Thursday, March 31, 2016

The value of gold as explained in the cost of having a baby

Those of us who are gold owners, and who have dedicated the time to studying this monetary metal, realize its purpose and significance as a protector of wealth and purchasing power.  And while many have heard the stories of how an ounce of gold would buy a nice suit and night out on the town in 1920 as well as in 2015, few perhaps have taken a hard look at comparing prices for other products and services throughout history to validate that gold is the ultimate form of money, no matter what era we live in.

The other day I came across an interesting item that comes from what we might call 'memory lane', and what struck me was just how inexpensive services were for Americans prior to when we began to inflate our money and devalue it through massive expansion.  So I decided to use it as a comparison to see if it followed the same mathematical properties we assume if I inserted gold in lieu of its dollar cost.

And the service I will use is the cost of a hospital stay in 1943 for having a baby, and the same cost for this service in 2015.

1943:


As you can see from this receipt (and after you pause from having your mind blown from how cheap it was to get medical care back then), the cost for a one night hospital stay and delivery of a child was $29.50.  And if we look at how much an ounce of gold was in 1943 denominated in dollars, the value was $35.00 per ounce.

Which means it took 84% of an ounce of gold to pay for the service of having a baby in a hospital in 1943.

2015:
Estimated average hospital childbirth facility costs per maternity stay ranged from $1,189 to $11,986, with a median of $4,215. The figures did not include professional fees for obstetricians, midwives or anesthesiologists, who generally bill separately for their services.
From this we will take the low end number since it represents an apples to apples comparison of a birth that does not incur complications and added hospital services.  So taking the value of $1,189.00 and the value of an ounce of gold last year at its height ($1,290.00), we come up with the following ratio.

$1189.00 / $1,290.00 = 92% of an ounce.

As you can see it is relatively close, with the higher price allowing for the addition of better and more quality upgrades in care that have occurred from innovation and technology.  And this is also justified in the fact that infant mortality rates have dropped to below 10 per 1000 today when in 1943 it was still as high as 90 per 1000.

The purpose behind this article was to show both how paper currencies have devalue over time because of their very nature of creating price inflation, and how gold by its very nature increases in value in relation to that same currency to keep up with any changes to inflation.  And why gold is still as relevant today for people to own to protect their wealth and savings, and will continue to be long into the future.

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