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Inflation Calculation

Discussion in 'The Golden Era' started by Undertow, Mar 21, 2012.

  1. Undertow

    Undertow My Mail is Forwarded Here

    I've been reading quite a bit of LIFE Magazine from the mid to late 30's. As I go, whether in the articles themselves or in advertisements, I often see prices for goods and services listed. Same goes for old catalog scans from Sears, etc.

    In order to have a better grasp of the era, and in order to get a feel for how an advertisement or article would have been received, I've been using an inflation converter to determine what something would cost today. (Like this one.

    I'd like this thread to discuss US currency inflation and prices of goods and services, and how accurate the "rule of thumb" conversion really is. Or, perhaps a discussion on how something then would have actually been more attainable than now.

    For my first example, I would refer to men's suiting of the late '30's. It is quite common to find a higher quality three piece suit of worsted wool priced in a Sears catalog at $15; shoes would be about $9; a hat roughly $9 as well; ties merely $2. This entire ensemble would convert to $242 for the suit, $145 for the shoes and hat each, and $32 for the tie. Yet, one must ask how accurate this is? A nice three-piece suit for $242 would be a steal today, same with the shoes and hat. The tie seems about par.

    What do you folks think?
  2. I've always been very wary of "inflation calculators" because they don't take into account factors beyond the rise and fall of the dollar. For example, if you bought a copy of Life magazine in 1942, it'd set you back a dime. The Inflation Calcuator says you'd pay $1.40 for that same magazine today, which is ridiculous -- when Life folded for the second time in 2000, the cover price was already up to $3.99, and nowadays a quality national magazine is often $4.95 or $5.95 a copy. Clearly the inflation of the dollar isn't the only factor contributing to that, and the calculators don't take those other factors into proper account.
  3. First of all, we are no longer on the gold standard. Our currency simply floats. If you instead calculated the price of something in equivalent gold to gold dollars then you would have something there. Gold was $34 per ounce in 1934. It is at about $1,600 per ounce today. If you figure that a suit cost 15/34 of an ounce of gold then an equal amount of gold today would be about $706. The shoes and hat yield high numbers $423 each. A $95 dollar tie is also what you could purchase with an equal amount of gold today. Interesting. I think I could buy any of those items today with those numbers. :p An interesting exercise but not too scientific.:D
    I need to think about getting paid in gold. :p
  4. Undertow

    Undertow My Mail is Forwarded Here

    Hmm, dividing by the gold standard - now that's a trick worth using! But then wouldn't that still push the items into an almost unattainable price? I mean for goodness sake, a $650 Plymouth would convert to $30k! Or a turntable at $14.50, while relatively expensive in that era, would convert to roughly $680! I'm sure those things were typically out of someone's range, but that seems extreme. On the other hand, I think it's a more realistic conversion is some ways than the automated one I posted. If $.10 equals out to about $4.70, that almost makes sense.

    However, I've been thinking along Lizzie's lines of reasoning - some costs have arbitrarily risen, while others have fallen. I wish I could get a handle on which was which! Haircuts might cost $.25 at the barber in 1938, but would that really convert out to $4 (auto convert) or $11.75 (Gold Standard conversion) today? In fact, typical barber cuts range anywhere from $13-20 anymore. Either way, that's higher than the conversion. Grumble... :(

    How about this: would it be reasonable to say that Howard Hughes Lockheed, which he used to fly around the world, and which cost him roughly $60k in 1938, should convert to something like $970,000 or maybe even $2,823,000.00? The man was rich, after all.
  5. Realistically, what would a Plymouth cost today? :p

    No one took account of how much Hughes actually spent because he was known to be kind of unpredictable. :p About $3,000,000 sounds like something he would spend on a plane. How much did the Spruce Goose cost again? :p

    I kind of pulled the gold standard out of the hat but checking the results, I kind of like what I see. All those years to get that finance degree might have taught me soemthing. [huh]:p
  6. I've thought of this (very rarely, but I did think about it). The inflation calculator is a simple tool, and I guess it works to give a very general grasp of the thing. But when I try and "price" something, I think of it in terms of percentage of salary. Many professions have had wildly fluctuating levels of pay (compared to the general populace) so- I picked military base pay scales as my "unit of conversion". In 2012, my pay is roughly equivalent to a modern Major or Lt. Commander. Base pay for those ranks during WWII was about $250 a month. At $35, that suit and shoes is 14% of a 1940s era Lt Cdr.'s monthly pay. 14% of my monthly pay is a bit over $650. I don't know a lot about men's suits, but $650 would buy a nice, but not top shelf, women's business outfit- shoes included.

    The $650 Plymouth, would in terms of my hypothetical O-4, be about 2 and half months salary. In my 2012 pay, that would be about $12,000. I know it's not perfect, but it seems a bit closer to what dollars would buy in different time periods.
    Last edited: Mar 22, 2012
  7. That sounds like a good measure but I suppose it would be subjective on what level of pay you use and where you are in the country. Base pay can be geographical and based on a certain standard of living where you are. Over here, I couldn't live on what someone in the midwest could live on. Housing being the number one cost difference.[huh]
  8. San Rafael, CA. Beautiful place- but the housing costs? OUCH! Unfortunately I know what housing there used to be. My great-uncle bought his house there- in the mid-60s. :) BUT, without knowing the exact price comparison, I'm guessing that a O-4 could live quite nicely in the 30s; if he lived in the Philippines, Hawaii, or Tennessee. Boston, New York, or D.C.? Not poverty row, but certainly not as lavish. I didn't even try and add in the variables: combat pay, location allowance, etc. EEK!

    Certain cases, like San Francisco housing, stereo equipment, or computer gear just don't translate well. The housing in the Bay area is astronomical in price increase. I think it's a case of having to toss out comparisons on the far ends of the scale.

    If you could find a profession in San Francisco, circa 1930s, that provided an equivalent lifestyle to what you currently have, and then come up with some "rate of exchange"?
    Last edited: Mar 22, 2012
  9. In the 30s the housing was closer to what it was around the rest of the country. After WWII and during for that matter, housing costs increased quite a bit and have stayed there. That is one of those cases where inflation is arbitrary---more or less based on the weather. No snow=more money. :p
  10. nihil

    nihil One of the Regulars

    Also keep in mind that inflation is not calculated on individual items, but all items as a group. As with any statistics, there are going to be inaccuracies based on singular items that behave differently than expected.
  11. Undertow

    Undertow My Mail is Forwarded Here

    I think this is what Lizzie was talking about. I imagine a good example would be the Compact Disc players released to the public in 1982 which were about $730. You couldn't really convert that and expect to get an accurate feel for the same units in the 1990's.
  12. So then on Oct 24, 1938, when minimum wage was $0.25 an hour

    Gold was $34.85 an ounce you worked for 139.4 hours to make an ounce of gold.

    Today gold is $1637 an ounce (plus change)....at 7.25 an hour you have to work 225.79 hours to make an ounce of gold.

    Am I correct in thinking that the equivalent minimum wage would be $0.15 cents an hour?

    No wonder I'm so tired.
    Last edited: Mar 22, 2012
  13. The thing with gold prices as an index, however, is that they're driven to the height that they are today by speculation. There was no gold speculation in 1938: it was illegal. Gold was worth what it was because the government said so, not because of an agreed-upon price at the market, so the price was stable. Today, it isn't. So I think even there you get artificial distortions.
  14. Actually your calculation works in 1938 gold dollars. 25 cents per hour in 1938 would be the same as $11.75 today based on the per ounce price of gold calculation. (.25/34.85 = x/1637)
  15. Or, consider what it cost to buy a new Victor Home Recording console radio in the fall of 1930 -- the introduction of a new technology targeted to upscale purchasers. The top of the line model sold for $285 less tubes, which translates to -- $3885, according to the Inflation Calculator. Now, I have no idea what modern electronics cost -- but I'd think that's way out of line for any comparable item today.
  16. http://luxedb.com/incredibly-expensive-sound-systems/
  17. Undertow

    Undertow My Mail is Forwarded Here

    Aha, here we go - something to chew on!

    This link
    is to LIFE Magazine Aug. 08,1938. Page five shows a new fad called "shooting sticks", which are basically just seats at the end of a metal pole. The article advises that these sticks cost roughly $10-$35 in the US. I have found a modern version, in fact this website specifies it is an updated "shooting stick" chair. Cost $61.95.

    So if you take the more advanced 1938 stick chair at roughly $35 and compare it to the modern version at $61.95, you'd only have a jump of 75%; i.e. it didn't even double in price. I guess that's a good example of supply/demand and the lack of an "inflated" rising price. According to the gold standard conversion JP created (nice job by the way), it should cost $1646.75 and according to automated calculator, it should be something like $565.12.

    Of course, the fact is I'm comparing apples to oranges; I'm discussing prices vs. actual currency inflation and conversion. Which means I pretty much screwed up this thread by not giving it the appropriate title. But at least I have a better idea of what I was talking about! lol
    Last edited: Mar 22, 2012
  18. Noirblack

    Noirblack One of the Regulars

    Usually inflation rates are based on a "basket of goods and services" that a household typically buys over a set amount of time, like a week or a month. So any inflation calculator based on inflation rates will only give you a general overview of how much it costs to live now vs in the past. But you have to consider that taking just one item out of the basket from years gone by and comparing it to its modern counterpart might not give you a perfect comparison. Some items in the basket of goods and services will have greater variance over time, and some will have lesser variance. It really only makes sense to get a general overview with inflation information and not try to apply it to specific items. So you can draw inferences like if you lived in 1930 and earned $300 per month, you would need to earn $2000 per month today to have the same standard of living.

    But I wouldn't even use it for comparisons over such a long period of time because the basket of goods and services changes. For example, in 1930 yourstatistical bureau probably included things like kerosene for lamps in the basket of goods along with light bulbs. Eventually the kerosene would be dropped. Now they include things like cell phones and monthly service fees, ISP fees etc. So the more the basket changes, the more meaningless the comparison is.
  19. Good points there. The expanding yardstick makes it hard to measure. :p
  20. Undertow

    Undertow My Mail is Forwarded Here

    But wait...how much are they charging for that expanding yardstick now as opposed to then!? lol :p

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