faster path to financial independence, the window for buying real estate at a deep discount might be very brief during such an event.
The above scenario is probably giving too much credit to the power of central planning. Alan Greenspan is a very smart man in some ways, but no individual or team of experts can anticipate the behavior of an entire economy. Fiat currency is more likely to collapse rapidly. However, my aim is to stress the importance of playing the whole 60 minutes of this football game. Don't think you have a 29-point lead going into the fourth quarter just because you own some PMs.
In fact, I think it is safe to say that as long as the fiat system remains intact in some form, real "purchasing power" profits from PM investing will not materially impact PM owners' lives. If you are still able to count your profits in dollars, the profits won't be that big. Or if they are, then translating those profits into actual standard of living improvements for yourself may be complicated by new laws and other circumstances.
II. Valuing a Small Rental Property Using Historical Ratios
A logical starting point for projecting the value of property after a fiat collapse is to look at what prices were just before the beginning of modern fiat currency. Several famous dates come to mind, but I think the best date to use is 1913 (the year the Federal Reserve was created). This is an ideal date for our purposes for several reasons. US coins contained 0.724 ounces of silver per dollar of face value at the time.4 Conveniently for the purity of this essay's thought experiment, there also was no income tax and no meaningful price inflation. In other words, this is as close to a pure free-market as we have seen in a modern era with cars, planes, telephones, mass production etc. 5
I have not successfully researched the actual prices of small apartments in 1913. This would have been useful as a check on the accuracy of my work. However, I think it is more important to determine an "objectively justifiable" price for such properties. To properly value a rental property in a post-fiat world, one needs a formula or model that incorporates the relevant raw inputs. In other words, if my assumptions and estimates are reasonable, I would trust a model rather than historical prices. I would rather know why a property should sell for x amount than merely that it at one point did sell for x amount. If the uncertainties of a post-fiat environment make it difficult to get a good approximation of the input variables, a model is still useful because it suggests where property prices should stabilize upon a return to a more orderly economic climate.
Before I begin, let me make one more comment. Discussing a particular neighborhood in a specific city is less meaningful to a general audience. Real estate will always sell at a premium or discount to the national average, depending on location. One could likely determine the local adjustment ratio based on today's prices, as such a ratio would remain unchanged in all but the most extreme post-fiat scenarios. As well, if fiat currency doesn't vanish all at once, valuing a property in silver still has use as a second check on the property's fiat dollar price.
I will now present my model and its assumptions. I believe my estimates to be accurate enough for the purposes of guiding a PM investor as he starts bidding for property, but I welcome comments or corrections from readers with more specialized knowledge and/or better research.
If we know the average gross rent, the typical ratio of net rent, and the expected (or required) rate of return, we should be able to arrive at a market value for a typical rental property. Based on my research, average annual rent in 1909 was $55 per year (40 oz Ag), 50% of this was net profit to landlords after all expenses, depreciation etc., and the return on their investment would likely have been around 6%. This suggests that the typical rental property would sell for 333 oz Ag under normal market conditions.
How does this compare to today's prices? Many readers of this website would agree that today's real estate is overvalued. According to official statistics I've seen reported (secondhand), in 2002 the average house in the United States sold for $158,000 (31,600 oz Ag, at $5.00/oz Ag). The average house today is likely larger and more luxurious than the average rental property in 1909, but probably not by a factor of 90 - or even 9. Let's take a closer look at how I arrived at my input values.
III. Discussion & Fine-Tuning
I should note at this point that there are actually several questions of importance to PM investors seeking to convert their profits to income properties.
I cannot predict #3, but I think #1 and #2 can be reasonably estimated.
The values of my inputs require further justification and are open to debate within a certain range. I will now present more detail on each, tallying the cumulative effect of possible adjustments on the original price determined above as I go.
a) Rental Rates
I obtained the rental amounts from a 1906 work, Industrial Efficiency by Arthur Shadwell (Langmans, Green & Co, London, England). This in-depth survey of economic life in Britain, Germany and the US was updated in 1909, at which time the author considered the data to still be reasonably accurate. Trying to standardize his results, he listed (in old British currency) the weekly rent per room for each country (with 4 rooms being equivalent to a normal house in the US). The average room in the US rented for the equivalent of either 2 shillings and 6 pence or 1 shilling and 10.5 pence, according to two different survey methods. 6 Arbitrarily taking the average of the two (and assuming my correct understanding of the old currency system) gives 0.1094 pounds per week. As both the US dollar and the British pound were convertible to precious metals at the time, using their then fixed exchange rate of 4.866 should be valid for our purposes. This gives a $US rent per week of $0.53. Assuming that a two-room suite is equivalent to a small apartment today gives a weekly rent of $1.06, or $55 per year (40 oz Ag).
However, Shadwell states that rents were in a detectable upward trend from 1880 - 1900, with his data showing a 0.72% compound annual growth rate. This suggests rents were likely on their way to an equilibrium higher than revealed by the snapshot of 1909. Shadwell also comments that food expense as a percent of income was dropping at the time (presumably due to technological advancements) so it seems logical that rents were expanding to take up the slack. As well, Shadwell noted 23% of the average New York tenant's income went to the expense for rent (plus heating and lighting fuel) in 1900. Unfortunately, neither the percentage shares nor the actual average incomes were explicitly broken out. As best I can determine from his research, the average income in the US at the time was around $500 per year. This would approximately reconcile with his New York figures.
At this point I have to start making some fairly complex assumptions. I think that moving the estimate of rent's share of income upwards requires the assumption that none of the monetary benefits of productivity increases are ever passed on to workers, or, alternatively, it requires that we assume the productivity increases are all captured by increased quality of property. (By this I refer to the fact that the small apartment of today is vastly better value for money than the single room with bathroom down the hall that must have been typical of rental accommodations in 1909.) To some extent I am already doing this by using the rental rate for two rooms rather than one to approximate the greater size of rental accommodations today. Probably only a mind of the caliber of Professor Antal Fekete could pass proper judgment on soundness of this line of reasoning.
But if my assumptions hold, then we can safely increase the proportion of income being consumed by rent payments without distorting the rest of the model. If tenants were paying 12-15% of their income in rent, as Shadwell's data suggests, then tripling the figure would approximate the amount (36 - 45%) tenants pay today. (Although the direction and magnitude of the effects of the fiat currency system on this figure are difficult to estimate.) If we triple the proportion, then the price of the property above increases to a nice, round 1,000 oz Ag.
b) Expense Ratio
Assuming that 50% of rent must go to cover expenses, repairs, depreciation, taxes, common property costs etc. could be conservative. I obtained that figure from a slightly out-of-date (1978) real estate appraisal textbook, and assume that it is a fairly universal historical constant for residential real estate. The cost of taxes, apartment fixtures etc. may fluctuate, but that this would be exceedingly difficult to predict, and anyhow, different cost sub-categories' lack of correlation may offset their changes. Of course, if rent collected due to severe economic depression falls, then expenses may make up 80% or 150% of rent collected, so we must consider 50% to be a figure for a more stable economic period that will be achieved given time but is nevertheless used to assess expected long-run ongoing costs. This would be an important consideration for the PM investor newly turned landlord - his investments may result in a negative cash flow for some time.
c) Expected Return
Finally, the expected return of 6% in my initial analysis represents what I think a fair return for a rising, comparatively risk-free asset would have been in 1909. This is also approximately what rental property is returning today, though I'm not sure whether this is coincidence. In 1909 the world had long been economically stable and at peace. While the modern real estate market has been "stable" only in that it has been steadily, gradually rising, this may be a good enough proxy for the stability of the 19th century. But 6% may be too low for our purposes. In his excellent, comprehensive work Crisis Investing for the Rest of the 90s (1995 revised ed.) Doug Casey states that prior to the 1970s, homes rented for 1% of their market value per month (p.280). If, as Casey believes, this was due to the lingering psychological effects of the deflation in house prices in the 1930s, then a 12% annual return on real estate may be a more appropriate estimate for medium-term steady-state equilibrium reached in the aftermath of a fiat collapse. This would knock the typical property value down to 500 oz Ag.
But even 12% may be too low an expected return rate. While this rate may be reached after a period of adjustment of a year or two, the real question is what would small rentals return immediately after a fiat currency collapse or even just a major tremor causing widespread dollar price declines of 50%? I think it is arguable that they would have to offer returns of greater than 12% to entice buyers, perhaps even greater than 20%.
Thus, if the temporary, "healing" equilibrium level is 12%, then in the turmoil of a deflating housing bubble, it may be possible to buy rental housing with projected 18% or 24% returns (meaning for a price of 333 and 250 oz Ag respectively). However, just like with bond/stock investing, the return rate assumes that the dividends keep flowing and that the capital is substantially recoverable, although it is much less likely to suffer the complete loss of the value of a real property asset. (And even the total loss of a single property among several might be bearable if it was bought with the proceeds of a $2,000-$3,000 silver investment today.)
What sort of a property would this be? Look in the working-class section of your city, at a run-down, 20+ year old building in a noisy neighborhood suffering at least some crime. It would be probably 500-700 square feet at best. Not exactly the place you'd like to retire in, but perhaps a way to earn a great ongoing return on your PM profits, as well as a strong eventual capital gain as the economy emerges from the fiat nightmare. Can any property be evaluated using this method? I would say only to the extent that a rental market exists for it. This means you likely are on your own when buying that dream view property you've had your eye on for years. It may be possible to get better "deals" on large properties due to their poor liquidity, but difficult to predict in advance a "steady-state" price.
IV. Conclusion
The main implication a reader should take away from this essay is that PM investors determined to increase their standard of living need to establish a method for checking the fairness of a dollar price of real estate. To use the example from the start of my essay, assume a PM investor held $25,000 (64 oz) of gold and $25,000 (5,000 oz) of silver. Suppose the price of gold rises to $1,500, and silver to $83 (an Ag:Au ratio of 18:1), giving our PM investor a war chest of $500,000. The rental property selling for $400,000 is selling for 4,819 oz Ag - far too high for a good return according to my model. Selling for $100,000, it costs 1,205 oz Ag, and would therefore be approaching a reasonable long-term price range. If the PM investor desired to start "averaging in" to income property and put in an offer equivalent to 900 oz Ag, he would be looking at a projected 6.7% long-run rental return (plus whatever capital appreciation had happened).
Obviously the other factors mentioned would have to come into play. What are the physical features of the property? Is the expected rental income to be paid in fiat dollars worth the equivalent of 120 oz Ag per year? If so, can the rent be increased if necessary? Can it be collected at all? Most importantly, are there signs that this may be only a temporary trembling of the fiat system, and not its final resolution? If so, 6.7% might be an acceptable return.
Notice my continued use of dollars as a unit of measure, against the suggestion of my own introduction. Perhaps translating the above paragraph assuming the dollar was already worthless might be a fitting conclusion to this essay. By owning 5,000 oz Ag, the PM investor owns silver bullion that should objectively, in the absence of a fiat system (meaning regardless of the dollar price of either Ag or of real estate), purchase 10 "average" rental units at 500 oz Ag each. If someone offers to sell him a "typical" rental unit for 1,205 oz Ag, then it would be a poor purchase because at that price he would be able to buy 4.15 rental units if he spent all of his silver. Rental properties become a secondary measure for unit of account (and store of value) in this case. Because they are not homogeneous, they can only be a very rough scorecard for the investor, but at least they offer more certainty than the dying dollar and the yet-to-stabilize PMs. And they are useful because one common criticism of PMs is true - gold or silver coins don't offer an ongoing return just sitting there. In that respect PMs are like dollar-bills in a mattress.
I did not mention the gold bullion held by the investor in the example above. The typical 2002 house mentioned earlier is overvalued much less dramatically in terms of gold, if we assume a long-term exchange ratio of 10 oz Ag per oz Au. This would suggest that it will always be better to buy real estate with silver rather than gold, at least until there is a return to stable valuation of PMs.
Addendum A. Using Silver as the Unit of Measurement
Why did I use silver instead of gold to value property? My apologies in advance for restating what you may already know, but I want to be sure the foundations of my thinking are as transparent as possible. Below is my understanding of the facts of history.
Throughout the 3,000 years up to roughly 1900 A.D., gold and silver operated as parallel universal currencies, acting as a check on each other by means of their exchange ratio. This ratio fluctuated between 10 and 16 oz of silver per oz of gold, due to the uneven rate at which the total above ground stock of the two metals expanded.
This ratio's origin is no mystery. 16:1 is the naturally occurring ratio of the two metals in the earth's crust. Due to its higher value-to-weight and value-to-volume ratios, gold was always better for large transactions and for storing large amounts of wealth. Thus it is fair to say the silver was the "small change" and "poor man's gold" of the past, while kings and aristocrats dealt in gold.
The use of silver as a unit of measurement for valuing small pieces of real estate ultimately rests on the nature of the parties to small real estate transactions. Historically, the rich bought mansions, apartment blocks, office buildings and factories with gold. Working-class and middle-class people kept their savings in silver and tended to buy small flats or single-family homes. Working-class people also tend to be the tenants of small flats and homes, and so paid their rent in silver, the currency in which they drew their pay. If the gold-silver ratio is likely to be volatile during the time one is attempting to value real estate then an apartment that in earlier times might have been bought for gold then rented for silver should today, as a practical necessity, be valued in silver.
Today we see a ratio of 70-75 oz of silver per oz of gold. While there has been a tremendous rise in industrial demand for silver since 1900, there was also a phasing out of silver from use as money (no silver coins after the 1960s). Thus while for most of recorded history there have been 10-16 ounces of silver in circulation for every ounce of gold, today there is approximately 0.1-0.2 of an ounce of silver above ground in known inventories for every "officially held" ounce of gold (assuming governments still control 20% of the world gold stock). Whether including private gold and silver hordes and jewelry even brings this ratio up to 4:1, a fraction of its old level, is difficult to judge. 8 Of course, there is still roughly 6 times more silver than gold mined each year, but because silver has ceased to be commonly used as money it has been treated as an industrial metal. Therefore, shrinking silver inventories have so far caused little notice.
I cannot demonstrate to my own satisfaction that silver will return to a monetary role. However, as above ground stocks become increasingly rare to the point that the habitual excess industrial demand cannot be met, the effect should be the same: a massive upsurge in price. [In fact, I think I can make a strong mathematical case that, temporarily at least, silver will be worth more than gold, but that is a topic for another essay.] Whether it is primarily used for industry or for money in the future, however, it should return to its historical ratio to gold.
Addendum B.1. Possible Counter-Arguments to the Ideas Discussed Above
The obvious problems with the investment strategy my essay contemplates are numerous. The government can easily tax or seize real estate. The pool of properties for sale may be limited. Banks may decide to turn foreclosed properties into rental units themselves. Wealthy landlords who owned rows of rental houses prior to the PM price surge may be just the personality type to also have long-held PM reserves, allowing them to add to their real estate empires (out-bidding you in the process). Individuals of modest means may hunker down in their clear-title homes and grow their daily food in their gardens, resolute in their determination to hold onto their spot of earth through the crisis, shunning any offer of gold or silver. Assuming you can find rental properties to buy for the right price, you may find that your tenants have difficulty paying rent and cannot be evicted. Even if you can evict them, there may be no renters to take their place except at drastically reduced rates.
The biggest flaw in my reasoning might lie in my pricing model itself. We cannot transport the economic order of 1909 so neatly into 2003 without addressing some serious potential distortions. As I discussed earlier, it may be too arbitrary to assert that increases in productivity are assumed to be captured by the increase in quality of rental accommodations. In other words, if the average annual income of a working class family today is not $500 (362 oz Ag) but , say, $25,000 (5,000 oz Ag), how can we determine what portion of that 2.8% annual increase must be due to the worker himself becoming more productive?
Granted, silver is much cheaper than it "should" be today. The impact of taxation (employers having to pay more so that the required level of after-tax dollars reaches the worker), unionization and fiat currency inflation must also explain much of the difference. If a 2% per year compound productivity growth rate (leading to a true, free market annual wage of 2,375 oz Ag) is used, it would yield a property price in the neighborhood of 4,950 oz Ag (assuming 50% went to rent on a property yielding 12%). And if the "true" objective property price is between 500 and 5,000 oz Ag, my model becomes a fairly poor buying guide.
Finally, silver is much cheaper to mine today than in 1909. The implications of this would be that a property should cost many more ounces of silver today, as land is scarcer by definition as the population in a given area increases. The world population has grown from under two billion to over six billion since 1909. I am unable to even begin quantifying this impact, although I think that it could be measured given the right research. This last point's possible impact on property prices is ambiguous, however - there is still a lot of room for urban sprawl in many cities.
Addendum B.2. A Response to the Mathematical / Economic Critiques Above
Lest readers think I have just demonstrated the uselessness of my model, let me rebut my own concerns. Starting with the last critique, silver might be cheaper to mine today than in 1909, but its global 2003 industrial demand dwarfs its 1909 monetary demand. This is probably true even on a per-capita basis. I'll leave it to Ted Butler's writings to suggest why this has paradoxically led to a lower silver price.
As to the question of productivity increases justifying today's high real estate values, this cannot explain higher prices for rental housing. In a free market, capitalists always strive to maximize their profits at the expense of any less powerful or less competent trading partners. As Gordon Gecko so accurately, if not very politely, phrased it, a fool and his money are lucky enough to get together in the first place. If the landowner is always competing with the providers of other goods for a larger share of the average wage-earner's income, then it will forever be a race to charge whatever the market can bear, whether through higher rents or higher costs for other goods, or whatever other means the players can invent. For example, Henry Ford did not raise his workers' wages to $5.00 per day in 1914 out of charity. His strategy not only gave him his pick of the best workers, it brought automobile ownership within reach of many of them. Ford received free advertising as, overnight, hundreds Model T cars became success symbols for his employees' working class families.
Putting it another way, increases in property values cannot have come from the renters' side of the demand equation. Their economic ability to pay more rent (and thus increase property prices) was never allowed to develop, as extra economic purchasing power was constantly drained away by non-durable consumer indulgences. Many long-term renters are by nature 'live for today' types who would never curtail their immediate pleasure long enough to save the money to buy a house. 9
On the other hand, more wealth in the hands of capitalists and other rich investors should drive up the price of rental properties. Yet an increasing proportion of families "owned" their own homes over the last 95 years. One might say that the banks, using their monopoly granted by the government, sapped the economic profits of rich landlords by offering mortgages to anyone remotely qualified (thereby stunting rental property price appreciation). Renters could abandon the existing rental housing stock for new homes being built in the suburbs. The slow migration drove rents down as more and more former renters qualified for mortgages. This last line of reasoning is pure speculation on my part. However, it is true that while the prices of suburban homes or larger condos did benefit from mortgage availability the same way 10% margin requirements helped fuel the 1929 stock bubble, the small rental properties I consider should not have been caught in this artificial updraft.
The processes described above assume a completely free economy, which is certainly not what we have had since 1913. (Especially not since the death of the gold standard in 1971 after which much of the price inflation occurred.) Yet, in fact, these same phenomena apply even more strongly to the welfare state. Since governments do not necessarily need to obtain explicit permission for each new tax or regulation or money supply expansion, it is possible for them to siphon off as much of each successive productivity increase as they see fit. Therefore, we can assume that little of the productivity growth found its way into that annual wage increase from 362 to 2,375 oz Ag. (By contrast, artificial, unionization-driven wage increases likely did make up some of the increase, but these would quickly disappear in a free economy.)
In conclusion, I think it is safe to say that adjusting the price of a property in my model to account for productivity growth in workmen's wages would at most double the above derived typical rental property price of 500 oz Ag, giving a final range of 500 to 1,000 oz Ag at an expected return of 12%. This would represent an average productivity increase of 0.73% compounded annually for the last 95 years, meaning that governments consistently "harvested" for their own ends roughly ¾ of all new productivity increases as they occurred, which I think is, unfortunately, a reasonable estimate.
© December 2003 Richard F. Sanborn
I welcome all comments, especially criticisms and corrections. Ideas either die or get stronger when checked against the best minds available. Email me at richard_sanborn@hotmail.com .
1 As I prepare to submit this essay, I notice that recent postings on the Daily Reckoning discussion board by "Larry", Russ Rodrigues, and Wageslave also dealt with the issue.
2 Valuing stocks may be simpler. Most stocks would probably be valued like bonds rather than growth instruments, but at least valuation methodology would need little adaptation.
3 I base this on 261 million ounces of gold x 2.
4 I believe the paper currency then in circulation was redeemable in gold, but the ratio should have fairly valued the silver equivalent.
5 I suppose I am implying that the post-fiat world would likewise have neither inflation nor income tax - and that in turn implies the end of the welfare state, but a defense of that contention is not directly relevant to this essay.
6 Shadwell, page 435.
7 I am not sure I can argue that such a check would be necessary for a post-fiat world today. With egold and goldmoney.com ready to break gold down into the tiniest fractions of an ounce for online purchases, the demand for silver as small change is reduced. About the only argument I could make is that if the economy were growing quickly, rather than the interest rate rising as gold was in demand, silver could act as a temporary brake on rising gold loan interest rates by providing a near perfect substitute.
8 I don't know how the 2003 CPM Group figure was determined, but I consider it defendable. They suggest there are currently around 4 ounces of aboveground silver in existence for every ounce of gold. This figure would depend heavily on the amount of silver in the average third-world family's hands. Most likely have none, but a sizable percentage probably have jewelry containing perhaps 30-50 ounces of silver. Depending on how you work the numbers, CPM's ratio seems reasonable.
9 As a general aside, it is unlikely that the average laborer, especially in a free-market future which tolerates neither state-enforced unions nor residential mortgages, will be able to have more than a very modest slice of the new wealth his productivity creates, let alone bid up real estate prices with easy mortgage money. He will benefit from continuously falling prices of consumer goods as was evident during the non-fiat 19th century in America, but will only participate in the capitalists' increasing wealth if he buys property or common stocks with his savings.