A Mars A Day ...will Bankrupt You

A Mars A Day ...will Bankrupt You

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Almost 40 years ago to the day, on 15th August 1971, US President Nixon took a fateful step - he decided to close the gold window. In other words, he took America, and consequently the world, off the gold standard.
From that day on, governments around the world were freed from the discipline of having to peg the supply of their pounds, dollars and francs to the available supply of gold in their vaults. They could now roll the printing presses 24/7 and create new money at will. All too predictably, the worlds money supply ballooned. Even more predictably, prices of goods and services rocketed as a result.

What has all this got to do with Mars bars you may ask? Well, back in 1971, I was a care-free, football-obsessed 10 year-old on 30p per week pocket money. At that time, I didnt measure my wealth in pounds, dollars or francs, but in how many bars of chocolate my pocket money would stretch to and my indulgence of choice at that time was, you guessed it, the Mars bar.
Little did I realise at the time how big an impact Tricky Dicky Nixons momentous decision to take the world off the gold standard would have on my childhood lifestyle and, more importantly, my ability to fund my chocolate habit.

In fact, my reliance on a regular chocolate fix was to render the childhood piggy bank just as vulnerable to the ravages of 1970s inflation as mum and dads bank account.

Just to illustrate the point, over the previous year or two, the price of a Mars bar had remained reasonably steady, averaging around 3 pence. By the end of 1972 however, that same Mars bar had shot up by two thirds to 5 pence. I dont think the piggy bank ever recovered!

One reason for this shocking hike in prices was peculiar to the UK: in February 1971, the country decimalised its currency, abandoning the old pounds, shillings and pence. Many retailers, including the local sweet shops close to where I lived, couldnt resist this once in a lifetime opportunity to round prices up rather than down and I remember my parents complaining at the time that the whole thing was a big con.

The main reason for the increase though, was undoubtedly the impact on commodity prices as a result of the abandonment of the gold standard. Since cocoa and sugar were two of the major commodities affected at the time and also the main ingredients of a Mars bar, I thought it might be instructive to track the relative affordability of my favourite chocolate indulgence over the last 40 years.

So lets start by comparing my predicament back then to the situation faced by todays chocaholic ten year-old. And the best way to do that is to work out how much a Mars bar costs in real terms in 2011 when compared with 1971?
Well the price in my local corner shop today is 55p thats an eleven-fold increase since 1971. But wait! We have to take into account that, in 2009, Mars reduced the size of their flagship choccie bar by 7.2%. So the 1971 equivalent-sized Mars bar would set todays 10 year-old back 59p thats nearly a 12-fold increase.

Now I wonder what would have happened if, back in 1971, Id had a wise old uncle who advised me to convert the pennies in my piggy bank to equivalent amounts of gold. If Id followed his advice, how far would it have helped me maintain my unhealthy chocolate habit over the past 40 years and would the piggy bank have been drained quite so quickly (I know the concept of a 50 year-old with a piggy bank sounds a bit suspect, but bear with me on this one)?

Well lets quickly run through the maths: in 1971, the price of an ounce of gold was $35, which at the exchange rate at the time of $2.40 to the pound worked out at 14.58 per oz of gold. If we divide 14.58 by 5p (the price of a Mars bar by the end of 1971) we find that 1 oz of gold would have bought 291.6 Mars bars.

Today, thanks to government and banker generated inflation, an ounce of gold is worth 990. If we divide this amount by the price of a 1971-equivalent Mars bar (59p), we find that an ounce of gold today would buy 1678 Mars bars.

In other words, if Id followed the advice of my imaginary wise old uncle back in 1971, converted my piggy bank savings to gold and held onto that gold until today, Id be able to afford nearly six times as many Mars bars as todays 10-year-old quick, pass the sick bag!

The lesson you should really take from all this banter about Mars bars is that, priced in gold, which is what people used to back their money with prior to 1971, most goods and services have actually fallen in price, not risen and in some cases by a huge margin! The dirty little secret that youll never hear discussed in the mainstream media is that, by imposing un-backed paper money on their citizens, governments and bankers have deprived ordinary hard working people of the benefits of these lower prices and pocketed the difference themselves. And theyve been doing it for the last 40 years! In a nutshell, that explains why the rich have been getting much richer and the poor much poorer which is a much bigger con than the decimalisation that my mum and dad use to complain about, bless em.

So if there are any financially literate10-year-olds out there who just happen to be reading this article and who are worried that their pocket money income isnt keeping pace with their confectionery outgoings, its time to take a stand. My advice is to just say no to banker exploitation and childhood bankruptcy, and demand that mum and dad start paying you in gold coins (and not the fake chocolate variety either). Your parents can then rest easy in the knowledge that, in 40 years time, their offsprings finances will be in great shape although that might not be so true of their waistlines.

Until the next time,

Happy Investing,
John Mac,
The Handsoninvestor

www.handsoninvestor.co.uk

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