by Dan Shea
There has been a lot of speculation on where the civilian machine gun market will go. In many of the discussions regarding the selling prices, there seems to be a parallel discussion that shows a misunderstanding of the concept of “inflation”. Inflation is simply an increase in the money supply. Inflation is not that the prices are higher- higher prices of general commodities are a symptom of inflation, but they are the place that people generally notice. Their money buys them less product. This is a critical difference to understand. The money supply is illustrated on a graph available in most newspapers and labeled as “M3”. This chart tracks the production of physical cash put into the system – printed paper money.
In a stable financial system, paper money represents a certain amount of an asset such as gold. It is tied to that physical asset. The government in this type of circumstance cannot print more paper money than is represented by the stockpiles of the asset being used. After removing the US coinage from silver minting in 1964, the final anchor for the US Dollar was cut loose in 1973 when President Nixon severed the US Dollar from the Gold Standard. This was an almost inevitable outcropping of the Great Society overspending and the Vietnam War budget. Guns AND Butter as it were. Blame doesn’t matter, what does is the end result. We as a nation had “fiat money”, money printed at the request of the government as needed.
The printing presses have been rolling out fiat money at incredible rates since the mid Clinton years. This has to catch up with us in our economy. Any raising of interest rates will probably trigger some serious problems, first in the housing sector. Those nice cheap adjustable rates start kicking up and the reasonable mortgage payment becomes a strain. I suggest if you want more education on this subject, that you gather some standard economic books and some counter-culture as well, then try to discern the difference. While the subject is complex, the concepts are pretty basic. A country that spends more than it has, has a deficit. This will inevitably need to be straightened out. When a product is overpriced, it will eventually have to come down. Look up the concept of “Bubble Economy”, or reference the Tulip Bubble or the South Seas Bubble, both early economic models worth studying.
Thus, inflation is an increase in the supply of money and rising prices are a symptom of inflation. Increases in the price of desirable collectibles, however, are not symptomatic of inflation. They are usually tied to increased awareness of an item or, in many instances, those increases are driven by none other than the Madness of Crowds.
To our group, what does that mean? Collectibles and other commodities that go into motion tend to run on a “hockey stick” curve of value. If you looked at, say, Green Depression Glass in the 1960s, it had very little value. Then, someone thought it was “neat” and started collecting it. More and more people noticed it, the more it was asked for, and soon books were written on it. The value continued to rise to the point where everyone shook out the boxes in the attic and barn looking for Green Depression Glass and flooded the market.
At this point, the values have risen tremendously in a short period, thus the “hockey stick” appearance of the curve of prices. However, once the peak is reached, the prices will start to come down dramatically, and eventually, a panic sets in. Prices dropped and dropped until a buyer was found. 1999 Tech stocks, anyone? This describes a classic liquid / illiquid market scenario. Put simply, a liquid market is a market in which there is a buyer for every product that is there. Like the Green Depression Glass on the upside of the curve. The illiquid market is when there are not enough buyers for all of the product that is there, thus, inventories sit, and prices drop if people want or need to sell.
What does this have to do with machine guns? There are several fundamental market differences. First and foremost, machine guns are limited to those in the registry before 1986. Plain and simple, there are 177,000 or so fully transferable machine guns. It is a finite supply. To parallel the discussion of the prices of Green Depression Glass, the only machine guns that can be found in the attic or in the barn had to have been registered before 1986, or they are contraband. This does not change that known 177,000 number. It is fixed.
About machine gun values, remember that people vote with their feet. If they don’t like something, they find something else. If machine guns are too pricey, they will move to whatever else tickles their fancy. These are luxury items. You don’t HAVE to buy a transferable machine gun, you simply want it and can either afford it, or not. Collectors, especially new ones, sometimes disparage dealers for overpricing the product – supposedly ripping off the hobbyists. Really, if you aren’t making a profit, then how can you stay in business? Those same collectors will scream if they don’t sell at market top price – they in effect drive the prices as much as the buyers and dealers. No one wants to leave too much on the table; it is the nature of an economic system like ours. The best way to tell if a deal was truly “fair” is if the buyer paid a bit more than he wanted and the seller took a little less than he wanted – the free market at work.
As long as there is interest in machine guns, there will be buyers. Prices will fluctuate a bit, but the only ways this can change in a downward manner is if one of the following scenarios happens….
1) There is a ban on transfer of machine guns, a massive increase in transfer tax or restriction of transfer. None of these three scenarios are very likely. However, depending on how it went, values could drop drastically or increase dramatically. Imagine if you could keep what you have as of a certain date, but then can’t sell it. Lots of people would get rid of machine guns, but lots of collectors would buy whatever they wanted at whatever price they could afford: a last chance to fill out one’s collection. Do you think a Stoner 63 or FG42 wouldn’t double in value if you only had 4 weeks to get it and there were only a few for sale? Some collectors would wait for a price drop panic as the final days close in, but I would bet the last week would be a buyer panic trying to get transfers done on what they want before the door closes. If it was a “Switch is off” on transfers immediately, that obviously slams the values. However, this is not likely and is very unconstitutional. That doesn’t mean it can’t happen though and it would stand until the Supreme Court got a close look at it. An increase in the transfer tax? That will hurt the MAC prices, but do you really think an original Colt 1921 Thompson in 90% or better condition will lose much off that $25k price because you have to pay a $2k transfer? Probably not.
2) There is an amnesty of major proportions or a return to pre 1986, pre 1968 or even back to 1934 legalities of manufacture. This is not too likely, as the Stewart devotees are finding. It might happen, but personally, I doubt it. I have quietly worked very hard on every credible opportunity for change, but fat chance at this point. Note the “credible” part. Just because Uncle Joe interprets the Constitutionality of a certain matter, doesn’t mean I think it has a snowball’s chance in hell of getting through. No politician seems to want to get in front of the media and risk their political career over private MG ownership. I don’t see this happening. We still might get the Veteran’s Amnesty done, but that is not as many guns as you might think, and ATF will be all over it looking for fraud. (They have already stated this.) I don’t see people who register a 1928 Thompson or a C&R MG42 dumping them for fifty bucks. No, these guns will go in the system, as they should if the bill passes, but the prices won’t drop from that. How would that affect a Spitfire or an S&W76 value, neither of which could be a Veteran’s Bringback? It probably wouldn’t be affected at all.
3) Economic collapse. The last thing you worry about is buying machine guns when you are losing your job and house. However, someone is always shorting the market and someone is always making money. Maybe values will drop on some, but on quality pieces, they probably will go UP in value. You might be dumping your AC556 for a couple of grand or less, but your NIB Colt M16A2 will still be worth some money. Let me take this a bit further. Suppose that people get that “edgy” feeling and they think there might be a breakdown in the law, that they might have to defend themselves and have their legally owned firepower. Do you think that M249 or 1919 will go down in value at this point? I personally might be happier with a bolt action 700 in .308 with a nice scope, but if things were really getting hairy, belt feds rule. I don’t see this happening right now either, but when Bill Clinton came to power and went after us all, I had my doubts. As the Doc says, remember to wear the tin foil hat “shiny side out”.
Basically, it is a crapshoot. Buy the guns because you like them and can afford them. If you are in the business, you are at risk, so don’t forget to make a profit because any of the above scenarios might put you OUT of business. It happened in 1989 and 1994 with the Assault weapons bans on import and manufacturing. Lots of people raised prices fast because they were never going to have the supply line again and had to regroup their business. If you wanted that side folder AK, well, you had to pay for it. There are two classic cases here to compare. The first is the 1986 ban on machine gun manufacture for private ownership. In this case, most of the manufacturers who managed to have some inventory made a lot of money over time, and many are still in business today. If they had a crystal ball they might have a lot more money, and so would I. However, we had no way of knowing that prices would increase so dramatically, and most were trying to pay bills and stay in business, so inventory was sold as it could be sold. Remember it was not replaceable and the business had to change over to something else. In the 1986 case, most of the businesses did well. If you look at the importation ban in 1989, the importers who had the SIG, HK, AK rifles took a tremendous financial beating. Their investments in building an import business were completely lost almost immediately. Those who were financially strong, and had diversity in their product line survived. Those whose sole products were banned, were out of business. Different laws, different models and effects. While a Sten tube that sold for $35 in 1986 will bring you a solid $2,600 today, a fixed stock Norinco AKS that went for $145 in 1989 went to $1,600 in 1990, and today it might bring you $700 or so. There can be market fluctuations.
For goodness sake, don’t mortgage the house to buy machine guns, unless you are dealing or can handle risk. Machine Guns are not an investment. Working your business is an investment, buying stable utility company stocks or guaranteed bonds are investing. Buying machine guns for a hoped for increase in value is SPECULATION. Your capital is at risk here. On that note, almost everything in the stock market is speculation as well, not investment. While I am slaying dragons here, your HOUSE is not an investment, in most cases it is a liability. It costs you money, and doesn’t produce any income unless you sell it or rent it out. If you do the numbers, you might find you paid two or three times what you sell it for. It’s a myth that your house is your asset. If you lived in a tent and put the same money into Certificates of Deposit earning interest over that same thirty year period, you would be a multimillionaire at the end. With your house, you get what it’s worth, usually not even what you paid for it including interest unless, of course, inflation is factored into it. It’s the same old trap.
Here is one way a machine gun is an investment. You buy it for X dollars, and rent it every day at a range and make money with it. After it has paid for itself, it is still earning you money. If it just sits there, tentatively increasing in value, it is still speculation that the value will go up until you sell it.
I’m not trying to talk y’all out of buying machine guns. If you can afford one, you should buy one if you want it. If you can afford two hundred, and want them, you should buy them. Eyes wide open is best though. Think of it this way. If you had tech stocks and sat there feeling good about how high the value went, then it crashed, you just sat there and looked for a way out, crying as you lost the money. If your machine guns lose value, at least you can go out to the range on the weekend with your friends and have a nice, friendly shoot.
The track record for increased value of transferable machine guns is written in stone. J. Curtis Earl had it pegged back in the 1970s with his catalog – he showed 2000% increases in value at that point. Frankly, machine guns have always gone up in value since the 1950s and I don’t see them coming down, as noted above in this article. However, if your dealer is telling you something is an “investment”, he probably doesn’t understand the risks. You need to understand, you need to be informed as a buyer. There is no magic wand of increasing value. Buy them because you want them. I happen to think the values will sustain or keep going up, but in good conscience, as a dealer of long standing and the owner of one of the largest and oldest Class 3 dealerships in the US, I can’t keep silent on the issue. Buyers should be well informed of the good side of machine gun ownership, as well as potential downsides. It is how you can make intelligent decisions with your money, your hobby, and your time.
|This article first appeared in Small Arms Review V8N1 (October 2004)|