TAMPA, August 3, 2012 – “When I was your age, I went to the movies for a dime and bought a big bag of popcorn and a soda for a nickel.”
My father said that to me a hundred times when I used to pay $2.75 to go to the movies and another $1.25 for the popcorn and soda. For five generations, Americans have understood steadily rising prices as an immutable law of nature. Yet history shows that this just isn’t true.
The Federal Reserve of Minnesota publishes historical inflation figures on its website going back to 1800. The attached chart from that website shows annual inflation rates from 1800 through 2008. I added the last column to calculate the price movements of a basket of goods that cost $100 in 1800.
You don’t need a Ph.D. in finance for the numbers to jump off the page. The basket of goods that cost $100 in 1800 only cost $58.10 in 1913 (the year the Federal Reserve System was created). For that entire first full century of American history, steadily decreasing prices were something Americans took for granted.
In the ninety-nine years since the creation of the Federal Reserve System, that same basket of goods has risen to $1,265.14.