Chancery Courts as a Window on Social History
"How To Determine The Relative Value Of Money"
By Shannan Kain
It is not a simple matter to determine the relative value of a dollar from one time compared to another. One method alone does not work because different events occur at different rates making any one system unreliable. Economic historians use several indicators depending on what information is required.
Most cataloged goods are measured as a “bundle of goods,” an economic term that represents goods or services that the consumers uses or earns. Bundles are inconsistent because they change over time. In 1865 a bundle may have been dress yardage, laces, trims, feathers, felt, and sewing thread. Today designer jeans replace it, a camisole from Victoria’s Secret and a Gucci bag. In this case we have a jump from homemade goods to high-end designer readymade clothing. We must consider several factors.
The inflation rate from 1864 until 2008
The value of the seamstress’ time in 1864
The value of the purchaser’s time in 2008
The difference between standard value goods in 2008 and their designer equivalents.
With all these factors what are ways to arrive at a fair equivalency?
The CPI is a comparison of consumer goods from one era to another. It compares items like rent, food, utilities costs, clothing, medical expenses and transportation. It answers the question-how much money would I need to live in 1865?
The GDP Deflator is similar to the CPI but includes all products not just consumer goods.
The Consumer Bundle reflects the average dollars spent by a consumer unit, chiefly a family. It represents a joint decision to spend and reflects joint choices. As time goes on the unit’s spending increases in proportion to the unit’s income.
The Unskilled Wage Rate is used to determine the value of a good by the amount of work it takes a person to pay for the item. Unskilled labor is preferres over the average wage because it is more consistent.
The GDP per capita is an index of the average output per person in the United States and corresponds with the average income.
The GDP is the market value of all goods and services produced in a year. Comparing a price using the GDP, will tell us how much money equals the same percentage in a comparative year.
I found a “estimation” calculator on a website that uses the above system or at least cites them and entered $1.00 for the year 2007 to determine a relative value in 1865. The answer was 8 cents. Therefore, that people were discouraged at high prices brought on by the gold rush in Walla Walla County now is more understandable. Before I had an 08/1-ratio bacon at 75 cents a pound seemed reasonable. Now I am able to see the relative value. Today 75 cents a pound would be $9.37 per pound. That is outrageous profiteering.