Inflation since 1869
How can I learn what $40,000.00 in 1869 would be worth today (2007)?
... for a school project.
posted from CPRR Discussion Group at 5:55 AM
Friday, June 29, 2007
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16 Comments:
From: "Bob Pecotich" bobpec@earthlink.net
As a rule of thumb, start with a "times ten" multiplier. So, $40,000.00 in 1869 would be $400,000.00 today. Perhaps someone elso has a more precise figure.
—Bob Pecotich
It would depend whether the $40,000 was to be paid in gold coin or in currency.
$40,000 paid in gold coin in 1869 would be about $1,255,000.00 today.
$40,000 paid in currency in 1869 would be about $941,300.00 today.
Here is how to calculate this:
Let's assume payment in gold coin.
The gold content of a U.S. $20 Liberty Coin, minted 1849-1907 is 0.9675 troy oz.
So $40,000/$20 = 2,000 gold coins.
2,000 coins x 0.9675 oz/coin = 1935 oz gold
Today's gold price is $648.75/troy oz.
So 1935 oz x $648.75/oz = approximately $1,255,000.00
Let's instead assume that payment was in currency and that the 1869 price of a Central Pacific Railroad ticket can be used to determine the 1869 currency debasement correction.
The 1869 first class through fare from San Francisco to New York was $112.50 coin or $150.00 currency.
$1,255,000.00 x ($112.50/$150.00) = approximately $941,300.00
The main lesson of this is that the U.S. governmment cannot be trusted to issue honest money. It has broken its promises and as a result has destroyed the dollar which is no longer backed by gold or anything else. As a result, so far the dollar which continues to lose its value at about 3%/year, has already lost 97% of its value.
So the approximate inflation multiplier is $648.75/$20 = 32 as of today compared with 1869. (Because a $20 U.S. gold coin contains about one troy ounce of gold.)
From: kylewyatt@aol.com
I'll take some issue with the political overlay in the answer below. First, I don't think it addresses the question that was asked. Second it is built on an inaccurate presentation of facts. Third it presents what is clearly a political opinion as if it were proven fact, when others might reach equally valid (or invalid) conclusions based on the same true facts. In the specific example, the evidence does not support the conclusion because of the inaccuracies in the evidence presented.
First I believe the question had to do with the rate of inflation/deflation since 1869, not with the value of government issued coin or currency.
Using the web-based calculator at http://www.westegg.com/inflation/
I get the following:
What cost $40,000 in 1869 would cost $584,623.86 in 2006.
Also, if you were to buy exactly the same products in 2006 and 1869,
they would cost you $40,000 and $2,736.80 respectively.
I'm not so sure this second part is correct, since the methods and technologies of product production have changed so much in the intervening years. One would have to actually track specific products to make a valid statement along these lines - and many factors unrelated to inflation would have a big impact.
Second the presentation below only gives a part of the facts, presented as though it was the whole truth.
If the $40,000 in 1869 was in either gold coin or in currency in the Eastern US, then in either case it was worth the full $40,000. In California currency was discounted, along the lines noted below. During the 1860s the Central Pacific owners carried on a side venture of purchasing discounted currency in California and shipping it to the East where they were able to use it at full face value to purchase materials for the railroad, and/or purchase gold coins for return to California to pay expenses there.
Next, the collector's value of 1869 gold coins and currency seems to be worth rather more than the inflation value.
I see several 1869-S $20 Liberty gold coins listed at $1,450 - $1,800. At that rate $40,000 face value in such coins comes to $2,900,000
For that matter a $10, 10 August 1861 US currency note (the stuff so greatly discounted in California) is estimated to be worth $10,000 - $12,000. At that rate, $40,000 in these notes would be worth $40,000,000 (although granted it would flood the market).
The US specifically authorized 9 California banks to issue gold bank notes beginning in 1870, as a way to deal with the quantity of gold coin and dust circulating in California. These notes were redeamable in gold at face value at the banks, and are separate from the other US currency being discussed here. They were not discounted in California. A $100, The First National Bank of Oakland, California, 31 March 1895 is estimated to be worth $6,500 - $8,500 in a eBay aucion. A $5, The National Gold Bank of D.O. Mills & Co, Sacramento, 15 August 1872 is estimated to be worth $8,000 - $12,000. If you had $40,000 face value of these that would be $64,000,000.
So let's not sneer too much at paper money. In the collectors market it seems to have done better than gold coins.
As to the reduction of the value of the dollar, the wholesale shipment overseas of our industrial production base and transformation of the US into the worlds largest debtor nation has certainly had a major impact on the value of the dollar, probably rather more than whether or not US currency is backed by gold or silver - particularly since internationally most money these days is digital credits, and not in the form of currency at all. Had our currency been linked to gold, then we would have been forced to overtly devalue the dollar. (Nixon went off the gold standard because the US could not sustain the $32/ounce value then in place) As it is, the dollar and other world currencies, and gold, all float, adjusting relative values to each other to reflect their relative strengths. The dollar has declined not because it is not backed by gold, but because our underlying economic system is being evicerated. Of course, some countries do not float their currencies - China for instance keeps theirs artifically low, which explains why their exports are so cheap in dollars.
—Kyle
Modern "money" is a very strange concept, as it is akin to a rubber ruler that stretches over time. You would be rightly considered a lunatic if you tried to measure anything else using units whose size constantly varies. Can you imagine scales, rulers, or clocks that didn't read the same on repeated measurement of an unchanged quantity? No wonder inflation causes such confusion and grief.
Someone from the 19th century used to using gold coins to store value, would rightly be baffled at what is now thought sensible. What they would see is that the gold coins that would buy them a suit in 1869 would still buy a suit in 2007. Inflated paper currency would scarcely buy the buttons.
Whether you accept monitarism as a complete explanation of inflation or not, the previous post confuses several issues unrelated to inflation. See: "Monetary History of the United States, 1867-1960' by Milton Friedman and Anna Jacobson Schwartz".
The nusmismatic value of particular coins or bills has nothing to do with inflation, instead relating to the rarity and demand for the old coins and bills to collectors, not to their value as money, nor the commodity value of the substances they are made from. Stuffing modern hundred dollar bills in a mattress in the expectation that they will become rare and valueable collectors items in the 22nd century is ludicrous.
Inflation is also the not same thing as consumer prices, because innovations in product design and production methods decreases prices relative to the value of money. For example, the rapid decline in the price of computing (Moore's law) is not an example of deflation.
But, just as in the past, if any country turns on their printing presses and floods the market with huge quantities of unbacked paper money, hyperinflation will result, rendering that currency close to worthless. That has not happened yet in the United States, as it did in Germany and Austria, but with the dollar no longer backed by any promise, and perhaps a hundred trillion dollars of unfunded liabilities, continued dollar inflation seems inevitable. Whether that inflation can be successfully managed and controlled by the Federal Reserve remains to be seen.
The past and current dollar value of the gold in 19th century money is certainly a valid and objective way to measure prices then and now in constant units (i.e., gold troy ounces). So the answers do correctly respond to the question, and do so in a way most closely related to the way payments were actually made in 1869 California.
The fare from San Francisco to New York was $52.50 coin second class in 1869, which was 2.44 oz. gold. [($50.50/$20) x (0.9675 troy oz.) = 2.44]
Today Amtrak quotes $315.00 for coach fare from San Francisco to New York which is equivalent to 0.486 oz. gold (approximately a $10 gold coin which contains 0.48375 oz.). [$315/$648.75/troy oz. = 0.486 oz.]
So the cost of a trip was five times as expensive in 1869 as it is in 2007. [2.44 oz. gold/0.486 oz. gold = 5.02]
United States currency 1865-1921, Gold Certificates, secured by gold stated:
"This certifies that there have been deposited in the Treasury of the United States of America __ Dollars in gold coin repayable to the bearer on demand."
The United States broke this promise in 1933:
"Gold Certificates were authorized by the Currency Act of March 3, 1863 and were issued in series from 1865 to 1934. ... 70 years after being authorized, Gold Certificates met their demise by the Gold Reserve Act of 1933. On December 28, 1933 the Secretary of the Treasury, Henry Morgenthau, Jr., issued an order forbidding the holding of Gold Certificates and required their surrender. Banks were ordered to turn in all stocks of gold certificates as well as the general public."
Also see this inflation calculator.
It shows $40,000 in 1869 to be "$868,570.41" in 2007 based on U.S. Retail Price Inflation data "from several sources, including Global Financial Data, Economic History Services, and the U.S. Bureau of Labor Statistics."
Many American railroads issued 100 year gold bonds which promised to pay to the bearer in gold coin, so as to be safe against inflation.
Franklin D. Roosevelt issued an immoral Gold Confiscation Order on April 5, 1933 which caused the result that the railroads cheated their bond holders by paying their bonds in inflated dollars rather than in gold coin as promised. "On June 5, 1933, Congress passed a joint resolution, that in one fell swoop, nullified every gold clause in every U.S. contract." [Joint Resolution to Suspend the Gold Standard and Abrogate the Gold Clause (H.J. Res. 192, 73rd Congress, 1st Session): "Every obligation, heretofore or hereafter incurred, whether or not any such provision is contained therein or made with respect thereto, shall be discharged upon payment, dollar for dollar, in any coin or currency which at the time of payment is legal tender for public and private debts."]
The railroads failed to keep their promise to pay in gold even after holding gold once again became legal and shamefully, U.S. courts refused to enforce the railroads' written promise to pay in gold or to provide just compensation as the Takings Clause of the Fifth Amendment requires.
Also see the discussion of Wages and Rail Fares in the 1860's.
Also see, Gold and Economic Freedom by Alan Greenspan.
Did you know that in the 19th century (until it became illegal in 1864), railroads printed their own money which was called railroad currency?
thanks
"paper money was illegal in California until the 1870s"
To get an idea of how bad inflation can get, see the one hundred trillion dollar bill issued by Zimbabwe in 2009! This is similar to the experience of Germany and Austria in the 1920's.
"Fifty-six occurrences of hyperinflation in the last 100 years, (defined as greater than 50% per month inflation rate)."
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