Econintersect: We are all aware that a dollar today will buy only 3% (0r 5% depending on who is calculating) what it would in 1913 when the Federal Reserve was founded to manage the currency value of the United States. And if someone had kept their dollar in a shoe box hidden in a closet much less could be purchased today than in 1913.
A couple of examples for price changes from 1913 to 2013:
- Peanut butter went from $0.11 to $3.49 a pound (up 32x).
- Inexpensive man’s suit went from $9.99 to $229 (up 23x)
However, the decline in the value of the dollar is bogus because it doesn’t recognize financial and monetary reality. If a dollar is spent at a given time, goods of the value at that time are obtained. If the dollar is not spent, but held, it gains in value by the amount of interest collected. Unless of course you are storing it in a closet.
Matt Busigin has plotted the value of the dollar since 1948 (from Twitter):
“The value of the $ has lost 92% of its values since 1948″…. iiiif you forget to calculate the interest. #busted pic.twitter.com/gPohVkn4EJ
— Matt Busigin (@mbusigin) November 17, 2013
Joe Weisenthal followed up with a question on the meaning of “w/ interest“:
So the interest rate represented by the orange line is pretty low: the composite of
notes and coins in circulation, Traveler’s checks, checkable deposits, savings deposits, CDs & money market funds.
If you were keeping your money in all the variety of things in Busigin’s composite, it would have lost about 20% or so of its value in the last 65 years. But if you had kept it in 3 month treasury bills it would be worth about 1.6 times as much as in 1948.
Joe Wiesenthal says that is actually a lowball estimate for gain in value because the dollar could also have been kept in higher return instruments:
And of course, this chart doesn’t include the real possibility that “savers” will also have money in stocks, bonds, and real estate, which means they will crush the effect of a depreciating dollar.
Sources:
- Home much did it cost in Morris County, New Jersey? (Survey of retail prices advertized in the Daily Record, July 1-15,1913.)
- Jiff Peanut Butter Creamy (Walgreens)
- Suits (Men’s Warehouse)
- This Chart Destroys That Famous Myth About The Dollar Losing 90% Of Its Value (Joe Weisenthal, Business Insider)