Time Value of Money

• In 1813, Nathan Appleton invested $5,000 in a Waltham, Massachusetts textile mill. Doesn't sound like much by today's standards, but how do we know?



• In 1897, the Sears Catalog advertised a bicycle for $24.95. How does that compare with the price of a bicycle in 1997?



• In 1965, you could have driven home a brand new Pontiac GTO for around $3,000. Those were days! But were car prices really that much lower than they are today?

Comparing prices and dollar values across different time periods can be a tricky proposition. Fortunately, we can turn to a number of resources for help:

How Much Is That?—EH.Net
http://eh.net/ehresources/
EH.Net is owned and supported by the Business History Conference, Cliometric Society, Economic History Association, Economic History Society, and History of Economics Society. Two of its online resources are particularly useful to anyone interested in looking at the comparative value of money:

• Purchasing Power of the Dollar



• What is the Relative Value? Seven Ways to Compare the Worth of a United States Dollar.

This resource can help us answer the question about Nathan Appleton's investment. Based on the Consumer Price Index (CPI), the $5,000 Appleton invested in 1813 would have had the same purchasing power as $56,000 in 2002. This resource also lets us compute today's price for that '65 GTO. According to the EH.Net purchasing power calculator, $3,000 in 1965 would have had the same purchasing power as $17,122 in 2002—just about enough to buy a reliable, fuel-efficient subcompact with a no-frills sound system, power accessories, air bags, air conditioning . . . and you wouldn't be distracted by all those people saying "Nice car!"


What Is a Dollar Worth?
http://www.minneapolisfed.org/Research/data/us/calc/
An easy-to-use tool that covers the years from 1913 to the present.

Money—Past, Present & Future
http://projects.exeter.ac.uk/RDavies/arian/money.html
http://projects.exeter.ac.uk/RDavies/arian/current/howmuch.html
Designed by Professor Roy Davies, this site offers a comprehensive survey of monetary history. Be sure to check out Current Value of Old Money and Inflation Conversion Factors for Dollars.

Time Well Spent: The Declining Real Cost of Living in America
1997 Annual Report, Federal Reserve Bank of Dallas
http://www.dallasfed.org/fed/annual/1999p/ar97.pdf
Economists W. Michael Cox and Richard Alm take the position that, "The real cost of living isn't measured in dollars and cents but in the hours and minutes we must work to live." Their article uses crisp prose and attractive graphics to draw comparisons between 1897 and 1997.

This resource tells us that the $24.95 bicycle in the 1897 Sears Catalog would have had a "work-equivalent price" of $2,221.90 in 1997.

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