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Source link: http://archive.mises.org/10432/us-prices-1665-est-2013/

US Prices: 1665 – est. 2013

August 9, 2009 by

An interesting set of charts from Robert Sahr, Oregon State. Thanks Reddit.

{ 16 comments }

Greg August 9, 2009 at 2:44 pm

It’s interesting looking at the first chart and picking out key years such as 1913, 1933, and 1971. Nevermind, that must all be just coincidence, or a wacky conspiracy theory or something …

JP August 9, 2009 at 5:52 pm

Dumb question, in the last graph, why is real GDP greater than nominal GDP? With inflation, shouldn’t it be lower?

JP August 9, 2009 at 5:55 pm

Oh wait, it’s because it’s in 2002 dollars.

Landon August 9, 2009 at 6:34 pm

How would you iron out the volatility seen before the Fed on page 6? I’m not defending the Fed by any means, but the volatility is much higher even though the value remains the same over the long-term until 1913.

Econ Guy August 9, 2009 at 8:56 pm

Landon,

We still had fractional reserve banking before the Fed. The Fed is undesirable because it enables fractional reserve banking.

Mark Thornton August 9, 2009 at 9:10 pm

My first thought was the Roman Empire

MarkB August 9, 2009 at 10:15 pm

Landon,

To add to Econ Guy’s comment, check out Rothbard’s “Mystery of Banking”. He points out that even pre-Fed,the gov’ts (state or Federal) still typically intervened to protect banks that should have otherwise gone bankrupt, but on a case-by-case basis. Thus the bankers of that era did not learn Mises’ admonition that bankruptcy should be the foremost thought in every bankers mind, so all bankers continued to practice unsound banking. The temptation to do otherwise is overwhelming, and with gov’t officials, as always and everywhere, up for sale, they knew they could buy their way out of trouble and still make a boatload of money. Cheers!

Don August 9, 2009 at 10:36 pm

Landon,

There wasn’t much volatility before the fed, to be honest–at least when there was no government intervention there wasn’t. Most of the upward spikes you see on page 6 are caused by government meddling, either allowing wildcat banks to suspend specie payment, or the issuance of worthless curency, such as was done for the War for American Independence and the War to Prevent Southern Independence.

jshreffl August 10, 2009 at 7:31 am

I wish I had a chart of things like interest rates, minimum wage, unemployment, wheat, gold, lumber, and oil from 1665 to present. (Ok, so the oil wouldn’t go back far.)

Andy Stedman August 10, 2009 at 9:39 am

Jeffrey,

The right hand scale (red) on page 7 is off by a factor of a thousand.

2nd Amendment August 10, 2009 at 12:04 pm

Ever since Nixon said his famous: “We are all Keynesians now!” the cost of living has literally lifted to the moon and is headed towards deep space 9.

Obama is increasing it’s speed from light speed to ridiculous speed.

America is doomed.

ted August 10, 2009 at 1:52 pm

Informative charts.

A few observations:

1) 1665 to pre-1915: there was continual price volatility around a steady price. Essentially, real prices remained constant.

2) 1665 to 1745: there was a long term trend of deflation (average annualized decrease of ½% )

3) Wars/conflicts prior to WWI: prices spiked 50% to 100% in a couple of years, then reverted to pre-war level within about 5 years

4) Excluding Wars/conflicts/gov’t formation: given any 10 year period, prices remained constant (ex/ $1 in 1665 equaled $1 in 1905; after that, chronic inflation has occurred)

5) WWI: prices never reverted back to pre-war level (meaning chronic inflation was introduced sometime between 1905 and 1915); subsequently,inflation has been artificial

6) Excluded temporary funding for Civil War and during 1890′s, there were no ongoing federal taxes imposed until 1913.

7) My opinion is that the ratification of the 16th Amendment in 1913 is most attributable, at least as an enabler, to chronic inflation (but obviously not solely).

8) Average annualized price changes: 1665 – 1905: 0%. 1905 – present: 3.1%.

- – -

Generally, points 1-3 can be expected in a relatively free market. Point 2 occurs naturally when productivity increases, formation of natural monopolies or both.

Point 4 is an indirect manifestation of the people wanting to mitigate the naturally volatile environment/market through control (monetarily, fiscally, transfer payments, etc.).

Gerard Leary August 10, 2009 at 10:01 pm

Great charts. One question though: I noticed that real GDP grew in concert with rising prices. While I understand the Fed’s role, and the problems it costs, how to I counter someone who would make the claim that the inflation was necessary for the growth in real GDP, or at least hasn’t inhibited it?

Be mindful that I am not expressing my opinion here, I just want to reason it out. I find myself the lone defender of freedom too often in my world (I am a banker, don’t ask) and I want to have as much ammo as possible.

Thanks all.

Gerard Leary August 10, 2009 at 10:04 pm

Typo: I meant “causes”, not “costs”, though I consider it a Freudian slip.

Galt August 11, 2009 at 10:45 am

@Ted

Those points are revealing, particularly the fact that there was no long term inflation until the period you indicate (1905-1915).

Imposition of federal taxes after 1913 enabled less constrained government spending. Ouch.

Moreover, 1913 also introduced a central bank (FED) with limited public transparency.

Thomas Jefferson wrote that the federal gov’t should limit its taxing authorities to public and social necessities (defense, roads, elementary education, etc.) and never permit a Central Bank.

http://www.oneradionetwork.com/money%10finance_-_articles/the_economy_-_articles/thomas_jefferson%27s_opinion_of_the_constitutionality_of_a_central_bank,_%28the_federal_reserve%29_20080925486/

dwayne lewis August 11, 2009 at 7:06 pm

those of us who possess a coherient theology do understand that no right government will exist this side of a new earth; corruption always enters in which can be only moderately arrested at the most local level. thats the reason politicians always work to centralize power at the most remote levels. the citizens of the several states might find some temporal relief by a unified, and simultanious seccession. this would require an educated citizenry with a will to responsibility. odds ???

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