Inflation — Nothing Here, Move Along

As a young boy, I was for a time a stamp collector. I was always puzzled by (mostly German) stamps that had been overwritten with substantially larger denominations. Why would anyone create a nice-looking stamp with a printed denomination and then overwrite it with a much larger denomination? It wasn’t until many years later that I learned about inflation and the history of the Weimar Republic. Similar examples of hyperinflation have occurred since Germany’s experience. Some of the more notable outbreaks were in several South American countries. Currently Zimbabwe is experiencing worse than a Weimar Germany experience.

In this country, we have not had anything approaching hyperinflation (yet), but we have had consistent inflation over a long period. To assess the effects, history offers many examples. While our stamps have not been overwritten, I can remember when it cost 3 cents to send a first class letter. Now it costs 44 cents. As a child, candy bars cost 5 cents; now they are 75 cents to a $1.00, depending upon where you buy them. We have a similar story in the history of our coinage. Coins used to be made out of precious metals like gold or silver. In 1966 I was involved in pricing the 1967 Ford Motor Company line of cars. We had a rule of thumb that said a car cost “a buck a pound.” Thus, an upper end car, weighing about 4,000 pounds was priced near $4,000. Of course this was not the way that cars were actually priced, but the process of pricing all the options etc. produced results that ended up being about $1.00 per pound.

To see many more examples tracking pricing over time, click here. Some might argue that these examples are not proxies for inflation. While they are imperfect, they may be as accurate as an index like the CPI.

Below is a table that compares the face-value of silver-based to the current melted-down value of the silver content. The current value is not a collecter’s value, but a raw material value. Do these percentage increases not astound you? Actually, they are grossly understated because when the coins were issued the value of silver was nowhere near the face value of the coin. And all of this was created when times were “good.” Imagine, now that the Fed is trying to “reflate,” what may happen.

Table that follows is from coininflation.com.

Description Denomination Silver Value Silver % of Denomination 1942-1945 Nickel ** $0.05 $0.9683 1936.60% 1916-1945 Mercury Dime $0.10 $1.2449 1244.95% 1946-1964 Roosevelt Dime $0.10 $1.2449 1244.95% 1932-1964 Quarter $0.25 $3.1123 1244.95% 1916-1947 Half Dollar $0.50 $6.2247 1244.95% 1948-1963 Half Dollar $0.50 $6.2247 1244.95% 1964 Kennedy Half Dollar $0.50 $6.2247 1244.95% 1965-1970 Half Dollar (40% silver) $0.50 $2.5452 509.04% 1878-1921 Morgan Dollar $1.00 $13.3110 1331.10% 1921-1935 Peace Dollar $1.00 $13.3110 1331.10% 1971-1976 Eisenhower Dollar (40% silver) ** $1.00 $5.4423 544.23% ** The U.S. Mint issued two compositions of the nickel in 1942. The standard copper-nickel composition used today and the 35% silver composition listed here. Also, 40% silver Eisenhower dollars were issued as collectibles only, they are generally not found in circulation.

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