You’ve almost certainly seen the chart below over the years – it shows the purchasing power of the US Dollar over time. It looks terrifying. And it’s constantly cited by hyperinflationists and other people trying to convince you that the world is quickly coming to an end thanks to the “fiat monetary system” and all the “money printing” that’s going on due to nefarious governments. Well, the chart is basically a misrepresentation of anything important.
(Figure 1 – Stupid Chart)
The problem is, this chart doesn’t show whether per capita wages are rising or falling. For instance, if your dollars buy you half as many eggs today as they did in 1913, but your income is twice as high as it was in 1913 then you haven’t gone backwards. Yes, the USD’s purchasing power has fallen, but your ability to buy the same quantity of eggs has remained exactly the same. Your living standard hasn’t fallen even if the purchasing power of the dollar has declined.
So, it’s important to put this in the right perspective here. And when we look at this discussion it’s best to use an inflation adjusted perspective of wages and salary accruals on a per capita basis. And when we run that figure the chart looks a lot different and you’ll notice that our wages today buy twice as many goods and services that those wages could afford in 1947 (reliable data only goes back to 1947):
(Figure 2 – Smart Chart)
It’s not exactly a thing of glory (especially the last 20 years or so), but it clearly tells a very different story than the chart above which really tells us nothing. Our living standards have improved dramatically despite the decline in the USD’s purchasing power. So, next time some hyperinflationist throws the USD purchasing power chart in your face refer him to this post and tell him he isn’t telling the full story.
- Stop with the “Money Printing” Madness
- Pragmatic Capitalism: What Every Investor Needs to Know About Money and Finance
- The Biggest Myths in Economics
- Understanding the Modern Monetary System
- Hyperinflation: It’s More Than a Monetary Phenomenon