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Purchasing power of one US dollar in every year from 1635 to 2020 (statista.com)
194 points by throwkeep 3 days ago | hide | past | favorite | 202 comments





It's a damn good thing people on fixed incomes don't live to be 400 and don't have to hold all their savings in cash. Aside from the basic nonsense of projecting purchasing power over periods in which what you can now purchase didn't exist.

This is of course also nonsense, but the one good that has existed that entire time is land. Manhattan was purchased for 60 guilders in 1623, projected to $24. According to Bloomberg, the estimate of Manhattan land value in 2018 was $1.74 trillion. Amusingly, thanks to the magic of compounding, that actually only implies a 6.5% average annual inflation rate.

Of course, land is a capital asset and expected to appreciate, but this is granting the Hacker News inflation hawks worst case that inflation rates should include nominal price increases in capital assets.

I'm having trouble finding decent data on this, but it looks like a guilder averaged about 10g of silver at the time? So saying Manhattan was worth 600g of silver, that's about 21.16 oz. The present value of Manhattan in ounces of silver is 62,142,857,142. That is 5.674% annual inflation denominated in silver.

Not bad for the dollar, I guess? Less than 1% per year worse decrease in purchasing power compared to silver?

I have no idea how the website I was looking at computed a dollar to guilder conversion rate a century and a half before the United States existed, though.


It genuinely does not matter whatsoever how much $1 buys you at any given time. It's a unit, like a liter, except one whose definition changes over time.

Roughly speaking, you can approximate this in your head by vintaging a dollar. A 2019-dollar is worth more than a 2020-dollar. They're different 'things.' But it doesn't matter because...

Your job is not to save money. Your job is to save value. You save value by exchanging dollars for investments. It's a medium of exchange and an intentionally-lossy short term store of value.

A currency should be (1) predictable (2) stable (3) fungible and (4) cheap and easy to exchange. It only needs to hold its value for as long as it takes you to either invest it or spend it on productive assets. Any longer than that is a non-goal.

Wages have kept pace with inflation. You can argue they should be higher but that's a social policy issue not a monetary policy issue. Without inflation they would have just been flat in notional terms. In a deflationary environment they would have gone down in notional terms. That part doesn't matter.

If you want to make things better for the lower class and reduce inequality, go talk to Congress. Vote for stronger unions, vote for a higher inflation-pegged minimum wage, vote for a wealth tax, vote for an estate tax, vote for universal healthcare. Stop tilting at windmills.


> Your job is not to save money. Your job is to save value

I could not disagree more. For much of human history, and most of American history, saving currency was exactly how you saved value. You already created value in exchange for the money; now you should be able to hold on to that value until you want to spend it. The fact that putting money under your mattress is no longer a viable strategy is why we have massive and growing wealth inequality. It is horribly unrealistic to assume that every person can or should become financially savvy enough to make smart investments in the global economy, and it is naive to think that just buying some index is efficiently allocating capital.

> Wages have kept pace with inflation.

Wages have barely kept up with CPI [0], which is not true inflation (see my other comment on this thread). While I don't agree with most of their economically illiterate proposed solutions (minimum wages, wealth taxes, etc.), the people clamoring about a living wage have a point these days. It makes sense that CPI and CPI-adjusted wages will always be a flat line, by the way. I recently learned that the CPI basically just measures the annual median American's budget via their consumer spending survey, which is of course directly related to wages.

[0] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...


The average person doesn't need an "investment strategy". They "invest" most of the money buying stuff they actually think might help them, and the rest goes in a savings account, index or pension fund where businesses that do have a strategy use it to generate returns. On the other hand, it's better for the average person that need access to capital to grow businesses and create jobs that people with significant holdings of capital have some downsides from not letting anybody use it.

Imagine a wealthy person in 1635 has 1% of the dollars in the US. Their investment strategy regards actually using those dollars to help people as too risky, so they instead bury it in the ground. Four centuries later, thanks to millions of non-wealthy people working billions of hours and some very clever inventions and investments and no thanks at all to the wealthy miser, 1% of the US comprises many of the world's successful businesses and modern cities full of technology. Does the heir of the wealthy miser have a rightful claim on 1% of four centuries of other people's labour and capital being put to better use if he digs up the dollars? I would say no.


A contrived example ignoring the inheritance taxes on whoever digs it up, but an interesting point to address.

Consider:

1. The money supply can grow without inflation, as GDP grows (via fractional reserve banking).

2. The number of years (400) is irrelevant -- the question is, does an heir deserve anything? I would argue that a value creator has the right to pass on wealth, and the government has a right to tax it (inheritance tax).

3. You are ignoring how someone came to acquire 1% of the money supply in the first place. They must have created a tremendous amount of value. How much further into the future did they push forward society in acquiring that wealth? Years? Decades?

Finally: I am not advocating for a deflationary currency. I think 1% inflation is a reasonable concept. The Fed aims for 2%, but measures it with a CPI that is broken, and so the true inflation rate ends up being something like 3.5% or more, which causes all sorts of problems, most notably wealth inequality and asset inflation. Not hyperinflation, but not a picnic, either.


1) I'm glad you agree that the money supply should still grow and that fractional reserve banking has its uses (many critics of inflation do not). Of course it is also fractional reserve banking that generates the inflation, and whilst it is in theory possible for the Fed to force inflation down to zero with higher interest rates, that actually benefits the rich who lend the money more than the poor who borrow it, even before we get into deflation threats.

2) I agree with both your points on inheritance, but subtracting six or seven generations of inheritance tax from the original example still leaves our inheritor with the economic output of multiple modern cities their capital was not used to build, as opposed to a few plantations, villages and exploration parties (and it's not too difficult to envisage scenarios where the inheritance tax is skipped: if the gold bars are simply found under treasure trove laws, for instance)

As for 3: have you looked at the sort of people that held enormous wealth in the 1600s? Most of them inherited it from the feudal system. If anything, their concentrations on wealth held society back rather than pushed it forward, especially when they were disincentivised from doing anything with it. (and the less said about how some of the actual self-made millionaires of the era plundered their wealth, the better...) I'm sure other people have pushed society on and been suitably rewarded for it, but that doesn't mean that choosing to hold it back in future by preventing access to the capital accumulated should be cost free. Investment isn't risk free; noninvestment shouldn't be either.


If we are assuming nothing changes, comparing now to 400 years ago is unproductive, and there is no point hypothesizing if this person was Napoleon-esque.

In a more realistic, modern interpretation, Rockefeller sold his assets and buried his wealth circa 1900. Rockefeller did, undoubtedly, push forward industry a huge amount. While he is considered a monopolist, it was never the detriment of consumers. Kerosene prices fell dramatically over Standard Oil's tenure.

If he hid 1% of the money supply in a trust after paying all inheritance taxes and fees, to be opened today (let's say 1% of real GDP in his time), his wealth today would be about 0.02% of real GDP. His heir experienced tremendous inflation, in terms of their influence on the economy, whereas their buying power stayed roughly the same, in this hypothetical non-inflationary world.


Sure, in this different hypothetical world with no deflation or inflation the Rockefeller heirs preserve rather than increase the buying power of their capital by refusing to allow it contribute to growth for several decades. That doesn't necessarily sound deserved either.

Especially when we consider that zero inflation is achieved by higher interest rates, generating higher compounding returns for the wealthy who do invest, imposing higher borrowing costs on everyone else, and leading to slightly lower growth compared with a modest, predictable rate of inflation. Probably more recessions too, since struggling companies can't cancel pay rises they never award and probably go straight for redundancies. These aren't upsides for people who don't have piles of cash they're uninterested in doing anything with


They buried it, remember, they didn't invest it into CD's with high interest rates. If they did put it in a bank, then your whole point is moot, because any bank that pays interest is actually lending your money to generate that interest, so the capital was actively involved in the economy the whole time.

An aside: pre-central banking, that isn't how interest rates really worked. Inherently, interest rates increase with inflation. The opposite exists only at far below-market interest rates as an artificial byproduct of the way central banks typically inject money into the economy (by buying cheap/low interest government bonds), which paradoxically contributes to inflation.


The Rockefellers (and anyone else burying their money) don't earn the high interest rates, but higher interest rates for everyone else are necessary to push inflation down to zero. Other generally wealthier savers will benefit from that compound interest, but anyone who borrows money will be worse off. That's a lot of productive poorer people's purchasing power reduced to preserve that of people who choose not to participate in the economy

Anyone who borrows money is better off in an inflationary environment because your loans are denominated in the dollars over the year of issue, but you repay them in inflated dollars.

This means anyone with a mortgage, a credit card, or any other kind of loan debt.


> I could not disagree more. For much of human history, and most of American history, saving currency was exactly how you saved value. You already created value in exchange for the money; now you should be able to hold on to that value until you want to spend it. The fact that putting money under your mattress is no longer a viable strategy is why we have massive and growing wealth inequality. It is horribly unrealistic to assume that every person can or should become financially savvy enough to make smart investments in the global economy, and it is naive to think that just buying some index is efficiently allocating capital.

Actually, predictably very low long term rates of inflation was one of the main causes of inequality for much of the period of human history for which we have reliable tax data (18th century to the beginning of the 20th century). When inflation is predictably low, and economic growth is low (as it has almost always been - the majority of growth is tied to population growth), the wealthy only need a modest after-tax rate of return on their capital in order to stay ahead of inflation and increase their relative wealth basically without bound. If inflation is high or erratic, then those debts which the wealthy rely on quickly disappear. As the chart in the OP shows, this was basically true in the United States throughout the 19th century and up until the eve of WWI, with the notable asterisk of the Civil War; it helps explain increases in inequality in the antebellum period and through the Gilded Age. It's even more clear if you look at the Insee statistics for CPI in 19th-century France, where inflation was consistently low and no disruptions on the level of the US Civil War occurred. (France on the eve of the first World War was staggeringly unequal - although the United States is fast heading towards that mark.)


> I could not disagree more. For much of human history, and most of American history, saving currency was exactly how you saved value.

For much of human history we pooped in the street and murdered each other with reckless abandon - then we found a better way. I'm not sure the rose colored glasses mean much here.

That may have been how we did things in the past, but there's no reason to couple a medium of exchange (short term) and a store of value (long term). There's really no justification for it, and the economy has been much better off for it. Stability has improved dramatically over a gold standard.

> The fact that putting money under your mattress is no longer a viable strategy is why we have massive and growing wealth inequality.

As I explained these are completely unrelated. You're conflating a social policy issue with a fiscal policy issue. There's no reason to believe that if inflation were 0% wages would not have remained exactly constant in notional dollars, and if there was deflationary currency they wouldn't have just gone down in notional dollars.

> It is horribly unrealistic to assume that every person can or should become financially savvy enough to make smart investments in the global economy, and it is naive to think that just buying some index is efficiently allocating capital.

http://betterment.com

> Wages have barely kept up with CPI [0], which is not true inflation (see my other comment on this thread).

Agree to disagree.

> While I don't agree with most of their economically illiterate proposed solutions (minimum wages, wealth taxes, etc.), the people clamoring about a living wage have a point these days.

Works all over the world, why not here?


> For much of human history we pooped in the street and murdered each other with reckless abandon. I'm not sure the rose colored glasses mean much here.

Is this a straw man or a red herring? Try to avoid your logical fallacies on HN, regardless.

> That may have been how we did things in the past, but there's no reason to couple a medium of exchange (short term) and a store of value (long term). There's really no justification for it, and the economy has been much better off for it. Stability has improved dramatically over a gold standard.

There is a reason. Normal, hard-working people can thrive under that simple system, and wealth inequality does not systematically increase to the betterment of the financially savvy. Which is exactly what is happening in our inflationary utopia you are describing. Where have you been? I don't know what metric you are using to define stability, but keep in mind bear markets are the only periods in American history where wealth inequality reliably decreases as capital is reallocated [0]. Staving them off at all costs benefits the wealthy more than the many.

Betterment, which you linked, is a free market solution to a policy problem, but it's about 50 years too late, and unless they capture 100% market share, they aren't going to solve the problem going forward (and of course they will scoop some nice fees off your savings).

> Agree to disagree.

With data?...

All of your points hinge on CPI being a correct measure of inflation. It isn't [1]. CPI quite literally measures what typical Americans are buying, and how much of it they are buying. I.e. their budget. A budget directly set by their wages.

[0] https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr... [1] https://www.forbes.com/sites/perianneboring/2014/02/03/if-yo...


Btw, re: #2, you linked to a Forbes opinion piece. Forbes opinion section is basically a glorified Medium. Not only is that write-up from 2004, so almost 18 years old, it was written by someone unaffiliated with Forbes. I would encourage you to put as much stock in a Forbes opinion piece as something you read on Medium. In a lot of was its worse because it lends them the credibility of Forbes - but you wouldn't believe the garbage you find mixed in there.

Some people would naturally respond to the content of the article. Others would naturally appeal to authority or ad hominem the author. Some food for thought.

CPI ostensibly worked the same way in 2004, by the way. Based on your other comment linking the definition of CPI, it seems like you have no idea how it's calculated. Even I didn't know the details until recently -- I just knew the numbers weren't matching up with my models and very obvious price data.

So here's how it works. In the US, a consumer expenditure survey is obtained by the BLS [0]. This determines what items account for typical Americans' spending, and in what quantity, to determine weights [1]. Price data is obtained, with in-house selected indices and hedonic adjustments [2]. These prices are multiplied against the weights, summed, and reflected as a ratio compared to the previous year. The Wikipedia page provides a nice summary [3].

What is the problem with this? Well, the problem is in the consumer expenditure survey.

If wealth inequality is stagnant, this is actually a decent measure of inflation in so far as it affects people's personal expenses. However, if wealth inequality is increasing (and the assets and expenses of the wealthy are not factored into this survey, which they are not), inflation can only increase so much as median Americans' wages increase (plus their debt). When prices are increasing, Americans buy dramatically different amounts of the expensive items (you can see that in the weights in [1] in the mid 2000's when gas prices varied significantly) to fit their budget, under-weighting the items that are manifesting high inflation. Inaccurate hedonic adjustments and any other adjustments done behind closed doors could also account for why CPI veers so far from independently calculated inflation measures like the Big Mac Index, but the core of the problem is that the inflation weights are reactionary to inflation and there isn't much of a delay on letting weights change each year.

So, that is why real wages adjusted for "inflation" is a straight line.

[0] https://www.bls.gov/cex/ [1] https://www.bls.gov/cpi/tables/relative-importance/2019.pdf [2] https://www.bls.gov/cpi/quality-adjustment/questions-and-ans... [3] https://en.wikipedia.org/wiki/United_States_Consumer_Price_I...


> Some people would naturally respond to the content of the article. Others would naturally appeal to authority or ad hominem the author. Some food for thought.

This was a general comment on the quality of Forbes opinion pieces not an ad hominem attack. It's worth mentioning it because I think there's a strong tendency to trust the Forbes brand, but it doesn't extend to their blogging platform. That's why I actually separated it from my other reply.

Inflation is defined relative to basic goods and necessities, not to all goods - or to luxury goods, and there's a reason for that. Prices of goods change all the time for all sorts of reasons. Lobster used to be garbage food, now it's luxury. Same with sushi, monkfish, oyster and pig trotters. If the quantity of lobsters in the ocean start going down and the price of lobster increases, does that mean inflation is happening? Even if people switched from lobster to salmon? Certainly not in my opinion. Nobody's not entitled to a constant basket of necessities isolated from the world around them.

Basing the inflation definition on basic goods and needs at the time is a reasonable proxy due to their broad-based requirement by individuals. Nobody needs luxuries by definition. Luxuries are expensive by definition. Luxuries tend to be scarce and their price as a result fluctuates substantially. But further, they're a product of social tastes that change for any reason or no reason.

Weights are adjusted because the price of things changes for all sorts of reasons, and the goal is to index against a basket of common necessities - not specific necessities for that reason.

A good analog would be the S&P 500 and the Dow Jones. Those index components change regularly as some companies fall out of favor and others rise to prominence. They reflect the economy but not specific companies. That's not a bug, it's a feature IMO.

The weights being adjusted is reactionary to the cost and availability of goods and the preferences of consumers, and that's totally fine. A platonic, isolated increase in price is not inflation, it's just what it says on the tin - an increase in price.


> Basing the inflation definition on basic goods and needs at the time is a reasonable proxy due to their broad-based requirement by individuals

But what of non-luxury goods that aren't included like housing? If the CPI is to measure essentially the value of the dollar to what is required to live, isn't it useless without housing?

Why is housing left out? I surmise it wouldn't fit the inflation targets the fed claims to be attempting.

Either way, when a measure becomes a target it fails to be a measure.

Edit: Just another thought. Is today's produce even equivalent to that of 60 years ago?

Today's corn is genetically modified and soaked in `safe` glyphosate. If the CPI was honest they'd at least have to acknowledge that the food we eat today is of extremely so lesser quality.

Today's nearest equivalent would be to eat a wholly organic diet. If one were to hold the quality of food stable, that too would have to show a _much_ higher rate of inflation.


> But what of non-luxury goods that aren't included like housing? If the CPI is to measure essentially the value of the dollar to what is required to live, isn't it useless without housing?

Housing is included by proxy of rent. [1]

I think you'll generally find that rent growth has significantly outpaced mortgage costs, and therefore housing is overrepresented in the CPI. [2] This makes intuitive sense, after all, people tend to refinance into lower interest rates (and the general trend has been down) whereas rents seem to only go up. So, by using rents your housing costs go up a lot more over time (indicating higher inflation) as compared to using mortgage principal and interest payments.

[1] https://arbor.com/blog/how-does-rent-factor-into-the-consume...

[2] https://www.businessinsider.com/monthly-mortgage-vs-monthly-...


    Cost of a Big Mac in 2000: $2.51 (in 2000 dollars)
    $2.51 (2000) in 2021:      $3.92 (in 2021 dollars, CPI adjusted)
    Cost of a Big Mac in 2021: $5.66 (in 2021 dollars)
So a Big Mac in 2021 is 44% more expensive than what CPI would explain.

If the Big Mac would be an item in the CPI, it would gradually be removed from it because the more expensive it becomes, the less Big Mac's a person would buy.

Arguing that items which become more expensive are rightly removed from the CPI because they become "unnecessary luxury items" is fine for modelling consumer behaviour, but misleading for establishing inflation metrics.


I think the Big Mac index is an excellent measure of the inflation of Big Macs. However, it is not designed to measure inflation as felt by the average consumer, it is designed to measure purchasing power parity. How far a given unit of one currency will go in one country versus another.

The CPI basket includes all sorts of non-big Mac related items. For instance, residential housing, commute costs and so on.

Even within the CPI basket, the basket is an average. Certain things will go up more than the average in certain things will go up less, but that’s how averages work. Check out the breakdowns on how the various index components of gone up and down over time.


>Which is exactly what is happening in our inflationary utopia you are describing.

Unfortunately, we are in a deflationary utopia. The only thing that changed that is the pandemic and it won't last for long.


> Is this a straw man or a red herring? Try to avoid your logical fallacies on HN, regardless.

Neither, I was pointing out that just because we used to do things a certain way doesn't meant they were inherently better. In fact, "for much of human history" things were much worse, and we were approaching them in ways that are by and large inferior.

This is a kind of declinism bias or rosy retrospection bias. [1]

> There is a reason. Normal, hard-working people can thrive under that simple system, and wealth inequality does not systematically increase to the betterment of the financially savvy.

You're once again missing the forest for the trees. The unit itself doesn't matter. How much of it you have matters and what you put it to work doing matters.

> Where have you been? I don't know metric you are using to define stability, but keep in mind bear markets are the only periods in American history where wealth inequality reliably decreases as capital is reallocated.

Boom and bust cycles under the gold standard were dramatically exaggerated, in part because no entity could stabilize the medium of exchange. As bad as 2008 was, I guarantee you the Great Depression was worse.

> Betterment, which you linked, is a free market solution to a policy problem, but it's about 50 years too late, and unless they capture 100% market share, they aren't going to solve the problem going forward (and of course they will scoop some nice fees off your savings).

It's not a public policy problem, it's a public policy solution. Your job in a capitalist economy is to allocate capital to the most productive investment. If you choose to abdicate that responsibility you can pay a fee to Wealthfront of Betterment to do it for you, or you can pay a 2% per annum fee and keep it at home.

However, money only has value when it changes hands, not when its jammed under your gramma's mattress. Inflation encourages investment to keep capital flow moving. GDP is in fact money supply times velocity. This is how the economy functions.

> All of your points hinge on CPI being a correct measure of inflation. It isn't.

> The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living. The CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. [2]

[1] https://en.wikipedia.org/wiki/Declinism

[2] https://www.investopedia.com/terms/c/consumerpriceindex.asp


> It genuinely does not matter whatsoever how much $1 buys you at any given time. It's a unit, like a liter, except one whose definition changes over time.

Except that the whole point of units like liters, inches, or joules is that they remain constant and unchanging over time. Money should be a unit of measure, not a changing unit. In what sense is a changing unit a unit?

> Your job is not to save money. Your job is to save value.

But value is subjective, so how can you save it? Different people will make different and subjective valuations of thing based on a host of criteria - a vegan won't value a burger anywhere as much as a hungry carnivore would.

The dollar, as a money, should be a constant unit. Then people could value it as they see fit, some choosing to hold more or less of it for the proverbial rainy day.


> The dollar, as a money, should be a constant unit. Then people could value it as they see fit, some choosing to hold more or less of it for the proverbial rainy day.

Define constant. Do you want the value to remain constant? If so, why? And more importantly, how? You have to adjust the supply to offset for increased productivity, to offset increased population, to offset decreased spending.

If you just want a certain quantity then it's not constant because its value will fluctuate inherently with the economy around it. As a result, it will tend towards deflationary, which is generally a death sentence economically. If something is worth more in the future why spend it? Just look at Bitcoin. Nobody spends it. Nobody. Why would they, number go up? If that were the case with a national currency nobody would have jobs, they'd just sit home and watch number go up lol. We've never tried this because even with a gold standard the supply increased over time.

The fluctuations in market value would make it borderline impossible to maintain as a unit of account.

This is why the current system is ideal - you get your medium of exchange and unit of account, and you get store value however you want. This is maximum economic freedom. If you want to back your personal economy with gold, go to town! Steve wants to back his with Bitcoin - more power to him. If I want to back it with productive assets, that's cool too!

Don't force everyone into your preferred store of value, certainly not because you don't trust them to allocate their value towards an optimal vehicle.


> Your job is not to save money.

Somebody needs to tell that to social security.


Social Security is investments as well.

> Manhattan was purchased

It wasn't purchased from the people who inhabited the island. [0] The dutch created a deed to claim the island, and paid one village to move to make the deed seem legit. [1]

[0] https://en.wikipedia.org/wiki/New_Amsterdam#1624%E2%80%93166...

[1] https://www.americanheritage.com/24-swindle#

Claiming that Manhattan was purchased for cheap is similar to claiming that the Louisiana purchase only cost 65¢ per acre. The Louisiana purchase didn't transfer land to the U.S. from the inhabitants, it purchased conquest rights from the other European powers.

> for the majority of the area, what the United States bought was the "preemptive" right to obtain Indian lands by treaty or by conquest, to the exclusion of other colonial powers.

https://en.wikipedia.org/wiki/Louisiana_Purchase


The problem with looking at Manhattan's value inflation is that nobody at the time knew what Manhattan would become.

What was the going rate for similarly occupied land that didn't become Manhattan further north or south? What's that land worth today?


Picking a random listing for forest land in upstate New York (no land), maybe $1K-$5K per acre. (Of course, even at the time, Manhattan was known to be on the ocean with a good harbor so not really a fair comparison.)

I think that's exactly the point OP was making. They are saying that even in a situation like Manhattan where nobody had any idea that the land would one day be worth a fortune, the average annual percentage increase in land value has not actually been that high. Certainly if you picked some random plot of land that's not part of a huge city, the numbers would be even smaller.

Yes, it makes about as much sense to talk about the ROI of a soon-to-be-winning lottery ticket before and after the winning numbers are announced while ignoring the losing tickets.

The right response to all of these kinds of things is 'so an iPhone only cost $150 in 1665?'

EDIT: To make the point more clearly - we get a very accurate global map for free (with ground level pictures, even!), but that would have been an unimaginable luxury anytime before 2000.


What you could not buy for even a trillion dollars in 1665, is now free

Some of the functions of an iphone could have been somewhat replicated with enough money.

The very wealthy could afford to pay musicians to play the music they wanted when they wanted it.

(Somewhat) detailed maps were available for large sums of money or sometimes painted on walls. If you had enough money, you could commission an expedition to map somewhere.

You could pay someone to carry messages to those you wanted to communicate with.

Skilled artists could paint pictures of your food, or selfies, if you were prepared to sit still long enough.

Of course, even this hypothetical gaggle of skilled servants following you around all day would still not be able to cover some of the basic aspects of a modern mobile phone, but if you can apply enough cheap labour, you can do quite a lot.


now do facetime with someone on another continent :)

It was pretty rare that you'd know someone on another continent and want to face time with them, but if you did (and didn't want to spend months travelling), I think you'd be stuck using magic. Doctor Faustus for example used his deal with the devil to allow him to travel rapidly around Europe and visit famous people like the Pope.

I think it's fun how much of what a modern mobile phone gives us is an amalgam of magic from fantasy stories - Jack's harp that plays itself, Aragorn's Palantir, predictions of future weather and harvest (without even having to consult any entrails), summoning physical items to your location (with 1 hour prime), inhabiting and controlling remote drone servants, imbuing talismans you wear around your wrist with the power to keep you healthy, or binding you with someone else so they always know where you are.

And of course one of the main functions of magic in the ancient world is accessed through twitter - the power to curse an enemy.


> I think it's fun how much of what a modern mobile phone gives us is an amalgam of magic from fantasy stories

This goes deeper than most people realize. Think of fantasy stories which use some kind of crystal as a medium for magic. Well, a modern mobile phone literally works through crystals, we just don't think of them because they're usually encased in plastic or covered by a metal heat spreader. A LED lamp is literally a crystal which glows. And so on.

(If you didn't know about it yet, start at https://en.wikipedia.org/wiki/Silicon_ingot and https://en.wikipedia.org/wiki/Silicon_wafer)


Not just crystals, but crystals with arcane patterns etched onto them with concentrated light.

Now explain to a modern kid what is privacy.

The kids born today will never see a coral rief or an iceberg or a glacier, most kids living today have never tasted an actully ripe tomato.


They also haven't died of cholera or due to a broken leg. I doubt an average child saw a coral reef, iceberg or a glacier in their lifetime at any point in history.

Most kids in any era ever have not tasted a ripe tomato. Until very recently it’s unlikely that most even saw a tomato.

What the hell did you think kids used to eat, carrion and dirt? Tomato has been a staple food for several centuries now.

My grandparents and great-grandparents and their have all certainly eaten ripe tomatoes and their lifespan covers a revolution, a civil war, WW2 and a famine.

Obviously if you live in a different climate, then a tomato gets replaces by something else.


Thats precisely the wrong responce, how does an iPhone help when somone can't afford housing or insulin and dies? Both costs skyrocketed.

Besides many natural reources are increasing i. Price or dissapearing, from caviar to the amazon rainforest to the great barrier rief.

We had very accurate maps in 1970's, just because they were on paper doesn't mean they were bad for navigation. They also didnt run out of battery.


You think it’s harder being a homeless person with a phone vs not having one?

You also think a smaller percentage people are housing unstable today vs 1665? Be careful how you answer, because you have to include non-white people in that figure too.

I simply do not get your point. Housing is more expensive for a lot of reasons, but it’s sure as hell more abundant today than it was in the 17th century.


That's the paradox, we have the fewest people per house ever, but the houses are the most expensive they've ever been.

"You think it’s harder being a homeless person with a phone vs not having one?"

I dunno, have you tried freezing to death, does it feel better if you can distract yourself with candy crush?


Just as you can get a live Passenger Pigeon, Dodo, etc in 2021 for ???

Inflation is a measure of the value of Money not other things.


Lol, inflation is a measure of the supply of money vs. the supply of any non money thing. The whole “inflation is a monetary phenomenon” belief is why we’ve had “unexplained” falling inflation since China began exporting goods to the US.

And to the pigeon point, I can? It’s just a very very small part of the inflation basket, so it’s not super relevant. As for the dodo, were those ever consumption goods? I’m not getting your point.

EDIT: I’ll take an L where it’s due. The species passenger pigeon (which is extinct), not a pigeon used to transmit messages. But I guess the same point as the dodo applies, then.


The Passenger Pigeon went extinct because we used it as a cheap food source. They where sometimes fattened in captivity, but often just hunted. As such it was a commodity in much the same way as iPads or Oil.

iPads are famously not a commodity. They are a branded good.

And just to be clear, people still eat squab all the time. The fact that it’s a different species of pigeon likely has 0 impact on consumer welfare.

Is your point that resources are finite? I agree. And I also agree that fact is a major forward looking risk that could drive inflation, but if your argument is that there are numerous desirable things from the 17th Century that we do not have access to, then I’d have to disagree. Human innovation has just been too rapid over that period.


Many extinct species where known for being quite tasty without any surviving equivalents. Being unusually tasty is in fact why many species are extinct because people put extra effort into hunting them.

Now you personally may not particularly care but most species have a rather distinct flavor which is why flounder, salmon, etc are listed differently on a menu rather than as generic fish.

PS: Among my circle of friends Tablets/iPads are into the whole Tissue/Kleenex brand as synonyms with category.


I mean, it's sort of great that now this is just a back and forth about the specifics of squab, but I assure you, most squab farmed today will taste far better than 'game' passenger pigeon.

Not to blow up my own spot, but if you want better metaphors against arguments like mine, the Ansault pear and Gros Michel banana are better candidates.


> I mean, it's sort of great that now this is just a back and forth about the specifics of squab, but I assure you, most squab farmed today will taste far better than 'game' passenger pigeon.

How?!?

How can you assure anyone of that, when the passenger pigeon has been extinct for over a century?

(If you're talking from experience, you're easily the oldest HN poster.)


Technology is deflationary, in general.

Well, price discovery in illiquid markets is notoriously noisy.

most people globally do hold most of their savings in cash, many people are unbanked and physical currency is the only way they have to preserve wealth.

Savings, yes. But those same demographics also save very little, and spend most of their income almost immediately with no opportunity for it to inflate.

Where they do typically have debts, which massively benefit from deflation

No, debts are massively _hurt_ by deflation.

Since debts/credits are made in nominal terms debtors are benefited by inflation, and creditors are benefited by deflation.

Example: in 2021 I borrow $100, with an agreement to pay back $105 in 2022. If inflation over that year is +10% (or any amount of inflation > 5%), then I benefit because the real value of what I pay back is only worth $105 * (1-0.1) = $94.5 in constant 2021 dollars.

If on the other hand, there is deflation (or any amount of inflation < 5%), I lose because the real value of what I pay back is higher than what I received. E.g. if there is 10% deflation, then the amount I have to pay back is now worth $105 * (1+0.1) = $115.50 in constant 2021 dollars.


Sorry you're absolutely right -- typo honest, not me brainfarting.

Inflation whittles away at your debt, which is why inflation is good for the average person who owns very little cash and has lots of debt (i.e. someone with a mortgage) - assuming that wages keep up with inflation so the cost of the weekly shop is still x% of the weekly pay slip.

Of course high interest rates offset that somewhat, but if interest rates are around inflation level, for those with debt (ie young people who haven't benefited from inheritence a lot) it's a good thing.


Inflation is good for corporate debtors, too, which is why governments around the world are so generally enamored with it.

I wonder if this is a western/urban phenomenon.

In most of the places I have been in developing countries, people hold their wealth in livestock and gold.


Some problems with this line of thinking: for much of US history (as demonstrated by the graphic), the value of the US dollar did not steadily decrease, but oscillated around the value of gold, and during many periods increased. So most of that inflation occurred in the last half century, dramatically increasing the inflation rate.

Granted, Manhattan had no buildings or relative importance in the economy when it was purchased either, so a better example might be some comparable tracts of farmland using their 1970 value (during Bretton Woods) and current value, and calculating from there.

EDIT: Doing so with this data [0] does indeed yield an inflation rate much higher than reported CPI, at 5.7% average over the last 50 years. You can see a similar higher rate by looking at the Big Mac Index [1]. Conclusion: Real inflation is higher than CPI.

[0] https://www.ers.usda.gov/webdocs/charts/55910/farmrealestate... [1] https://capstoneinvest.com/inflation-cpi-and-the-big-mac-tak....


> Amusingly, thanks to the magic of compounding, that actually only implies a 6.5% average annual inflation rate.

That's funny.

I wanna add some perspective on how meaningless that is though.

In 1623 most people you meet could not do exponentiation.

In 2021 you can turn a muni bond ETF into 6.5% return by levering it ~2x.

People harp about what you could and could not buy in 1623. Blah blah blah. That is a complicated argument to make about purchasing power. Its real limitation is the inability to model credit.


> In 2021 you can turn a muni bond ETF into 6.5% return by levering it ~2x.

Until the black swan event comes and you lose your shirt.


Not sure land is a great asset to use to estimate inflation.

Does Manhattan have the same value back when it was a spare key inhabited island 6,000 miles from Europe versus today when it’s a international hub with advanced infrastructure in place?

Land is weird in that it’s value is self-reinforcing. The more you do with it the more it’s worth (or at least more higher people value it).


The US dollar for a long period of time was backed by gold and was therefore pretty stable for that period so calculating inflation over 400 years is disingenuous at best. It would be interesting to see how much value it's lost since the gold standard started to be compromised and eventually discontinued in 1971.

The spec of a gold-backed dollar can still be redefined. A $10 gold piece from the 1790s contains about 6% more gold one from the 1930s.

> Of course, land is a capital asset and expected to appreciate

I believe Henry George made a strong case that, while land is many things, it is distinct from capital.


> When converted to the value of one US dollar in 2020, goods and services that cost one dollar in 1700 would cost just over 63 dollars in 2020, this means that one dollar in 1700 was worth approximately 63 times more than it is today.

Does anyone know what they mean by saying that the U.S. Dollar was worth X in 1700 (much less 1635) when it didn't even exist until 1792? Are they implicitly converting to the Spanish Dollar, or are they just saying that this is what the dollar would be worth if it were around back then? If the latter, how would you go about calculating this?

They attribute the data before 1913 to Dr. Robert Sahr of Oregon State, but I can only find him going back to 1774 [0].

[0] https://liberalarts.oregonstate.edu/spp/polisci/research/inf...


There's a discussion of it here:

https://www.americanantiquarian.org/proceedings/44517778.pdf

Not sure if it's the same method, but there they say these kinds of analyses are produced by using known exchange rates for different currencies, and then sort of back-estimating the value of the dollar based on those exchange rates.

So if you know the value of the USD in 1792, you can use different exchange rates with existing currencies to retroactively estimate the value of the USD if it had existed.

Ideally it seems you'd somehow aggregate over different currency exchange rates; maybe they all produce a unique solution, or maybe that aggregate is done some other way.


If you were to do this with a new currency that was created today, that would not giver you a unique solution. e.g. if you said "well Bitcoin started its existence in 2009, and had an exchange rate of X USD = 1 BTC, so before this date we'll use X USD to stand in for 1 BTC", you get a different solution if you change USD to EUR, or GBP, or CAD, etc. because the EUR/USD rate changes over time prior to 2009.

But back around the 1700s, were most currencies pegged to precious metals? In which case I think you have a lot less freedom in your solution (I think you're basically choosing between gold and silver).


> But back around the 1700s, were most currencies pegged to precious metals?

From 1792 to 1853, the US Dollar was pegged to a fixed amount of both gold and silver. It seems reasonable to extrapolate backwards in time using that fixed standard, though the changing relative values of those metals might give you some problems.

(According to Wikipedia: https://en.wikipedia.org/wiki/Gold_standard#In_the_United_St... )


I agree it's odd. I could see some kind of legitimate rationale if it were specified clearly, depending on the rationale, but there's some sort of fuzz going on that makes it sketchy. I'm also not sure where the 1635 date comes from -- that implies something meaningful but not necessarily, and what exactly I don't know.

Whatever the approach, I'm not sure those 17th century numbers pass the eye test. Does it make sense that pre-industrial revolution purchasing power would be roughly the same as it was at the beginning of the 20th century?

That's one problem with trying to compare CPI over long periods. Consumers are buying totally different types and quantities of things with their dollars.

Exactly, it all seemingly depends on the arbitrary decisions about how we define our basket of goods.

For example is it generic "clothing" or an individual outfit of clothing. Individual pieces of clothing cost drastically more pre-industrial revolution. Because of that, people owned a lot less clothes. Therefore purchasing power increased by that metric.

However consumers responded to clothes becoming cheaper by expanding their wardrobes. The average person likely owned a lot more clothing by the time the 20th century rolled around. That could mean purchasing power was relatively similar if the metric was generic "clothes".

I'm not sure either approach is any more correct than the other.


I was always interested in how much discretionary spending they had - you have to pay electricity or whale oil bill, and have whatever clothing is mininally required to not look homeless - but after all that, what do you have left?

On one end of that timeline people were buying buying barrels of whale oil, and on the other end they are subscribing to internet services!

It’s a tough problem. I’m guessing their assumption is that since the dollar was commodity money in that time frame, an ounce of silver was worth the same in 1700 as in 2000. It’s probably not far off.

The dollar was based on silver content (~25g iirc), and I think you can reasonably accurately compare values and inflation based on comparable coins.

> When converted to the value of one US dollar in 2020, goods and services that cost one dollar in 1700 would cost just over 63 dollars in 2020, this means that one dollar in 1700 was worth approximately 63 times more than it is today. This data can be used to calculate how much goods and services from the years shown would cost today, by multiplying the price from then by the number shown in the graph. For example, an item that cost 50 dollars in 1970 would theoretically cost 335.5 US dollars in 2020 (50 x 6.71 = 335.5), although it is important to remember that the prices of individual goods and services inflate at different rates than currency, therefore this graph must only be used as a guide.

Yes, I read that. That explains how to use the graph, but not how they arrived at the numbers on the graph. What methodology did they use to compare prices for goods in U.S. Dollars in 1913 with prices for goods in Spanish Dollars (or pounds sterling, or whatever) in 1635 to come up with an index?

This is one of the things I dislike about statista.com. By putting their sources behind a paywall, they create a bunch of graphs that people can throw around the internet, but hide the context necessary to properly interpret them. The misinformation potential is huge.


How about 2000 years ago? Imagine a dynasty that invested just $1 in AD 0 and kept adding to it

It's really impossible, or at least impractical, to factor in all the changes in money supply, baskets of goods, inflation, growth in societal wealth, etc. to do inflation comparisons across centuries.

Gold has always been internationally recognized money, at least until Bretton-Woods https://en.wikipedia.org/wiki/Bretton_Woods_system. But there has never been enough gold to provide sufficient liquidity in the economy, so silver has also been considered money. And of course the gold/silver ratio has fluctuated historically. The dollar is derived from the Spanish silver doubloon, which was money in the New World. Britain restricting circulation currency was one of the grievances of the American colonies leading up to the war for independence. A doubloon could be divided into eight pieces with a chisel, hence the terms two bits to refer to a quarter and pieces of eight from pirate stories.

Apparently in law one troy ounce is still the official U.S. dollar coin https://en.wikipedia.org/wiki/Dollar_coin_(United_States)#Am.... So I would say a better measure of dollar inflation is to smooth out the fluctuations in the gold/silver ratio and fluctuations in the silver/dollar price.


Inflation-adjusted views of the US minimum wage are similarly interesting: https://theintercept.com/2021/03/05/minimum-wage-raise-15/

Just the chart/image: https://theintercept.imgix.net/wp-uploads/sites/1/2021/03/mi...


That's pretty interesting given that the impression in the media is that minimum wages have gone down dramatically compared to the past. But that's not borne out by the stats (there is some depression, but not much compared to the mean).

What must be going on is the average take home for non-college educated has gone down (or stagnated) combined with increased expectations -driven perhaps by the media (I should be able to have two cars and multiple phones, and go out and spend money, etc).


It did mostly stay above $10 from 1960 to almost 1980, so it's down ~30% from there.

One of my favorite conspiracy theories is that the Legislative Reorganization Act in 1970 is the primary driver for income inequality in the US.

Somewhat unintuitive theory, but the idea is that prior to the act, congressional votes were secret. You got the totals, but not which congressperson voted yes or no. In that situation, a congressperson could take lobbyist money, but vote however they wanted to. The lobbyist had no way to verify if they actually got the vote they paid for.

This chart is interesting in that regard:

https://budget.house.gov/sites/democrats.budget.house.gov/fi...


https://wtfhappenedin1971.com/

interesting theory. I've always thought it was end of bretton woods arrangement (pure fiat monetary system)



Oh, wow, that's a great collection of different things that have changed. Thanks for sharing that.

I can't find where in that bill that congressional votes were blind?

I see a bunch of changes, but you could still see whom voted for what. Or, I read it wrong?


I'm not an expert in the wording, but you can read quotes from several people on it, and it's clear that they were blind or mostly blind prior to the act. By "mostly blind", I mean things like a verbal vote, but at a time that would be hard to predict, and no CSPAN, paper transcript, etc, to record what exactly happened other than the totals.

See https://congressionalresearch.org/LRA.html for example.

Edit: Guessing it's mostly sections 104 and 121 of the bill: https://www.govtrack.us/congress/bills/91/hr17654/text

"Roll Call" is their wording for detailed info on who voted for what.


That is interesting. I'd be interested to have at least one session revert to the old way, and see what happens.

I'm not sure how valid these charts are - how much of what can be purchased exists across the ages? How do you compare a bag of flour, the cost of a carpenter to make a table, the wool to make a sweater - with a pop tart, an iPhone and a pair of Nike sneakers?

It's also only part of the story. If the median or average income has grown at a larger rate than the decline in value of the dollar, you still come out ahead from the perspective of human living conditions. I'm fairly confident that the median American is living a better life than someone in 1630, or 1730, or 1830, or 1930.

In short, from an economic growth perspective -- things have generally worked out. Not that things are perfect, or that I love that anything sitting in my bank is slowly losing value. Just that things have been generally going in a positive direction and I'm personally cool with a slowly devaluing dollar if that means that same general trend continues.


To look at historical purchasing power, it's possible to normalize to a metric something like "ratio of average yearly income to minimum required for sustenance". Eg, assuming you need 1800 kcal a day, scraps of cloth to serve as clothes, small amount of fuel/electricity, etc. So if average wages were $100/Year in 1700 and you needed $50/Year for bare-minimum sustenance, and today an average wage is $50K/Year, but you only need $15K/Year for bare-minimum sustenance, there is a sense in which purchasing power has gone up.

Obviously if you start bringing things like iPhones or pop tarts into it, it becomes entirely subjective, and under certain metrics people today live better than the kings of ancient times simply because we have A/C. But then it becomes more of a philosophical question.


Kind of need a way to measure peasant level income to total wealth available over time.

Over the past several hundred years the 'pie' that is total economic goods and services has grown enormously.

However, the share a median income can buy of the pie has shrunk greatly. Inflation vs median income intuitively gives a sense of this while not necessarily being scientific. But then economics is the dismal science.


I know that it says the values prior to 1913 were estimated, but how can it be possible for the dollar to have any purchasing power before the country even existed? Shouldn't it be a constant 0 until at least 1776?

One possible idea. The American dollar, when introduced, had a certain exchange ratio to the Spanish real de a ocho, commonly called the Spanish dollar. In fact, real de a ocho was legal tender in the US until 1857, parallel to the American dollar! [0]

Spanish real goes much farther back, so you can calculate the hypothetical value of the American dollar backward, too, just against the Spanish real.

[0] https://en.wikipedia.org/wiki/Spanish_dollar


The US dollar was introduced in 1792. The early days of US currency was a mix of notes/coins issued by states, banks, and foreign currencies.

Don't forget the "Continental dollar", which went worthless almost immediately. The "Continental Dollar" was the denomination of debt of the Revolutionary War. It was horribly mismanaged, hyperinflated into worthlessness and then largely forgotten about.

It wasn't a big deal because IIRC, the typical citizen back then was using Spanish Pesos.


As others said, you calculate it as an indirect FX rate with currencies that did exist.

Yes. Wasn’t legal tender until then. Everything prior is conjecture. The value at creation wasn’t based on anything prior. So why analyze it that way?

What was the exchange rate of dollar to British pound at 1776? You can keep going backwards from that point.

Still zero because the dollar didn't exist. The American army was paid in various currencies, some of which (the continental dollar) went to zero before being offered a conversion rate to the new dollar in the 1790s.

This looks bad but a while back I read that if you put your dollars in t-bills, you actually came out slightly ahead in real terms over the past century. (I think it was in one of William Bernstein's books.)

T-bills of course are risk-free and arguably just another form of dollars. So don't hold your dollars long-term in the form that's intended for short-term spending.


“T-bills of course are risk-free”

How are you so sure?

If its because an American default is unimaginable, then that’s “presentism” - assuming that whats true today will continue to be.

If its because the US could just print its obligations, than Id argue that the Tbills are not risk free since one would only get the nominal value back


> If its because the US could just print its obligations, than Id argue that the Tbills are not risk free since one would only get the nominal value back

Depends. The US could honor the T-bills owners at the expense of currency holders.


And what of wages that don't increase along with the standard of living?

The only reason we feel like our standard of living is okay right now is that the economy has grown substantially over the past few hundred years, but our (being peasants) share of it has decreased dramatically.


Inflation is good. We want the dollar value to decrease over time, because it encourages spending. If people keep their dollars (thinking $1 will be worth more tomorrow, than today), then it hurts jobs and growth.

Why is this bad?


People get hungry and need to buy food. Shoes and clothing become worn and eventually need to be replaced (unless if people are willing to put up with decreased quality of life). Eventually people need to spend money, even if it may take longer than when there is inflation.

Because people don't like taking short term risk for long term benefit. It's the same thing with climate change. They'd rather do nothing and keep things as they are, even if that is impossible and the problems get worse.

The duration of a tbill is up to 1 year so this not too surprising

Interesting to see the periods of deflation in the 1800’s.

I believe the US was on a mixed gold and silver standard at the time and they periodically ran into silver production issues.


We should move to a lumber-backed currency.

Increasing forest fires would boost the value, but then watch-out for those damn illegal tree farms printing their own money.

I think this is a joke, but Virginia had Tobacco-based currency in colonial times.

It was just as terrible as one would think. In surplus years, a family could spend their life savings on essentials to get them through the next season, to be left with nothing when prices spiked the next year.


You mean like… a greenback?

We were on the gold standard (Bretton Woods system) that was established after WWII until Nixon ended it in 1971 when countries started to demand gold as payment from the Federal Reserve Banks instead of US Dollars because they didn't believe America could pay its debt due to spending more than it collected in taxes, and they were correct. We've been deficit spending ever since to pay for all of our toys. We owe more now than at any other time in our history. No country that has gone to a fiat currency system at any time in world history has lasted. It was probably the worst thing that Nixon did to this country, but we only talk about the other bad thing he did.

https://www.federalreservehistory.org/essays/gold-convertibi...


> No country that has gone to a fiat currency system at any time in world history has lasted.

I think this is one of those correlation-and-causation issues.

An awful lot of countries on commodity-based currency also didn't last. Most of them, in fact.


I think the price of silver was fixed in terms of gold as well.

However, today, we have more economic activity than we have gold. If we went back to gold standard, we’d either literally not have enough money, or the price of gold would be artificially inflated far above its current free market valuation.

Not to say that the deficit isn’t a ticking time bomb, but we need another solution for politically expedient overspending.


> However, today, we have more economic activity than we have gold.

Don't want to engage in the broader debate, but you do realize that gold is fungible and able to broken down into very small pieces? Are you familiar with the term reserve banking? The gold standard doesn't mean you make transactions with actual physical pieces of gold. It means financial institutions have to hold physical gold reserves relative to the money they issue. Also that the base money supply (MO) is a very small fraction of the money used in the economy. https://en.wikipedia.org/wiki/Money_supply


Whether we exchange gold or certificates representing gold is immaterial.

Some quick googling tells me the total value of all gold on the planet is 187000 tons x 35273 fine ounces per ton x USD 1897.93 per fine ounce = 12.5e12, ie, USD 12000 Bn. Sounds great, that’s a lot of money. But it’s not annual production, it’s total amount mined so far in human history.

However, according to [1] the global GDP last year was USD 84537 Bn. That’s annual economic activity.

So there’s no hope in hell that we could produce enough gold every year to represent all the economic activity.

[1] https://www.statista.com/statistics/268750/global-gross-dome...


Did you read the link on money supply? Base money is not used in all transactions. https://en.wikipedia.org/wiki/Money_multiplier is used to facilitate commercial transactions

Your example of GDP is a flow. Gold in tons is a stock. Never compare a flow to a stock https://en.wikipedia.org/wiki/Stock_and_flow

The next concept to learn is velocity of money. https://en.wikipedia.org/wiki/Velocity_of_money

Your base gold supply + your extended money via credit can circulate an unlimited amount of times to support the transaction volume needs of the global economy.


The whole concept of a gold standard is that you can trade your paper money in for real metal at any time.

What you describe, base gold supply + credit, implies fractional reserve banking. As soon as you have a fractional reserve, the gold standard promise no longer holds. The question becomes - what level of fractionality is acceptable? And who decides that, the government? What stops them from decreeing that one ounce of gold now represents a billion dollars and letting the printing press fly?

(In fact, this is precisely what did happen. Look up the historic value of the British Pound. Gradually got watered down over the centuries as I described.)

If the government can make up the fraction they want to use, let’s just skip the extra steps and let them make up the amount of money they want to print directly.

Ultimately you can’t get away from the fact that we’re creating a hell of a lot of economic value every year and we’ll never dig up gold at the same rate, probably ever.


Deficit spending is only a problem if you have full employment and I'd rather have full employment than a fiscally irresponsible government (not taking on debt is irresponsible).

Remember, for each fiat dollar there is one dollar of debt. If companies, rich people, the government or foreign nations don't have the debt then you and your fellow people must have that debt. A government with a surplus is a basically rich man "hoarding" his money (0% interest is almost equivalent to hoarding). Creating debt is a prerequisite for increasing the money supply, the same way buying or mining gold is a prerequisite for a gold backed currency. The inability to create enough debt is preventing wealth from being created.


But what happens to the price of a finite resource when demand rises? That's not an artificial increase...that is the free market valuation. It's not really different than the price of the finite pool of bitcoin. Demand soars and so does the price and the opposite happens when demand is reduced.

Yes but this newfound demand for gold will be based entirely on a government regulation, making it artificial. If the market naturally desired enough gold to back every transaction, the price would skyrocket right now

The lack of demand for gold is based on artificial trust in artificial dollar.

We still had private currencies in 1900's, where the issing bank would go bust and the paper woupd become worthless.


Billions of people going about their day in a world denominated in fiat Dollars for five decades now doesn’t scream “artificial trust” to me. Sure, one day it’ll all go to hell, but then so did the gold standard.

If you want to stop politicians from overspending, then stop politicians from overspending. Don’t insist on using an arbitrary element as the reference point for all value.

You might as well have a currency backed by CPU hours or bowls of petunias or live Gregorian choir performance tickets.


Billions of people go about their day in a country dominated by artificial social credit system, I don't see how this live of argument proves or disproves anything is artificial. Why are 'natural' things suppose to be more stable, we had 'natural' tulip mania? Are mortgage backed securities artificial? Is lending based on Experian's credit rating 'natural'? Is bitcoin natural? I am not seeing how this line of inquiry leads to tangiable information.

I don't think we are overspending at all acutely, I think we should be spending a lot more on the real economy instead of inflating unproductive asset bubbles, life we've been since the 70s.

I think currency is just an institution, it's no different from parliament or the catholic church, it runs only on faith. If tomorrow everyone looses faith in it, it disappears.


>If tomorrow everyone looses faith in it, it disappears

Same with gold, at least in terms of its value


In a gold standard the price of gold would not be 'above its free market valuation' but it would be the market valuation, taking into account its rediscovered monetary role.

In a gold standard the currency used would still be the dollar, just backed by gold, so the FED would be able to print it into the dust just the same. The money supply could still expand just as it does now to accommodate for growth, but the main difference is the rest of the world wouldn't be subsidizing the US any longer.


Here's the purchasing power of one Euro (EUR): https://www.statista.com/statistics/1055948/value-euro-since...

Hmm. How many computers or iPhones or cars or televisions or bicycles could I have bought in 1635 with one US dollar. Come to think of it, where would I have gotten a US dollar in 1635?

(And yes, I've studied lots of economics and understand price deflators, inflation, etc.; the point is, these comparisons don't really make sense over extended periods of time like this.)


Yeah, I agree. Coming from a country with a lot of inflation, it doesn't make sense if you don't show salaries as well. It's true, a US dollar could buy more things in the past, but salaries weren't as high as now. A better relationship would be what could you buy with a average salary, for example, or how many salaries you needed to buy a house back then.

>these comparisons don't really make sense over extended periods of time like this

Yeah. It's probably useful in something like a magazine article or book to give a sense for how someone in 1800 would have viewed a $20 bill in purchasing power. But you go back a century or so and the basket of goods you're comparing look so much different.

And behaviors are also just a lot different. Most middle class people in the US won't have a cook but they have tons of dining and take-out options. Just to give one example.


Forgive me for an ignorant question, since I haven't studied economics: how are is the purchasing power calculated over time then?

Here's my naive/intuition based attempt to guess how it works: If it varies as a continuous function, and small increments are measurable/well-defined (i.e. stuff like TV's and iPhones don't get invented as point-like events enough to screw the continuity), one could think that treading back increment by increment and then taking a limit would yield a valid time series. Then, everything outside that time series would not be indicative of the purchasing power of dollar, but the price of that specific good or service.

Does my reasoning make sense?


To quote the BLS: CPI is "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services."

That market basket gets changed over time which makes comparisons harder and harder over time because you're buying things that were maybe "typical" for those two points in time but are very different. Imagine telecoms and entertainment costs for a typical 1970 consumer vs. today.


As another comment has said, you realise that there is fairly substantial records on wages, prices. I am sure you have studied economics, have you studied economic history though? The data is pretty solid.

The issue with consumer baskets has become more difficult but only in the recent past where the quality of goods is often hard to compute. But historical data is much more solid because the relevant consumer basket changed relatively little.


Yup. I actually was a research assistant for a university professor who specifically studied economic history, price changes, and the econometric models that could be built from them, etc. The problem is that the basket of goods is so different that it's largely irrelevant too compare them. Even a pair of shoes, which certainly existed in the 1600's, can't exactly be compared to the shoes (quality or variety) that we have today.

Again, for most of the sample in the OP, it isn't the case that consumer basket is unchanged. Most of the world didn't move out of subsistence living until relatively recently. Their consumption basket was basically identical to someone living five centuries ago, and this was true for almost all of the period in question.

It is also interesting to ask: if what you are saying is true, then what do you think economic history is? There are thousands of price series which do what you say is impossible. To a large extent, the data that we have going back to the 15th century (and beyond) is the study of prices and population. All of the products that people consumed then, they consumed now. Saying that shoes have somehow evolved beyond the comprehension of someone living in the 15th century is...odd.

And btw, this makes no difference at all for this question in any functional sense. No-one believes that if you devised some perfect consumer basket that it would show that the dollar actually maintained value...that makes no sense.

Complaining about the change in quality is something that has become very trendy but this is the least relevant part of the problem. It is an issue when you look at certain products (particularly telecoms) but this isn't really relevant for OP.


There are extensive records[1] available, average wage in the 1700s was about $20/week, highest up to $250/week. That translates to a range of $1200 - $15000 / week in today’s dollars according to the value chart.

A pair of shoes would cost something like $1. A slave, $400.

https://babel.hathitrust.org/cgi/pt?id=wu.89071501472&view=1...


True but couldn't some good be compared like the cost of housing, food, clothes, etc.?

Even with those items, they have changed significantly. For example, how do you compare the value of a house that has indoor plumbing, electricity, central hvac to an old house without those things?

If the price of the modern house is 2x the old house, should it be attributed to inflation or a higher intrinsic value?


Right? These days it's so much more expensive to pay a doctor to bleed you to cure the evils in your blood, and trying to find an available apothecary to sell you medicinal mercury at a good price is darn near impossible these days.

Yes - although what would be completely acceptable for a well-off person to live in in 17th-century North America wouldn't come close to meeting building codes today. It wouldn't even have plumbing, electric power, indoor toilet, true insulation, etc. And it would be tiny. So can you really compare it as though they are both "housing"?

One interesting thing to note..

Historically, 1-1.5lbs of silver bought you a sheep and it’s the same for today (Rome -> 1500 -> Today).

I’d be interested to see what 2021 brings..


I guess that information is cherry-picked? Or are you saying that at all time we have accessible record, the price of a sheep has exceeded 1 pound of silver and always been below 1.5 pounds of silver?

I was just pointing out something interesting and stable.

silver and gold have continued to be relatively comparable to historic prices (obviously there are spikes based on needs).

Fiat dollars are not stable and are intentionally worth less every year. This lets the banks and government just inflate themselves out of debt.

I never keep cash for instance, typically only what I need for 45-60 days. The rest is in investments (crypto, stock, land, silver & gold, guns, etc)


it's true for other things where we have historical records and the production method hasn't changed significantly (productivity). for example, a hand tailored italian shoes + suit is 1 oz of gold, going back to roman times. The style and material have changed, but the tailor labor : gold ratio hasn't changed much.

Similarily, 30 ounces of gold could buy you a car (Ford Model T) in 1912, and can still buy you pretty nice car now (anything that costs ca 60,000 USD)

Oh, for a logarithmic vertical axis.

Yeah, and for site name Statista!

How many dollars did it take to cure Stage 1C breast cancer in 1635? How much did a Facetime call to Peru cost in 1635?

Ridiculous.

The deflator is useful only in the short term. If that.


One of those graphs that’d benefit from a logarithmic scale.

That is, in 1700 my 5G contract would have costed $1 if I understand the description correctly?


I'd heard that there was no inflation in England in 1914 versus 1614. The chart doesn't show this, but it does show a remarkably stable period (for some value of "stable") between c. 1650 and c. 1750, and another from 1820 to 1914.

The problem with those kinds of graphs is that the price-based fluctuations in purchasing power are dwarfed by the uncertainty in the hedonic adjustment that should be applied to make the comparisons meaningful across time.

Back in 1980 when I graduated high school someone gave me $20 so I used this site just a month ago to figure out how much to give a friend's daughter who was graduating.

The force multiplier is 3.16 or $63.20. =(


Hmm. The current trend is to do $20.21, up $0.01 from last year...

Up until the GFC, buying and reinvesting short-term rates (e.g. treasury 3 month bills), have more than compensated for inflation. Long-term rates from 1985 up until last year have had even better risk-adjusted-returns than equities.

The "all currencies die or devalue" thesis is technically correct if you're holding cash under your mattress, but it's also misleading since real rates have been historically positive...


Better metric: purchasing power of 1 hour of work.

vs. a pair of shoes, an acre of farmland, food.

I think that Peter Turchin has done long term analysis on this sort of thing. A related article.

https://peterturchin.com/cliodynamica/more-on-labor-supply-w...


How many 1850 'dollars' would it take to get from NYC to London in 5 hours?

How many to get a heart transplant?

Or a 'vehicle' that travels great distances, quickly, on rubber wheels?

Or to get strawberries during winter?

Or to talk, live, to a person on the other side of the country?

Inflation is a difficult thing to measure.


Is there anywhere that's done a deeper dive into "what you could afford" means? I want to see how few hours you could work throughout history to afford absolute necessities. And then split this based on minimum wage, average wage, median wage etc.

Here's a podcast which covers how long you have to work for an hour of light: https://www.npr.org/2014/05/02/309040279/in-4-000-years-one-... There's a book referenced, which I have not read.

EDIT: sorry, it is the inverse: how much light you get for a day's work.


I don’t have time to find the exact pages but the Rise and Fall of American Growth tries to quantify real realized quality of life gains through what the author Robert Gordon calls “the special century”, 1870-1970.

https://www.goodreads.com/book/show/26634594-the-rise-and-fa...


There's a graph in the book Why the West Rules--for Now that charts a "social development" index from hunter-gatherer times until today. (Basically a complicated distillation of various measures of civilization.)

The bottom line is that if you zoom out essentially nothing happened for thousands and thousands of years until the industrial revolution.


Exponential growth is always like that. The question is, what happens on a log scale? Does it still jump at the industrial revolution? And what has happened since then?

The basket of goods has also changed due to technology and living standards.

In 2021 I can buy a bunch of bananas for $1 in the winter in the PNW. This is pretty much not possible for a 1900 factory worker let alone some remote 1800 pioneer. And let’s not even get to differences in the quality of housing like with electricity, or running water, or even a stove with temperature control. (Fun fact; recipes with exact cook times and temperatures only start showing up around the 1930s because previously it wan’t easy to control.)


I realize it's hard to cut out the things that become standard in different periods of time, but I'm really just hoping for a comparison only factoring in fresh water, 2000 calories a day, average housing (for the time).

also the basket of goods is mostly impacted significantly by technology which causes deflation.

it doesn't include things that don't have acute tech-driven inflation (housing/education/healthcare) where tech can't drive prices to zero as easily.


> it doesn't include things that don't have acute tech-driven inflation (housing/education/healthcare

80 years ago the President of the USA suffered from polio. A vaccine costs about $1 now.

Education at primary/secondary level is mainly salary, buildings, land, so tracks well with inflation.

As locations concentrate, attractive land increases in value. Land in the middle of nowhere decreases in value if population is stable (but of course population has increased too)


What happened in the mid 1700's to start a drop? I can understand the drops starting in the 1910's, and then again in the 1960's due to the federal reserve and the removal from gold standard, but what about the 1700's?

I thought this was interesting so I created a chart to show the value of US Dollar, against US Dollars over time:

https://i.imgur.com/89MSmlf.png


On the upside look at how much money you'd be making now as opposed to in the past!

also when we draw a similar graph 20 years from now. :)

How exactly am I to acquire a USD in 1635, when it wasn't established until 1792?

It's interesting to see the bump in the 1930s. That's what a deflation looks like - money gets more valuable.

And the curve flattened around 1980 when Volcker broke the back of inflation (at the price of two recessions).


What happened between 1635., 1636. and 1637.?

> 1637 20.33 > 1636 17.47 > 1635 31.63


The trade of the 20th century was shorting the dollar. How do you short the dollar? Take out big loans on fixed interest rate debt and buy commodities that don't depreciate.

Argentinian here: Ohh... my sweet summer child.

Anyway, it's not really that important unless it changes in value suddenly without giving you time to adjust.


Note the change after 1914. The switch to fiat money!

The beginning and then ongoing World War I (1914-1918) might have had an influence. There is also a dip during the American Civil War for example.

The government printed fiat money in the Civil War.

WW1 was financed with fiat money.


Would be better as a long graph, or as the derivative (e.g. year-over-year change).

Viewing decay graphics in this form is incredibly misleading.


(Housing and property excluded)

Try charting the cost of the same exact parcel of land in Manhattan over the same time period.


Interesting to consider the possible effect of the establishment of the Federal Reserve in 1913.

And also the devaluation of the dollar against gold in 1933. https://en.wikipedia.org/wiki/Executive_Order_6102

Although the graph doesn't slow much loss of purchasing power until the U.S. entered World War 2.


Anyone got a similar study with purchasing power for 1 hour of work on minimum wage?

A silver dollar in 1960 would buy about 4 gallons of gasoline.

That same silver dollar now buys about 7 gallons. (Melt value)

A 1960 dollar bill bought 4 gallons of gasoline back then, and now would purchase about 1/3 gallon.

It really does depend on what kind of "dollar" you're talking about.


What was the minimum wage in the US between 1776-1865?

What happened in 1981 that bent and smoothed the curve?

Reganomics

How did Reaganomics happen in less than 1 year from when he was elected? What did he change?

It wasn't reganomics (typically referring to the tax policies) but the central bank taking extreme action on interest rates to curb inflation. Prior central bankers wanted to do this but didn't have the political cover. As expected this created a deep recession but after a year and a half the inflation epidemic was ended.

Its considered a rare example of politicians "doing the right thing" for the country even at great short term cost.


Putting your sources and method(ology) behind a paywall is really lame. It's akin to having to pay to see the ingredients included in a food item.

What was the minimum wage in the US like between 1776-1865?

this is a feature not a bug.



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