These days, most married couples have to work at a job to earn a living. Most of these couples would tell you that if they didn’t both work, life would be a struggle to make ends meet. However, it didn’t used to be this way. In the mid-20th century, it was common for one spouse to stay home while the other one went off to work each day. We will examine how much is a dollar worth and compare prices of 1960 to 2020. We will also look at purchasing power, inflation and answer the question, “how much is a dollar worth?”
What is purchasing power?
“Purchasing power is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing power is important because, all else being equal, inflation decreases the amount of goods or services you would be able to purchase.” –Investopedia
One thing that significantly affects inflation and purchasing power is money printing. When the US Treasury and the Federal Reserve Bank coordinate to print large amounts of money, it causes inflation. Inflation is simply an increase in the money supply. The bigger the money supply, the less the money in your wallet is worth. Moreover, inflation is a hidden tax. As a result, money you have in your bank account loses purchasing power when money is printed by the government. To fully understand the question, “how much is a dollar worth?” you must understand inflation.
On March 23, 2020, it was announced that the US Government would be giving out stimulus checks to Americans. In addition, they planned to give money and loans to businesses hurt by the COVID-19 epidemic. Almost overnight, approximately $2 Trillion in loans and grants were printed out of thin air. As a result, the internet went viral in creating money printing memes. One of those memes was the now infamous “money printer go brrrr” meme.
Consumer Price Index
According to the US Bureau of Labor Statistics, the consumer price index has increased 1.3% in the past 12 months (before seasonal adjustment).
“The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available.” -The US Bureau of Labor Statistics, Definition of Consumer Price Index (CPI)
A consumer price index value of 1.3% seems reasonable for 2019-2020. If inflation or the CPI were only 1% per year, that means that in 100 years one US Dollar would lose about half its purchasing power. For example, $100 in 1960 would only purchase $50 worth of goods in 2020. However, real inflation for items we buy every day is much higher. In addition, we’ll soon see what the real inflation values are, and they are not pretty. As you can see, how much is a dollar worth was much different in the past compared with today.
The US Dollar Has Declined in Purchasing Power Since 1913; The Stated CPI Does Not Reflect Real Price Increases
In addition, the US Bureau of Labor Statistics provides a handy Inflation Calculator. Using their calculator, you can estimate what purchasing power (based upon inflation) is today compared with years past. For example, $10 in 1960 is equal to $88.71 today. That means that in the 60 years prior to 2020, the dollar has suffered 887% inflation over time. How much is a dollar worth has changed a lot over time.
Since the Federal Reserve Bank was formed in 1913, the dollar has been in steady decline. The dollar’s purchasing power has decreased dramatically since 1913. Using the US Bureau of Labor Statistics CPI calculator, the US Dollar has lost approximately 96% of its purchasing power since 1913. This is an alarming statistic. But this doesn’t does not tell us how much is a dollar worth.
How Much is a Dollar Worth?
Food Prices Have Lower Inflation Values; Housing Prices Have Increased Dramatically Since 1960
To fully understand how much is a dollar worth, let’s look at some specific examples of prices in 1960.
According the website 1960s Flashback, in 1960 one US Dollar could purchase:
- 25 first-class stamps for $1
- slightly more than 3 gallons of gas for $1
- nearly 2 dozen eggs for $1
- 2 gallons of milk for $1
The price of a new home in 1960 was approximately $16,500. According to The Ascent, a family home costs $280,600 in the year 2020. This is a 1700% increase in home prices from 1960.
Using the US Bureau of Labor Statistics provides a handy Inflation Calculator, we can see that the US Dollar has become weaker. On average, goods and services are (on average) 887% more expensive today, compared with 1960. A US Dollar today has lost approximately 89% of its purchasing power since 1960.
Can You Purchase a Home with One Year’s Salary? In 1960 You Could
In Mike Maloney’s video series, “Hidden Secrets of Money: Episode 6”, he discusses the wealth distribution cycle. As an example, Mr. Maloney displays his father’s 1955 tax return. His father was an auto parts store manager in Salem, Oregon during this time. He earned approximately $9,600 per year. -“Hidden Secrets of Money: Episode 6” by Mike Maloney of GoldSilver.com
What’s interesting is the average home cost during this time period in comparison with his salary. According to US Census Bureau data, the median price for a single-family home in Oregon ranged between $6,800 in 1950 and $10,500 in 1960. Moreover, his father’s annual salary was almost equal to the median home price during this time. Now, consider the average salary today and the price of homes. In contrast, could you purchase a home with your annual salary? Clearly things have changed and Americans are becoming poorer when we compare how much is a dollar worth.
What Can We Expect Regarding Future Prices?
The past is never a good indicator for what may occur in the future. However, in this case it seems clear that how much is a dollar worth may also point to future results. We can expect more inflation in the United States and expect the US Dollar to be weaker in purchasing power over time.
A discussion on how the dollar became the world reserve currency, the history of the US Dollar. In addition, we discuss the difference between real money and fiat currency.
US Dollar History
The Continental Congress issued the first United States paper money in 1775, one year prior to the Declaration of Independence. The purpose of the money issuance was to assist with military expenses. The currency lost value. As a result, citizens of the US stopped using the currency.
On July 6, 1785 the Continental Congress officially adopted the dollar as official legal tender, beginning the official US Dollar history. The Continental Congress was a confederation of delegates who acted as representatives of citizens of the American Thirteen Colonies.
Coinage Act of 1792
On April 2, 1792, the US Congress passed the Coinage Act . The official name of the Act is, “An act establishing a mint, and regulating the Coins of the United States.”
The Coinage Act of 1792 established the US Mint and the US Dollar. The US Silver Dollar became the official unit of money for transactions in the United States. The Silver Dollar was subdivided into several denominations: one cent (penny), five cents (nickel), ten cents (dime), quarter-dollar (quarter), etc.
Silver or gold made up each coin, except for the penny. Additionally, it is significant to note that the US One-Dollar bill note did not appear until 1876. This was approximately 100 years after the US Continental Congress approved the first US currency.
During the Civil War, Dollars were called “Greenbacks.” The term was coined because the notes were colored green. In 1869, the US government established a centralized money printing system. As a result, money printed was known as United States Notes. The Greenback played an important and well-known part in US Dollar history.
During early US Dollar History, money was backed by silver and gold. It’s interesting to note that silver and gold are commodity metals that have an intrinsic value, whether in the form of a coin, a bar, jewelry, etc. More than one hundred years later in 1876, the US Government started printing currency on paper. Yet, paper money has no intrinsic or real value.
Federal Reserve Note
In the United States, currency is called “Federal Reserve Notes.” The term is equivalent to “cash” or “money.” It can also be called “banknotes.”
In fact, if you look at a Dollar Bill, it reads, “Federal Reserve Note” at the top. Next, the Federal Reserve Act of 1913, which established the Federal Reserve Bank, also authorized the issuance of the US Dollar Federal Reserve Notes. Obviously, the Federal Reserve Bank plays a critical role in the US Dollar history. Finally, banknotes are legal tender. These notes are the official currency used in the United States. In 1914, the first Federal Reserve Note was issued.
In 1913, the Federal Reserve Bank was established. At the time, existing law required the exchange of currency for gold. However, in 1933, it was illegal to own gold coins. In addition, Federal Reserve Notes were not supported by gold. Later, Americans had to use Federal Reserve Notes. There was no other option to pay debts, except to use the official currency.
Bretton Woods System
In July 1944, a gathering of over 700 delegates from around the world took place in Bretton Woods, New Hampshire. United Nations Monetary and Financial Conference was its official name. The purpose of the meeting was to improve the economy. In addition, the conference established a world banking system, including the International Monetary Fund.
World Reserve Currency
Subsequent to World War II, the United States Dollar became the official world reserve currency. As a result, a critical chapter was written on US Dollar history. This forever shaped the future of the country. The impact of this change to global finance was significant and had long-lasting impacts on both US influence and power, as well as purchasing power outside the United States. A reserve currency is one where the central banks maintain a fixed exchange rate with a particular currency and their own currencies. In this case, the US Dollar became the reserve currency. As a result, this change played a vital role in the financial stability and prosperity that Americans enjoyed in the latter 20th century.
As world reserve currency holder, the United States was required to redeem US Dollars for gold. Additionally, after World War II, the United States was one of the largest holders of gold bullion in the world. As a result, world reserve currency status for the US Dollar seemed like a natural fit. Unfortunately, in 1971, deficit spending by the US and an excess of paper money caused countries to increase the demand for gold. In response, the US Dollar history changed forever and the Dollar was no longer on the gold standard. This meant that gold would no longer back the Dollar.
Countries Using the US Dollar
“Five US Territories and seven sovereign nations use the US Dollar as their official currency.” –Investopedia
The territories include Puerto Rico, Guam, the US Virgin Islands, Northern Mariana Islands and American Samoa.
In addition, the following countries utilize the US Dollar:
British Virgin Islands and the British Turks and Caicos Islands.
Countries throughout the world that use the US Dollar as a surrogate or a proxy for their own currency include:
Panama, Zimbabwe, Cambodia, Ecuador, the Bahamas, El Salvador, Nicaragua, Timor-Leste, Micronesia, Palau, Marshall Islands, Bahamas, Barbados, St. Kitts and Nevis, Costa Rica, Belize, Myanmar, Caribbean Territories and Liberia.
It’s important to understand what fiat currency is and the difference between real money and fiat currency. Gold and silver do not act to back fiat currencies. Fiat currency is a promissory note from a government. As a result, fiat currencies frequently fall prey to high inflation, devaluation and ultimately failure. They typically have no intrinsic value. Unfortunately, most modern currencies are fiat currencies.
Why Fiat Currency is Popular?
Central Banks, such as the Federal Reserve Bank of the United States, can increase the money supply and increase fractional reserve banking by printing more fiat currency. As a result, these central banks can use the power of interest rate change and money printing to manipulate entire economies. Although the central banks have good intentions, their meddling with the economic system can wreak havoc on the economy and cause distortions in markets. Often, altering interest rates and printing money simply delays the problem, requiring bigger solutions later.
Merriam-Webster Dictionary defines “money” as,
“Something generally accepted as a medium of exchange, a measure of value, or a means of payment: such as officially coined or stamped metal currency, money of account or paper money.” –Merriam Webster Dictionary
Is the US Dollar Real Money or Fiat Currency?
A currency not backed by gold or silver is not real money. Unfortunately, government promises do not meet the criteria. Fiat currency is simply a legal tender paper note that the government requires everyone to use for payments. By definition, fiat currency is incontrovertible to gold or silver.
On the other hand, real money must have the backing of valuable or tangible assets. For example, tangible commodities such as gold and silver have supported currency. In addition, money backed by gold and silver has a value tied directly to the value of the silver or gold asset. As a result, real money is inherently stronger than fiat currency. As a result, it is not easily manipulated. Real money is also resistant to inflationary forces. Real money is sound money.
Future of the US Dollar
It is unclear what the future holds for the US Dollar in the long-term. The US Dollar remains as the world reserve currency; however, it’s role in this position may be for a limited time. Unfortunately, gold and silver do not support the Dollar. Yet, the strong US economy support its world reserve currency status. Financial analysts believe that so long as the US economy is strong, the US Dollar will remain strong. However, US debt and trade deficits continue to grow, putting pressure on the US monetary system.
Want to learn more about money and the Federal Reserve Banking System? Check out G. Edward Griffin’s “The Creature From Jekyll Island.”
If you want to learn about the history of money, check out Mike Maloney’s free “Hidden Secrets of Money” video series. It’s a goldmine of information that can help you better understand money and where the world stands today financially. Highly recommended!
Wrap Up: How Much is a Dollar Worth?
As you can see, answering the question, “how much is a dollar worth?” was significantly different in the past compared with today. Clearly, inflation has had a significant impact on prices over the past 100 years. The purchasing power of the US Dollar has declined significantly over that period.
It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.
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