Thursday, November 26, 2009

Me and My Cabbie

An EPJ Classic, I originally wrote this piece in April, 2004 for Stock News Direct, when gold was around $400 per ounce.

On a recent business trip to New York, I hailed a taxi at the airport to take me to my midtown Manhattan hotel. Upon entering the taxi, I gave the driver the address to my hotel and, in a perfunctory fashion, I asked the cabbie, "How's it going?"

In reply, he told me that prices were too high.

Gas prices for his taxi were climbing, he told me. Food prices were climbing. And they just raised the price at a storage locker facility where he was renting space.

Since I follow prices for a living, I knew of what he spoke. "Yeah," I agreed, "prices are climbing. Most people don't realize it yet, but they are climbing and it is only going to get worse."

"You should buy some gold to protect yourself, if you can," I advised.

He then proceeded to lecture me for the rest of the trip on why he would not buy gold. I didn't say anything. I just let him talk. Gold, he told me, has very little use. It has some use as jewelry but outside of that it has no use, was the gist of his argument.

"You can't even eat gold," he said. He labored on the fact that you couldn't eat gold, for some time. This seemed to prove to him that gold was nearly useless.

As we arrived at my hotel and since I had an unopened Nestle's Crunch bar in my briefcase, I offered to pay my fare with the bar. "Heh, heh," he laughed.

"No," I said "take it. Why would you want paper dollars? You can't eat them, you can't even make jewelry out of them."

He laughed nervously again. "No, no," he said "I don't eat candy."

"But you can't eat any dollars I give you either," I said.

I then decided to give him a short lecture in economics to help bail him out of his predicament.

"You see some things sometimes have value simply because of their exchange value," I said. " You and I both accept dollars in payment for our services because we know we can exchange them for other goods and services we want. When something is widely accepted in exchange, economists call it a medium of exchange. It doesn't necessarily have to to have any other use. Dollars are a medium of exchange. We can't eat them, but we accept them in exchange because once we have them, we can buy food with the dollars or we can exchange the dollars, as you know, for many, many other things."

"Now the one drawback of dollars is that the government can print more of them any time it wants. By printing more dollars and spending them, it is competing against you for things you want. That's where gold comes in. To increase the gold supply you have to dig it out of the ground.This is hard and expensive work. The government can't print more gold. The government can't produce gold at will. That is why the government has always maintained a propaganda campaign against it. FDR even made it illegal to own gold. This legislation stayed on the books for decades. But despite all this, many people still respect gold as the ultimate medium of exchange. And when the government begins to aggressively print more paper dollars, more and more people choose to hold some of their monetary reserves in the form of gold. That is why gold is valuable. No, you can't eat gold, but it's exchange value can't be corrupted by the government either, and exchange value is very important."

"Now again I am going to offer to pay this fare two ways. One with this bar which you can eat, or with these dollars which have no value outside of exchange value. Now if you accept these dollars, you are at least implicitly acknowledging that exchange value exists and I think you are a smart enough man to know that prices are going up because more of these dollars are being printed. Now if you are a real smart man, now that you understand exchange value, you should go and do something smart and hold some of your reserve funds in a medium of exchange that the government can't print at will. That's gold."

"Now, as far as this cab fare, will it be something you can eat or something that only has value in exchange?"

"I understand," he said "I see why dollars have value, and why gold has even more stable value."

I paid him the fare in dollars. As he counted it, he asked, "How many new dollars are they printing?"

"A lot," I said, " an awful lot."


  1. What a great lesson Robert. Very valuable rhetorical info- I will tuck into my bag of verbal goodies, and use it when the situation arises!

  2. When gold was priced at $270 in 1996, I thought it would never get cheaper. Eqities were going wild, there was some price inflation, and I thought gold would double or triple in the years to come. (I had followed gold since the '80's) So I advised my mother to buy some, and told her why. She said, simply enough, "We don't trust it."
    FDR really did a job on that generation's psychology.

  3. You didn't pay him in dollars, you paid him in FRAUDS ("Federal" Reserve Accounting Unit Dollar Simulators)or, debt-based currency.