Sunday, December 6, 2009

How Can You Compare Dollars (or Pounds or Yen) Over Time?

Measuring Worth is a website by two economic historians -- backed by an impressive advisory board -- to help us make sense of monetary amounts at different times. They introduce the topic like this:
Intrinsic things are priceless. The love of your life or a beautiful sunset. There is no objective way to measure these, nor should there be.

The worth of monetary transactions is also difficult to measure. While there is a price, wage, or other kind of transaction that can be recorded at a precise price, the worth of the amount must be interpreted.

The price of a hamburger is probably worth more to a starving homeless person than to a very wealthy one. An allowance of five pennies a week was worth more to a child in 1902 than it is to a child today.

It can be more difficult when the question is to determine the "historical" worth of something. The price, even deflated for inflation, is not enough. Was Andrew Carnegie richer than Bill Gates? Did Babe Ruth make more than David Beckham? Was the cost of a loaf of bread more then than now? These questions all depend on the context and the calculators on this web site enable users to make their own comparisons.
Suppose you're reading a case about a cow that was sold for $80 in 1886 (Sherwood v. Walker, 33 N.W. 919(Mich. 1887)). If you want to get a sense of what $80 meant in 1886, go to the Relative Values - US $ calculator. You find that there are different ways to look at it:
In 2008, $80.00 from 1886 is worth:

$1,888.62 using the Consumer Price Index
$1,775.84 using the GDP deflator, using the value of consumer bundle
$10,610.85 using the unskilled wage
$18,146.12 using the nominal GDP per capita
$94,854.54 using the relative share of GDP
No matter what, you see that $80 is not what it used to be.

By the way, if you'd like to learn the outside-the-casebook story of Sherwood v. Walker, see Norman Otto Stockmeyer, To Err Is Human, To Moo Bovine: The Rose of Aberlone Story, 24 T.M. Cooley L. Rev. 491 (2007), available at SSRN:

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