Mises Daily Articles
Lucy is Right: Insurance Should Be a Nickel
MetLife has an ad featuring the famous comic strip character Lucy van Pelt of Peanuts. MetLife is promoting its life insurance product “for as low as $14 a month.” The bad-tempered bully Lucy responds indignantly that, “It should be five cents.”
The line is based on her famous psychiatric booth where she would say “5 cents please” for anyone seeking her advice. She most passionately expressed her love for nickels in the A Charlie Brown Christmas television special:
Boy what a sound. How I love hearing that old money clank. That beautiful sound of cold, hard cash. That beautiful, beautiful sound, nickels, nickels, nickels. That beautiful sound of clinking nickels.
But to understand her affection for the coin you have to remember that her career started when we were on the gold standard.
Most viewers will see this as just another silly little ad by MetLife. However, properly understood this should be seen as a scientific pronouncement of the highest quality.
You see, if you were to consider Lucy’s proposal as a weekly rate (after all, the lives of children revolve more around the week than the month) and adjust for inflation back to the time of the old gold standard, the proposition that, “insurance should be a nickel,” makes perfect sense. The original 1 oz. “Double Eagle” gold coin was worth 20 dollars. Therefore, 1 dollar was approximately equal to 1/20th of an ounce of gold and a nickel’s worth would be 1/400 of an ounce of gold.
When the commercial was written, I believe the price of gold was around $1,290 per ounce. Hence, an old nickel’s worth of gold would be worth almost $3.25 at the time.
Considering Lucy’s price as a weekly rate, if we took the more precisely adjusted price of $3.25 and multiplied it by 52 weeks per year, customers would be paying around $169 per year for insurance. If you took MetLife price of $14 per month, the annual cost would be $168 per year.
While we do not know the exact price of gold when the commercial was written it would seem that Lucy’s weekly price adjusted to the old gold standard is approximately the same as MetLife’s monthly price.
A Return to Gold
Apparently Lucy was not arguing for the sake of arguing, as she is wont to do. Neither is she arguing, normatively, that the price is too high. Rather, she is making an argument for a return of the old, true gold standard.
This would make perfect sense given that we are talking about life insurance. Think of how much easier things would be in the life insurance business if we were on the gold standard.
Under the gold standard, while the purchasing power of gold does change on a day-to-day basis, it does not change much. More importantly, it changes very little over the long term.
Customers would have a much better idea of how much life insurance they would need on a gold standard. Under the fiat paper dollar, is a $1 million policy the right amount? It might be, but it might not be if prices rise significantly and the purchasing power of the dollar falls significantly over the next several years. A $1 million policy might not be worth anything if you die during a hyperinflation, and this is something that few customers even think about.
More importantly, it would also be easier for life insurance companies too. Not only would it be easier to calculate the proper policy for their clients, it would also be easier to invest the premiums because of the long term stability of the value of money.
If life insurance was an easier business for both the customers and the life insurance companies, then prices would be lower and more people would be covered by life insurance, and possibly other forms of insurance. Most people would consider this to be a good thing.
When you think about it, insurance—not government—is what protects us the most. It covers our houses against fire and theft, our cars against damage, our health and our families against illness, as well as our businesses. It protects some of our investments and many other things in everyday life that we are unaware of, like the international shipment of goods between the US and the rest of the world. It even covers the goods we purchase, like flat screen TVs, if we choose to purchase an extended warranty.
A return to the gold standard would be good for life insurance, just as it would improve so many things in our lives. The wisdom of returning to the gold standard is so obvious that even a child like Lucy understands it.