The Long Goodbye: The Declining Purchasing Power of the Dollar

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The Long Goodbye: The Declining Purchasing Power of the Dollar

Written by Walker Todd

Wednesday, 05 August 2009 00:00

The first chart in every edition of The AIER Chart Book shows the purchasing power of the dollar since 1792, the first date from which relevant statistics can be calculated. Starting at a value of $1 in 1792, through many fluctuations both above and below that value during the 19th and early 20th centuries, a startling conclusion emerges: The price level always had a central tendency of $1 for as long as the United States was on a gold standard (1792-1933, with an 18-year hiatus during and right after the Civil War).

That is, an explicit link to a particular weight of gold per dollar tended to serve as a long-term guarantor of long-term stability of the purchasing power of the dollar.

Source: Bureau of Labor Statistics (Click to Enlarge.)

The purchasing power of the dollar in 1913, when the chart above begins, was close to what it was in the 1830s. As long as we were still on a gold standard (up to 1933), it was almost as though an external force was drawing the value of the dollar back toward that adjusted value.

The Great Depression and the policy tools used to fight it severed the domestic link of the dollar to gold. The external trade deficits of the United States during the 1960s caused the final rupture of the international link to gold in August 1971.

The rate of decline in the purchasing power of the dollar tended to level off in the 1980s, but a long, slow, cumulatively corrosive decline has continued to the present, with the consequence that a dollar today would buy one less than a nickel’s worth of goods and services in Woodrow Wilson’s time.

The accompanying graph is at least some evidence that the experiment of a Federal Reserve System (created in 1913) with no explicit link to gold, and no effective external check on its activities, has failed the public’s interest. Readers interested in knowing more about these subjects might want to examine AIER’s Chart Book and The Pocket Money Book, both available through the AIER online bookstore.

Purchase a poster-sized chart depicting the purchasing power of the dollar or gold from the AIER bookstore for just $15.

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Other articles by Walker Todd:

Toolkit for Transparency (06 July 2009)
$8 Trillion Price Tag for the Government Bailouts (04 March 2009)
Parsing the Federal Reserve’s FOMC Statement: A Lo... (27 February 2009)
Bring on a Bank Holiday (04 February 2009)
Triffin’s Dilemma, Reserve Currencies, and Gold (31 December 2008)

Comments (10)

Now come the Great Inflation. The true purpose of those manipulating the currency. They will confiscate more wealth is less time than ever before. This is the Great Train Robbery.

The chart, "The Purchasing Power of the Dollar" is impressive, but it fails to tell all of the story--that is, there is no actual leveling off starting in the 1980s, but an accelerated loss. Because the purchasing power of the dollar can never actually reach zero, there should be no zero on the vertical scale. Make it logarithmic instead of linear.

LisaM below says it RIGHT. I ditto. Congress must abolish the Fed and we print our own interest-free money through the Treasury-AS IT SHOULD HAVE BEEN ALWAYS. Constitution gave Congress that power, read it! Ron Paul should use the chart above as a backdrop to his congressional speeches. Tell your congressman to support HR1207 and send please learn Fed and money history--see YouTube for excellent videos.

Nice article but ... how could we possibly re-tie the purchasing power of the dollar to gold when there are vastly more dollars in circulation now than back in the 1930's? Gold would need to go up to several thousand dollars an ounce! Second, many of the extant dollars are not even remotely under our control (several countries around the world use the dollar for currency), and we would have to honor the gold standard for all these dollars. Third, our government would not have the slightest idea how to manage this new, more responsible fiscal policy in a trustable manner. Fourth, an increase in the price of gold would benefit those few nations which produce significant amounts of gold and divert resources toward mining it. Finally, even if I had access to convertible dollars, i may still prefer to own gold as an inflation hedge since our government could always change its mind quickly and go back to a fiat currency. Anyway, these are just a few random thoughts on the issue. Sure is a nice idea, but perhaps logistically unfeasible??

In a post above, as well as on several broadcast news segments (including CNN, HNN, MSNBC, etc) posters, commentators et al have referred to the actions of our administration and congress in the manner of their spending money as being akin to that of "drunken sailors". Seriously folks- you are giving drunken sailors a bad name. Our 'leaders' are on a bender that no self-respecting sailor would ever consider.

GOVERNMENT AT ALL LEVELS CONTINUE TO SPEND AND TAX LIKE DRUNKEN SAILORS. EVIDENCE CALIFORNIA WITH THEIR I.O.U.'S...ILLINOIS IS 11 BILLION IN THE RED JUST PASSED A CONTRUCTION BILL FOR 31 BILLION WITH MORE TAXES TO SUPPORT...NOW THEY WANT TO INCREASE STATE INCOME TAX BY 50% AND RAISE OTHER TAXES TO COVER THE 11 BLLION IN THE RED FROM LAST YEARS' BUDGET.

THE FEDS GAVE THE AUTO COMPANIES BILLIONS IN STIMULIS MONEY FOLLOWED UP BY MORE GIVAWAYS WITH $4500 CLUNKER TRADE IN'S...NOT ONLY AM I SUPPORTING THE AUTO COMPANIES BUT ALSO THE PEOPLE WHO CAN'T AFFORD A NEW CAR...THIS IS STARTING TO APPEAR LIKE THE MORTGAGE MARKET...I GUESS WASHINGTON WANTS EVERYONE TO OWN A NEW HOUSE AND HAVE A NEW CAR IN THE DRIVEWAY...EVEN IF IT TAKES ALL OF MY MONEY TO DO IT

THE SCAMMERS ARE IN THE WINGS WAITING PATIENTLY FOR THE NEW HEALTH CARE BILL SO THEY CAN START STEALING MONEY BY THE BUSHEL BASKET.

TIM GEITHNER...THE ARTFUL TAX DODGER... IS NOW ASSURING US READ MY LIPS "NO NEW TAXES".

ENOUGH SAID!!!!

Great article, Walker! The devaluation and corruption of our money by the Fed, our leaders and politicians will ultimately doom our nation if we cannot get it under control. The severity of our current recession was caused by the laws our Congress created stimulating the use of subprime mortgages and who then failed to oversee the program. The tools being used to fight the recession practically guarantee horrendous inflation in the future. Inflating our economy may be the easiest way out of the housing valuation mess. However, the devaluation of the dollar will bring higher interest rates and all of the problems that come with it.

My favorite example of stealth inflation was the boastful ad for Snickers Bar several years ago. It said "Now 25% fewer calories." Well guess what: the bar is 25% smaller than it used to be.

In addition to the deflating dollar, add 'Stealth Inflation'. What's that? Check the shrinking size of your bathtub soap bars, narrower [and thinner] toilet paper rolls, smaller [and thinner] Kleenex [yes, i know that's a brand name - intentional], samo, samo with paper towels, and the list goes on & on.

That's a great graph showing how much wealth the Cabal that designed the Federal Reserve has sucked from the rest of America. Call your Congressman and Senators and demand they cosponsor Audit the Fed bills HR1207 and S604, and if they have already, thank them! Making their books transparent is the first step towards abolishment, which is what needs to happen.

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