Boberish, NYBob, The Myth of the Shrinking Dollar .. excerpt ..
Let’s consider how your average Joe Platonic might have lost 95 percent of his wealth as a result of 98 years of inflation. Joe wandered into a cave in 1913 carrying his entire life savings of $100 in cash. He fell into an icy pit and slumbered in deep hibernation until last week. He then returned, shivering, to civilization and found to his horror that his $100 —a respectably middle-class monthly wage, he recalls — is now what minimum-wage employees get for less than 14 hours of work.
Importantly, during his years of hibernation, Joe received no interest on his savings, owned no other financial or non-financial assets, earned no income and owed no money to anyone. Thus, he benefited zero from economic growth, compound interest or inflation’s erosion of debt burdens. Also, being an old-fashioned guy, he has no interest in ever buying any new technology or product that didn’t exist in 1913. He is unimpressed that, say, a $5 calculator can outperform a roomful of hand-cranked machines.
None of this means inflation is a good thing or even a trivial thing. It can be very harmful, certainly when it reaches elevated levels. But its impact has to be understood in the context of overall economic conditions, including the risks of deflation. Consider that Joe Platonic would be just about the only person to unambiguously benefit from protracted declines in prices, as he would have no worries about his possessions or labor becoming less valuable in dollar terms, or about his debt burden increasing.
Complaining that “the dollar has lost 95 percent of its value” since 1913 overlooks crucial differences between now and then: that today’s inflation-adjusted incomes are vastly higher than in 1913; that people today typically spend far lower percentages of income on basic necessities such as food; and that many products readily available now were either highly expensive or nonexistent back then. It fails to recognize that real people, unlike Joe Platonic, tend not to hold their dollars in some existential vacuum.
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