The Debate Over Lost Dollar Value

[Weston White]

I came across a blog from 2012-2013 wherein the author pooh-poohs Ron Paul and his supporters, asserting that "No, the dollar did NOT really lose 95% of its value since 1913" (the comments are interesting also.) I was wondering what others thought about the author's points?

To me, it appears that the author views reality from some naïve utopian point of view; basically admitting that Ron Paul is right by the third sentence, but then going on to conclude that he (including his advocates) is not even close to being right. Further, acknowledging that since 1913 median incomes have increased by 6,560% keeping pace with inflation (which has resulted in a 230% increase in actual purchasing power over this timeframe), so ergo, there really has been no dollar value loss; that the comparison to a gold-standard is ultimately a fallacy, that gold does not accurately reflect dollar value, but is really just a “wildly speculative asset”; meanwhile admitting that the majority of people live paycheck-to-paycheck, do not retain dollars/savings, etc. While further failing to realize the epic Ponzi scheme involved between ceaseless taxation, fractional credit lending, and monetization (i.e., politically rendering economics devoid of true social model for capitalism); that most people neither have any savings nor can they acquire savings due to incredibly low savings rates (e.g., less than 2%) leaving annual inflation to outpace attempts at establishing savings among the less-than-upper-class; that neither employee wages nor the minimum wage accurately pace with inflation; that hyperinflation ultimately leads to frozen or reduced wages, benefits, and job loss, along with governmental austerity; or that inflation does not benefit those in debt, as CPI and COLA increases regardless if pay follows or not, and one's incurred debt is not adjust along with inflation. Seemingly wrangling Wall Street into Main Street and then extrapolating their benefits onto the average laboring consumer.

One other thing that really irked me is the author mentions gold being $615 in 1983 and then skydiving to $376 in 1982, yet failed to point out that in 1979 gold was $306, after haven risen from $193 in 1978, and at the time of writing their silly blog it was $1,572. Blatantly dishonest!

Ergo, $2,000 cash in 1913 is still $2,000 in (fiat) FRN today; however, $2,000 in gold from 1913 is $125,359.50 in FRN today. The same applies when you try to save $2,000 in your barely-interest-bearing saving account throughout the year, by the end of the year you may have accrued $40 in interest, but annually CPI and COLA effectively increases upwards of 5% (each individually range between 2-4% per annum), so you are now worse off. (e.g., http://www.economics-charts.com/cpi/cpi-1913.html; http://www.ssa.gov/oact/cola/colaseries.html; http://inflationdata.com/Inflation/C...reloaded=true; http://www.usinflationcalculator.com...flation-rates/)


Here is a historical precious metals chart I put together a few years ago for reference: http://www.community.defendindepende...ile.php?id=143


See blog URL: http://realfactbias.blogspot.com/201...95-of-its.html

[Dforkus]

Ergo, $2,000 cash in 1913 is still $2,000 in (fiat) FRN today; however, $2,000 in gold from 1913 is $125,359.50 in FRN today.

Cash sitting in a mattress isn't an inherent asset class in the same way a commodity (be it gold, or whatever) is an asset class..
You are pointing out the obvious to say that cash, just sitting there in a drawer or something is (longterm) going to do anything but lose value..

And you are cherry picking in the extreme to point out today's horrendous rates on savings accounts (which are not investment vehicles even in good times) without looking at the five year chart on commodities. Your really need to bring US treasuries into the mix, and if possible AAA rated corporate debt, to derive real comparisons

Suffice it to say that same 2000$, even in the most boring of cash based investment vehicles, the long term US treasury bond would be worth a heck of a lot more than 2000$.. Invested in a rolling mutual that tracks the fortune 20, it would be worth millions, but that's yet another asset class..

http://pages.stern.nyu.edu/~adamodar...histretSP.html

[acptulsa]

You are pointing out the obvious to say that cash, just sitting there in a drawer or something is (longterm) going to do anything but lose value..

No, he's laughing at those who pretend that this fact does not mean that the dollar is losing value, and trying to gauge how effective this propaganda is among idiots. Thus the title he gave this thread.

[Ronin Truth]

How many FRNs to buy an ounce of gold in 1913?

How many FRNs to buy an ounce of gold in 2015?

The ounce of gold remains exactly the same since 1913.

What has changed?

[Paul Or Nothing II]

Cash sitting in a mattress isn't an inherent asset class in the same way a commodity (be it gold, or whatever) is an asset class..
You are pointing out the obvious to say that cash, just sitting there in a drawer or something is (longterm) going to do anything but lose value..

And you are cherry picking in the extreme to point out today's horrendous rates on savings accounts (which are not investment vehicles even in good times) without looking at the five year chart on commodities. Your really need to bring US treasuries into the mix, and if possible AAA rated corporate debt, to derive real comparisons

Suffice it to say that same 2000$, even in the most boring of cash based investment vehicles, the long term US treasury bond would be worth a heck of a lot more than 2000$.. Invested in a rolling mutual that tracks the fortune 20, it would be worth millions, but that's yet another asset class..

http://pages.stern.nyu.edu/~adamodar...histretSP.html

I could be wrong but he's not necessarily arguing the differences between cash & gold as investment; he's arguing the difference between cash & gold as MONEY, both of their ability to retain purchasing-power, where gold wins hands down.....

[Dforkus]

I could be wrong but he's not necessarily arguing the differences between cash & gold as investment; he's arguing the difference between cash & gold as MONEY, both of their ability to retain purchasing-power, where gold wins hands down.....

Hands down in a rigged race perhaps.. What you are demanding is that gold, a commodity with inherent price appreciation be paired against cash, but only in such a manner in which cash is explicty not invested, or loaned out in such a manner wherein it can enjoy interest..
That is a fundamentally pointless exercise...

An honest comparison would be the commodity versus a long cash based investment vehicle like a treasury bond... Or a basket of grade AA corporate debt..

[Weston White]

Cash sitting in a mattress isn't an inherent asset class in the same way a commodity (be it gold, or whatever) is an asset class..
You are pointing out the obvious to say that cash, just sitting there in a drawer or something is (longterm) going to do anything but lose value..

And you are cherry picking in the extreme to point out today's horrendous rates on savings accounts (which are not investment vehicles even in good times) without looking at the five year chart on commodities. Your really need to bring US treasuries into the mix, and if possible AAA rated corporate debt, to derive real comparisons

Suffice it to say that same 2000$, even in the most boring of cash based investment vehicles, the long term US treasury bond would be worth a heck of a lot more than 2000$.. Invested in a rolling mutual that tracks the fortune 20, it would be worth millions, but that's yet another asset class..

http://pages.stern.nyu.edu/~adamodar...histretSP.html

I am not certain I am following your point. This is about inflation and the reduced value of the dollar, not about the pros of Wall Street or trading on the government's promises concerning its paper monies. Namely the vastly wealthy participate in Wall Street so it is not an accurate monitor to determine inflation.

Certainly, dividends and the like can realize extremely high payouts, such as investing in Apple, for example, yet they also tend to be very risky, such as the dot-com or housing bubbles, for example. However, you can also play it safe, investing only in 8-16% low-to-medium risk returns (which again are still not absolutely certain, save for perhaps money markets, though which usually require large sum investments and a committed timeframe), but for such investing to be worthwhile large lump sums, long-term commitments, persistent mindfulness, and payments of capital gains taxes are to be demanded--whereas, hoarding precious metals does not (though taxes are owned upon the gains less the principal invested) and will readily maintain certainly in long-term values. Further still, the average laborer cannot afford any meaningful commitment to Wall Street so as to remain financially effective, yet precious metal investments do afford them such an option. Businesses come and go, promises are broken, regardless, precious metals will endure and never wear from ancient Rome and Greece to the present.

However, to provide a bit further on this that precious metals can indeed compete with Wall Street, here is a simple example comparative to the chart you had provided:

T.Bills $103.08 and T.Bonds $100.84; gold in 1928 was $20.66 and in 2014 it was $1,206. So then in 2014: T.Bills: $1,973.77; T.Bonds: $6,972.34; Gold (5ozt): $6,030.

Related to investing in assets:

http://www.cmi-gold-silver.com/monet...t-buys-silver/
http://goldsilver.com/news/warren-bu...-jim-rickards/

[ctiger2]

You can't eat FRN's!

[Zippyjuan]

How many FRNs to buy an ounce of gold in 1913?

How many FRNs to buy an ounce of gold in 2015?

The ounce of gold remains exactly the same since 1913.

What has changed?

1) the value of money changed
2) the value of gold changed.
3) the supply and demand of both changed
4) In 1913, the price of gold was defined by the Government in terms of dollars- today both are allowed to float freely according to the market.

[Zippyjuan]

US incomes since 1945 (looking for one since 1913):


http://econintersect.com/b2evolution...-institutional

[Zippyjuan]

Since dollars change over time, a better measure is time. How long does a person have to work to acquire something?

In 1913, median income was $800 a year. Or $20 an ounce for gold, 40 ounces.

Median income today- $52,000 a year. Or at $1200 an ounce for gold, 43.3 ounces.

[acptulsa]

In 1913, the price of gold was defined by the Government in terms of dollars- today both are allowed to float freely according to the market.

We've gone 'round about this lie before. You like to pretend I'm engaging in semantics, but the fact is you are falsely trying to convince people the dollar was just as intrinsically worthless back then as it is now, but the price of gold was fixed.

I dare you to quote this post in its entirety, then type underneath, 'The dollar was not a certain amount of gold, but the price of gold was merely fixed by statute.'

[Zippyjuan]

The dollar was defined as a certain amount of gold- yes, if you want to play semantics. The inverse is also true- then the value of gold is a certain amount of dollars.

If A=B then by definition, B=A.

Either way, there was no "free market" price for gold based on supply and demand but what the government said the exchange rate between gold and dollars should be. Today, both are allowed to float in value.

[fisharmor]

I was wondering what others thought about the author's points?

They're all meaningless.

I'm not reading all these arguments of his because everything I've seen so far is just a rehash of Keynesian talking points that are very bit as prevalent on the internet as RP's talking points.

I think you hit the nail on the head, Weston: the whole article is just saying "The dollar didn't lose 95% of its value, because it's ok that it did because wages increased at the same time". That wet stuff hitting my face isn't rain.

Suffice it to say that same 2000$, even in the most boring of cash based investment vehicles, the long term US treasury bond would be worth a heck of a lot more than 2000$.. Invested in a rolling mutual that tracks the fortune 20, it would be worth millions, but that's yet another asset class..

How in the world does this suffice? It suffices nothing!
Very few who advocate for RP's position are in real financial danger. We're generally all clever and engaged enough to realize that just holding on to cash is a one-way ticket to going broke. You can't even put money in the bank and leave it there without it disappearing over time.
Your statement here is totally insufficient to explain how the poor are supposed to deal with this.
If they put $100 in their sock drawer, it gets stolen through inflation.
If they put $100 in their bank account, it gets stolen through fees. Much faster than it would take them to save up the other hundreds of dollars necessary to put it into an account with a return at least capable of covering the account's maintenance.

So they've got to forget night school, forget putting in extra hours to better themselves at their jobs, forget trying to learn a better way to offer marketable value to society, and study for a couple months just to be able to hang on to the money they're making?
How the everfucking $#@! is that even remotely a good idea?

Another way it's insufficient is that I'm in a position of making a real living, supporting a family of four, I have some investments, sure, but my standard of living is not as high as it could be - for four people - unless I take time away from work, family, church, not to mention hobbies, just to figure out a better way to hang on to money I've already earned.... is that really what you're saying? That everyone just has to accept the fact that our money is $#@! and it's going to lose value over time so we might as well feed this financial sector vampire that exists for no reason at all other than to help us hang on to what we've earned, and does not in any way constructively add to mankind?

Bull$#@!.

[Weston White]

Since dollars change over time, a better measure is time. How long does a person have to work to acquire something?

In 1913, median income was $800 a year. Or $20 an ounce for gold, 40 ounces.

Median income today- $52,000 a year. Or at $1200 an ounce for gold, 43.3 ounces.

You are overlooking two important details, (1) you are not accounting for the 1/4-1/5 reduction in wages due to status quo income taxation and (2) the median income of today is accounting for married couples, while back in 1913 it was abnormal for wives to work.

[fisharmor]

Since dollars change over time, a better measure is time. How long does a person have to work to acquire something?

In 1913, median income was $800 a year. Or $20 an ounce for gold, 40 ounces.

Median income today- $52,000 a year. Or at $1200 an ounce for gold, 43.3 ounces.

If we were paid in gold throughout this time, this would represent a 0.0825% inflation rate.
In other words, so low none of us would even have noticed.

[Paul Or Nothing II]

Hands down in a rigged race perhaps.. What you are demanding is that gold, a commodity with inherent price appreciation be paired against cash, but only in such a manner in which cash is explicty not invested, or loaned out in such a manner wherein it can enjoy interest..
That is a fundamentally pointless exercise...

An honest comparison would be the commodity versus a long cash based investment vehicle like a treasury bond... Or a basket of grade AA corporate debt..

Sorry but do you understand what purchasing-power means with respect to the concept of money?

[Weston White]

The dollar was defined as a certain amount of gold- yes, if you want to play semantics. The inverse is also true- then the value of gold is a certain amount of dollars.

If A=B then by definition, B=A.

Either way, there was no "free market" price for gold based on supply and demand but what the government said the exchange rate between gold and dollars should be. Today, both are allowed to float in value.

Is this not precisely the point? To lock in its value and uphold both accountability and confidence in government? Both which sorely are lacking now. And the PPT is covertly managing the value of precious metals, which is why all metals dropped rapidly and held fairly study as of a few years back, meanwhile the stock markets are out of control, S&P is over 2,000 and Dow is nearing 20,000, completely and totally rigged!

[acptulsa]

The dollar was defined as a certain amount of gold- yes, if you want to play semantics.

So how much does the Fed pay you to pretend that's just semantics? You know better. Many a dictator has tried to tie an intrinsically worthless currency to gold, and many a dictator has failed. You could not possibly be as well-versed in this stuff as you are and not know that; ergo, you are being intentionally deceptive, meaning you are lying. The fact that the dollar was once a solid object and now it is not is not semantics and you damned well know it.

Were there more dollars than gold in circulation during the days of the straight gold standard? You know that was impossible, because a certain amount of gold was a dollar, and without it the dollar did not exist. Can you even answer yes or no without either lying or risking being fired?

The point is the dollar held its value back then because the supply of gold could not be increased simply by running some intraglio presses or punching some buttons on a computer keyboard. And the middle class remained the middle class all the while, and people could save their money without fearing it would shrink like wool in a hot dryer, because gold does not do that. It may fluctuate, but unlike any paper-backed paper money in history, after gold drops in value it actually goes back up sooner or later. That is the whole, plain truth, and just as I predicted you would call it semantics, I said before you lied and am saying now that you are lying and know it.

We do not speak Newspeak here. This is not the Memory Hole.

[Zippyjuan]

You are overlooking two important details, (1) you are not accounting for the 1/4-1/5 reduction in wages due to status quo income taxation and (2) the median income of today is accounting for married couples, while back in 1913 it was abnormal for wives to work.

That is true but people also have a ton more stuff than households did in 1913. Few had cars or phones. None had dishwashers, washing machines, dryers, microwaves, televisions (many didn't even have a radio) refrigerators, cell phones, computers, closets full of clothes (you likely had one nice outfit and a couple work outfits and that's it)- all things we take for granted and even consider "needs" today. People get a lot more for each hour worked than they did in 1913.

[Zippyjuan]

So how much does the Fed pay you to pretend that's just semantics? You know better. Many a dictator has tried to tie an intrinsically worthless currency to gold, and many a dictator has failed. You could not possibly be as well-versed in this stuff as you are and not know that; ergo, you are being intentionally deceptive, meaning you are lying. The fact that the dollar was once a solid object and now it is not is not semantics and you damned well know it.

Were there more dollars than gold in circulation during the days of the straight gold standard? You know that was impossible, because a certain amount of gold was a dollar, and without it the dollar did not exist. Can you even answer yes or no without either lying or risking being fired?

The point is the dollar held its value back then because the supply of them could not be increased simply by running some intraglio presses or punching some buttons on a computer keyboard. And the middle class remained the middle class all the while, and people could save their money without fearing it would shrink like wool in a hot dryer, because gold does not do that. That is the whole, plain truth, and just as I predicted you would call it semantics, I said before you did and am saying now that you are lying and know it.

We do not speak Newspeak here. This is not the Memory Hole.

Most of what is called poor today would have qualified as middle class in 1913 based on wealth and assets.

This chart does not show middle class (that is difficult to show since what is considered to be "middle class" changes over time and there really is no definition of what it means) but does show that people are able to spend a lot more today on non- necessities. What we consider "middle class lifestyle" only came into existence following WWII.



Where that money went:


http://www.theatlantic.com/business/...budget/255475/

Look at the dramatic change in the percent of household income which only went towards buying food.

[Bossobass]

That is true but people also have a ton more stuff than households did in 1913. Few had cars or phones. None had dishwashers, washing machines, dryers, microwaves, televisions (many didn't even have a radio) refrigerators, cell phones, computers, closets full of clothes (you likely had one nice outfit and a couple work outfits and that's it)- all things we take for granted and even consider "needs" today. People get a lot more for each hour worked than they did in 1913.

Few, if any today, have a bow saw, hand drill, block planes, shovels, rakes, hedge shears, edging shears, manual sweeps, glazier's putty, ice boxes, blocks of ice, washer/wringers, scrub boards, slate roofing, solid wood entry doors and interior doors, hand beveled leaded glass side lites and transoms, etc., etc. And the clothes of yesteryear were hand sewn worsted wool and not Chinese synth-rags and shoes, belts, etc., were real, hand-tooled leather, not petro-chem throw-aways.

Housing was framed with lumber sizes of actual 2" by actual 4", 6", 8", 10" and 12", sheathed with 3/4" thick solid wood and veneered with brick or stone or 3/4" solid heartwood on the outside and 3/4" plaster on the inside over solid wood lath. The state of the art in housing structure today is pathetic by comparison with masonite or plastic siding, 1-1/2" by 3-1/2", 5-1/2", 7-1/4", 9-1/4" and 11-1/4" framing lumber with 1/2 sheetrock and 25 year asphalt shingles over 7/16" chipboard sheathing, hollow core masonite interior doors, etc., etc., etc.

More importantly, the folks of 1913 had NO DEBT with which to fund all of the modern "tools" and clothing you mention.

Either way, there was no "free market" price for gold based on supply and demand but what the government said the exchange rate between gold and dollars should be.

You're talking about what was our money <1914 and which is a commodity today. There was no free market for the length of an inch, a foot, a yard or a mile either.

In 1913, median income was $800 a year

.

There are no reliable data for income <1914 because no one had to report his income and, as Weston White pointed out, there was no income tax. All such pre-1914 data is conjecture. You might as well just make the numbers up to suit your POV, as everyone else does in these discussions. As well, there were about three thousand less taxes back then which we pay from our earnings today for everything from a dog's license and shots to taxes on permission to build a shed on our properties.

Anyone who argues the $ has not been devalued over the past 100 years is a moron. Like Bernanke telling RP that the FED only keeps thousands of tons of gold in it's vaults "for tradition". [Bwa-ha-ha-ha-ha-ha]

[NorthCarolinaLiberty]

Look at the dramatic change in the percent of household income which only went towards buying food.

These food numbers are always skewed. First of all, you'd be comparing apples to oranges between 1900 and today if you considered the number of individual farmers. Even at that, you showed a skewed chart in another thread comparing 1963 to 2010. It showed that people spent 4x more on food in 1960 than 2010. That is ridiculous. People likely spend less today on food, but not 4x less. People always need to eat, so that number should be fairly constant.

People are likely spending less but that is because the food is lower quality. A LOT of that is the proliferation of fast food. Food is of lower quality today.

There is also no way we are spending the same on healthcare as in 1900. Healthcare costs today are nonsense waste, including your buddy Obama with his "health" plan.

[NorthCarolinaLiberty]

Few, if any today, have a bow saw, hand drill, block planes, shovels, rakes, hedge shears, edging shears, manual sweeps, glazier's putty, ice boxes, blocks of ice, washer/wringers, scrub boards, slate roofing, solid wood entry doors and interior doors, hand beveled leaded glass side lites and transoms, etc., etc. And the clothes of yesteryear were hand sewn worsted wool and not Chinese synth-rags and shoes, belts, etc., were real, hand-tooled leather, not petro-chem throw-aways.

Housing was framed with lumber sizes of actual 2" by actual 4", 6", 8", 10" and 12", sheathed with 3/4" thick solid wood and veneered with brick or stone or 3/4" solid heartwood on the outside and 3/4" plaster on the inside over solid wood lath. The state of the art in housing structure today is pathetic by comparison with masonite or plastic siding, 1-1/2" by 3-1/2", 5-1/2", 7-1/4", 9-1/4" and 11-1/4" framing lumber with 1/2 sheetrock and 25 year asphalt shingles over 7/16" chipboard sheathing, hollow core masonite interior doors, etc., etc., etc.

More importantly, the folks of 1913 had NO DEBT with which to fund all of the modern "tools" and clothing you mention.



You're talking about what was our money <1914 and which is a commodity today. There was no free market for the length of an inch, a foot, a yard or a mile either.

.

There are no reliable data for income <1914 because no one had to report his income and, as Weston White pointed out, there was no income tax. All such pre-1914 data is conjecture. You might as well just make the numbers up to suit your POV, as everyone else does in these discussions. As well, there were about three thousand less taxes back then which we pay from our earnings today for everything from a dog's license and shots to taxes on permission to build a shed on our properties.

Anyone who argues the $ has not been devalued over the past 100 years is a moron. Like Bernanke telling RP that the FED only keeps thousands of tons of gold in it's vaults "for tradition". [Bwa-ha-ha-ha-ha-ha]

I think this is a great post, especially comparing things like quality of materials. Worth the read.

[loveshiscountry]

US incomes since 1945 (looking for one since 1913):


http://econintersect.com/b2evolution...-institutional

We are at 52k right now for median income. Where did you get that chart?

[loveshiscountry]

These food numbers are always skewed. First of all, you'd be comparing apples to oranges between 1900 and today if you considered the number of individual farmers. Even at that, you showed a skewed chart in another thread comparing 1963 to 2010. It showed that people spent 4x more on food in 1960 than 2010. That is ridiculous. People likely spend less today on food, but not 4x less. People always need to eat, so that number should be fairly constant.

People are likely spending less but that is because the food is lower quality. A LOT of that is the proliferation of fast food. Food is of lower quality today.

There is also no way we are spending the same on healthcare as in 1900. Healthcare costs today are nonsense waste, including your buddy Obama with his "health" plan.

Agreed. In a 2014 Kaiser survey
Median family income was just above 50 k. They paid $4823 for insurance. Easy math, just under 10 percent. No where near 5-6 percent. And that's just the cost of the insurance.


http://kff.org/health-costs/report/2...nefits-survey/
Annual premiums for employer-sponsored family health coverage reached $16,834 this year, up 3 percent from last year, with workers on average paying $4,823 towards the cost of their coverage, according to the Kaiser Family Foundation/Health Research & Educational Trust (HRET) 2014 Employer Health Benefits Survey.

[otherone]

That everyone just has to accept the fact that our money is $#@! and it's going to lose value over time so we might as well feed this financial sector vampire that exists for no reason at all other than to help us hang on to what we've earned, and does not in any way constructively add to mankind?

Bull$#@!.

LOL.
And not only are people cool with being ROBBED...they DEFEND the thieves, as if inflation was an unavoidable fact of nature!

[acptulsa]

Most of what is called poor today would have qualified as middle class in 1913 based on wealth and assets.

Any poor person would qualify as something out of a Jules Verne science fiction story if they popped up in 1913, just on the basis of the miraculous stuff in their pockets. But we're working longer hours and not eating as well, and we can't save. Government gives us more $#@!, but a bunch of it is stuff we don't need or want and they overcharge for it like crazy. The level of technological progress over the last hundred years should have made kings of us all. It should have. But your bosses have made the dollar into a nickel, no one who earns wages saw their wages keep up, and all that wealth ended up in the hands of the people who needed it least.

So don't tell me I might be getting my mac and cheese for free, but I'm a damned oligarch because the victorians had no way to boil a cup of water in three minutes and had five thousand thirty-nine channels of $#@! on a TV to choose from.

LOL.
And not only are people cool with being ROBBED...they DEFEND the thieves, as if inflation was an unavoidable fact of nature!

Z2.0 is not the first nor the best indoctrinator the Fed ever hired. Hell, Jeffrey was neither the first nor the best indoctrinator the Fed ever had.

[jclay2]

This is a pet peeve of mine. There are a few important things to consider when thinking about inflation: Real costs/actual costs/actual wages. Consider this simple example:

The year is 2014. A particularly neat widget costs $100 to buy. With your current income, you can afford to purchase 1 widgets. One year passes. The price of the particular widget is still $100 to purchase and your income has risen slightly by 1% to $101 . However, due to efficiency gains, the REAL costs of making the widget have dropped by 4%. In this example, your real income has gone up by 1% (ie you can by 1% more widget than you could in the prior year). This sounds like a wonderful outcome. Your real income is up and you can buy more stuff than you could previously. The problem here is that there is a slight of hand happening that is stealing your optimized potential and wealth. Assuming all other things constant, a 4% drop in the real cost of producing a good should lead to a 4% drop in the purchase price of a product. That is to say that the price (assuming money supply/resources/etc constant), should have dropped from $100 to $96. What I am getting at is that instead of seeing a 4% bump in your purchasing power, you only get 1%! The missing 3% can be accounted for by inflation (devaluation in your purchasing power).

I can not harp on this enough. Even when the economy does well and you are enjoying real gains in income, you can still be a victim of inflation. The effect over time of just a 1% loss/year is massive over time. Over a generation (70 years) a 1.5% annual loss from inflation effectively reduces your real income by 2/3rds. Said another way, we should be making 3x our current salaries!

Inflation is a loss in your potential real wages! You can experience massive inflation even in falling/static nominal price environments. Anyone who says inflation isn't a problem or is nonexistence lacks an objective mind and a basic understanding of economics.

Add in the effects of excessive taxation/regulation/time value of money and you begin to understand why we are getting screwed so badly. A minimum wage job would be equivalent to a guy pulling 300k+ in today's world if the government just let the market work. But alas a thriving middle class is the bane of a powerful state.

[oyarde]

We've gone 'round about this lie before. You like to pretend I'm engaging in semantics, but the fact is you are falsely trying to convince people the dollar was just as intrinsically worthless back then as it is now, but the price of gold was fixed.

I dare you to quote this post in its entirety, then type underneath, 'The dollar was not a certain amount of gold, but the price of gold was merely fixed by statute.'

I accept these .