Gold And The Rip Van Winkle CaperThe “Rip Van Winkle Caper” was Episode No. 60 in the original Twilight Zone television series. It first aired in April 1961. The show centered on the actions of four thieves who put themselves into suspended animation for 100 years, with the intention of waking to the prospect of enjoying, without concern, the spoils of their recent criminal actions.
The “spoils” happened to be one million dollars in gold bullion (bars) which they had recently misappropriated, i.e., stolen.
The entire plan was orchestrated by one of the men, who hired the others to perform specific tasks which depended on the execution of their respective and infamous talents. Now, they were in a cave located somewhere in the desert in the southwestern United States.
A CAVE AND FOUR COFFINS
The cave was a hiding place for the truck they had used to accomplish the heist of the gold bars. Also in the cave were four coffin-like beds with glass tops which would provide a comfortable place to rest for the next one hundred years.
The presumed motivation for the elaborate precautions was the expectation that by the time they awoke, their crime would have been long forgotten; any and all persons alive at the time of the crime would be dead. Hence, they could spend and enjoy their ill-gotten gains without fear of being discovered, imprisoned, etc.
Having recently been reminded of the show by a close friend during one of our casual discussions about gold, and after watching it again on DVD, I knew I needed to write an article about it.
Among the things worthy of our attention is to determine today’s equivalent of one million dollars in gold bullion sixty years ago.
In 1961, the price of gold was $35 per ounce. Today it is approximately $1750 per ounce. That is a fifty-fold increase; meaning that one million dollars in gold bullion in 1961 is today worth FIFTY MILLION DOLLARS.
If the thieves were to have awakened today, forty years ahead of schedule, how would they fare? Marvelously so, when looking at the numbers.
The cost of living since 1961 has increased somewhere between ten and fifteen-fold. Back then, a gallon of gas was $.25, a loaf of bread was $.21, and a postage stamp was $.04. For both a gallon of gas and a loaf of bread at $2.00-2.50 today, that represents a ten-fold increase since 1961. With the price of a postage stamp today at $.55, the increase is close to fourteen-fold.
The cost of a new automobile is even higher. At an average price of $38,000 today, the increase is sixteen-fold compared to 1961’s $2275.
Finally, the average annual income in 1961 was $5300. At $48,000 today, that is a nine-fold increase, which is on the low side. At $60,000 today, the increase is eleven-fold. (Average income numbers are indicative of the fact that wages for most people have not kept up with the increase in the actual cost of living.)
Assuming that the thieves in the 1961 TV show would need fifteen million dollars today to live the lifestyle they were expecting nearly sixty years ago, that leaves an additional thirty-five million dollars to play with.
It is as if the thieves would have received a seventy percent bonus of $700,000 in 1961 dollars, for agreeing to defer their gratification for sixty years.
DEATH IN THE DESERT
In case you are wondering, there are no necessary considerations for aging and physical condition. Being in a state of suspended animation, the participants awoke (three of them, anyway; one was already dead) a century later, mentally and physically competent to take up where they left off a hundred years earlier.
The fifty-fold increase in the price of gold over the past sixty years is a matter of fact. It is not science fiction, or fiction of any kind. But, as phenomenal as the numbers sound, it would be wise to look at them more closely. It might make a difference in our perspective.
For the entire sixty years (59 years, 3 months), the increase from $35 per ounce to $1750 per ounce is a total gain of forty-nine hundred (4,900%) percent. The average rate of return, however, is a relatively modest 6.83%.
That’s good, but not great. In order to come up with the fifteen million dollars needed to keep pace with inflation, the rate of return needed is 4.68%. The real rate of return, then, is only 2.15% (6.83% – 4.68%).
However, almost half of the fifty million dollars came in the first nineteen years. In January 1980, the gold price peaked at $850 per ounce. At that price, the one million dollars in gold in 1961 was worth more than twenty-four million dollars. The average rate of return for the nineteen year period is 18.56%. Now that’s something to crow about!
On the other hand, waiting for the next forty years wasn’t profitable. The annual rate of return for another four decades of slumber would be only 1.78%. And, when inflation is factored in, the real rate of return is negative.
Had the thieves awakened ten years later, in April 1971, they would have lost considerable purchasing power as the price of gold remained fixed for most of that time. After President Nixon refused to allow other nations to redeem the gold to which they were legally entitled, the market price for gold began a decade-long increase which reflected more than thirty years of declining purchasing power.
The January 1980 peak price of $850 per ounce accounted for several decades of US dollar decline since the Great Depression years. It also included a factor for heightened anticipation about further declines in the dollar’s purchasing power. Suddenly, everyone had become inflation-conscious.
But, on an inflation-adjusted basis, the gold price has never exceeded its price peak from January 1980. After forty more years of money and credit creation by the Federal Reserve, the price of gold has never been higher in real terms since that auspicious date.
It did not exceed it in August 2011, and it is currently below both its January 1980 and August 2011 peaks.
The three criminals who did awake from their long sleep exhibited immediate mistrust of each other and one of the underlings killed his cohort and sent the body over a cliff in the truck.
Forced to carry what gold they could in canvas knapsacks, the two survivors alternately played a game of cat-and-mouse with each other until one killed the other, and the lone survivor expired from exhaustion and dehydration. At the time of his death, he was carrying only one gold bar (probably a kilo bar – 32.15 oz).
We learn at the end of the show that gold was worthless because someone had “figured out how to manufacture it”.
A nice twist, but I don’t think that makes any difference. The actions of the criminals – their duplicity, their desperation – occurred under the assumption that they were rich. If the gold they had stolen were worth fifty million dollars (or more) they wouldn’t have known it; hence, their actions would have been the same.
In the final scene, the survivor (and ringleader) is reduced to trying to buy water using his remaining gold bar (he had cast the other bars aside from time to time because the weight became too much to carry) from a passing motorist(s) in a futuristic automobile who stopped to help. I have no idea what they were doing out in the desert, since there had been no other signs of people or civilization before that point.
Regardless of whether it is gold, federal reserve notes, or a million dollars sitting in a checking account; money has value only if you can exchange it for something else you want or need.
If you are dying of exhaustion and dehydration in a desert wasteland, you probably won’t care about much else – other than staying alive.
For a look at all of today’s economic events, check out our economic calendar.
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!