The cost of living in America has gone up about fifteen fold since the Declaration of Independence was signed in 1776. Of course, not all prices have risen at the same rate.
The value of coffee has increased fifteen times from its price 234 years ago. This is similar to the decrease in the value of the dollar, based on the purchasing power of a dollar and the consumer price index.
The value of land has risen a great deal in certain parts of the country – particularly those areas that were rural and now are parts of big cities. It was impossible to know 150 years ago that land in New York’s Central Park would be worth several thousand times what it was in 1776. Conversely, products like whale oil, once used to light homes, now have no legal value at all. Powdered wigs have almost certainly dropped in value now that they are out of fashion.
Inflation is amazingly variable from decade to decade, from product to product, and service to service. 24/7 Wall St. set out to illustrate this by looking at the costs of a number of items which were, and in some cases still are, a part of everyday life in America. We examined prices of common goods every 25 years, beginning in 1776. Some items could not be tracked over the entire timeline. Levi Jeans were not available until the 1870s. Similarly, most Americans do not own horses now, but many did in the late 18th and early 19th Centuries. In this way, the goods and services we examined changed over time.
Many economists and Governors of the Federal Reserve argue that inflation is dead. They are worried that America could enter a period of high unemployment and falling prices, like the deflationary era that ruined the Japanese economy nearly 20 years ago. And these experts might be right. However, they are likely to only be right briefly.
Low interest rates, high joblessness, and a faltering housing market may keep the prices of many of the things Americans buy and sell in everyday life low for the next few years, but economies recover and occasional shortages of critical products like oil can turn periods of modest price increases into times of hyperinflation. Rapidly rising prices for oil and other goods drove inflation up by 15% in 1980. Mortgage rates were 18%. Some of this was due to the tremendous increase in the price of oil which began with the twin oil import crises of 1973 and 1979. Petroleum was such a crucial part of American consumer activity and industrial production that the entire cost of living and doing business was affected in the late 1970s – almost overnight.
If the 24/7 Wall St. analysis of 234 years of the cost of living in America shows anything, it is that the prices of goods and services can rise rapidly for a number of years, and then, quickly, a once-important item becomes of no use at all. That is the “buggy whip” phenomenon. The horse and carriage were rapidly replaced by the automobile just after the beginning of the 20th Century. On the other hand, the value of commodities like land and gold can rise almost indefinitely. This is because they are virtually finite assets, unlike oil, and therefore are perfect hedges for when the GDP turns lower and stays troubled for a number of years.
In our description of each period, we provide a historical background and a list of some of the more interesting prices. To give perspective, we provide the price of coffee for each year across the timeline, as well as the estimated historical purchasing power of a dollar in that year.
-One ton of iron cost $63.73 (Philadelphia, 1775)
-Twenty gallons of orange peel cordial cost 3 pounds (Richmond County, VA, 1776)
-One checkerboard with pieces cost 2 shillings, 6 pence (Richmond County, VA, 1776)
-One double-barreled gun cost 3 pounds (Richmond County, VA, 1776)
-One pound of coffee cost 0.13 silver dollars (Boston, 1775)
-$1 in 1775 = $29 today
At the time of the American Revolution, the United States was still primarily using the British pound as its currency. As the war dragged on, the colonies began printing a vast amount of paper money (about $450 million) to cover costs, causing extreme inflation. This, combined with shortages resulting from British blockades, made the prices of many goods rise significantly.