With the huge advances in industrial productivity during the 20th century, shouldn’t a penny now buy me at least 10 Snickers bars instead of nothing? A great question, considering that the world population multiplied by 4.2 between 1900 and 2010, the annual copper mining production increased 30 times in the same time period, and the industrial / agricultural mass production technology (to make sweets ) has taken exponential leaps of efficiency. To investigate this serious matter, let’s look beyond the cries of “the federal reserve and fractional loans robbed us all with the depreciation of overprinted fiat currency!” and delve into the underlying physical dynamics.
A one-ounce Hershey bar cost 3 cents (9 grams of copper) in 1918, while a 1.45-oz. Hershey bar in 1982 (last year had 95% copper pennies) cost 20.6 cents / 62 grams of copper per ounce of chocolate. As of 2010, the Hershey bar is approaching 65 fiat cents an ounce, but since the imperial authorities diluted the penny primarily with zinc (making current pennies a more difficult mix of zinc and copper to quantify) I’ll use the period 1918-1982 to simplify. .
Adjusting for inflation, 3 cents in 1918 is 19 cents in 1982 (539% purchasing power depreciation). An 80-year-old man, let’s call him Bob, receiving his favorite childhood treat would have seen his savings under the mattress buy 6.3 less Hershey chocolate. Now this may not seem too bad IF Bob was in a theoretical situation where his real income growth was linked to inflation throughout his life and his fiat currency grew in a bank with interest linked to inflation throughout the 20th century. Considering the likely low buoyancy of the candy price due to brand recognition, on the surface it appears that the company is only charging Bob 8% more than in 1918 (20.6 cents to 19).
Looking through the lens of Austrian economics that inflation is an increase in the money supply, given that most people do not have their finances perfectly adjusted for inflation, Bob is continually being scammed and impoverished through tax. inflationary. You may not get exactly 6.3 times less chocolate, but even 2-3 times less Hershey’s towards the end of his life is a criminal scam.
A defender of the socioeconomic status quo in 1982 may partially agree, but counter it through a pseudo-Austrian angle, “If anything, Bob is lucky enough to pay only 62 grams of copper per ounce instead of 9 grams in 1918, as copper is mined faster than people breed. It looks like he’s getting a deal by using this physical metal in depreciation! fiat as paper! “ (Authorities saw the copper content in cents rise more than a fiat penny in the period 1980-1981 and thus changed the content; the price of copper in cents plummeted to just under 1 fiat penny again in 1982-1984).
This is an interesting answer and let’s take a look at it without being distracted by a multitude of other serious problems such as the government ending the use of silver in currency, going off the gold standard, stagnating real income, etc. Some of these problems will begin to be solved indirectly at the end of the article.
If one tries to look at Bob’s situation through the lens of the Marxist economy of commodity exchange, then we see that the poor are being ripped off in another way. This research is a bit more complicated considering that technological productivity cannot be easily quantified and since the concept of productivity itself is culturally determined. What is very safe to say is that the mechanical efficiency in the production of a Hershey ounce has increased much more between 1918 and 1982 than the 260% increase in the human population in the same time period. That is, if copper production / demand were to magically freeze, an ounce of 1982 Hershey chocolate shouldn’t cost 9 grams, but substantially less. Surely, they have figured out ways to do away with these chocolate goodies in millions of ways never dreamed of before (even taking into account employee salary operating expenses).
Of course, the copper dynamics didn’t freeze, but it also ended up benefiting Bob. If you consider the exponential limit and the evolving industrial demand for copper for electrical / water purposes throughout the 20th century, then it is clear that the 530% increase in copper production in 1918-1982 does NOT devalue 62 grams (needed to buy a 1982 Hershey’s ounce) in half.
In other words, although the copper money offer increased at twice the rate of the human population, we did not see 100% penny inflation as industrial demand for copper kept the pace of the human population to a minimum. Therefore, an ounce of a Hershey bar in 1982 should have cost at most 6 cents (1918 price * population growth) instead of 20.6 cents. Therefore, Bob is not only scammed by the expansion of the fiat money supply, but by the value of the goods that do not reflect the breakneck pace in the development of the production and distribution of the Hershey bar. Considering that a pre-1982 copper penny is approaching 3 fiat cents at the end of 2010 (and many countries have taken copper out of their currency in the last 30 years), It may well be that a Hershey bar it should It costs a lot less than a copper penny today. This makes more sense if one remembers that a 1964 silver dime is worth more than $ 2 today (even though annual silver production increased 35-fold in 1900-2010).
It seems safe to say that fiat currency was randomly introduced by business leaders in the first half of the 20th century (through their political appointees) to prolong the life of capitalism through inflation. Ironically, financial robber barons ended up doing what rural agricultural interests wanted in the late 1800s in America. The 19th century saw several deflationary collapses and farmers wanted silver / gold bimetallism as rapid silver mining would have introduced inflationary pressure on the dollar and thus prevented lost profits. The bankers of 100 years ago were lovers of gold, since they made money from loans and deflation benefited usurers. Since the financial capitalist control of industrial / agricultural capitalism was mostly completed in 1900, the bankers tended to win political arguments.
During the great depression, a compromise and some convergence of thought developed between financial, agricultural, and industrial interests regarding the benefits of inflation. The biggest bankers at the time found a way to make a profit while expanding the money supply through modern money mechanics and farmers ended up getting paid by governments not to overproduce and thus avoid losing deflationary profits. FDR succeeded in reconciling key parasites, preserving capitalism, and artificially prolonging profit-taking from major monopoly industries at the long-term expense of the consumer (in a very humane way of development). Yes, he also did many wonderful things and is one of the kindest teachers people have seen in the last century (no sarcasm).
If the price of a 1982 Hershey bar reflected the actual amounts of hard money (commodity) availability PLUS the availability of Hershey’s ingredients (commodity) PLUS the state-of-the-art technological capability to produce and distribute Hershey, then we would see the company experience the newspaper crisis born of the deflation of overproduction that summarized the communist manifesto. One can imagine what will happen to corporate results if a copper / silver / gold / rare earth metal commodity coin buys more consumer goods each year than the previous one. On paper, Austrian utopian capitalism is too efficient and too profitable for the consumer (so much, in fact, that it quickly implodes into a horror show of deflationary collapse, mass unemployment, and a tech-driven socio-economic evolutionary leap into a post-scarcity society).
Not surprisingly, Trotsky sided with Austrian economists when he wrote about the prerequisites for America to go communist. This is hard money backed by commodities that is used to barter for consumer goods. This is especially true for gold, as gold production only increased 5.5 times in the 1900-2010 period, just slightly above population growth. Ironically, the current wave of libertarians is struggling to make capitalism disappear (as non-fiat currency would completely unleash the post-shortage potential of the means of production and distribution that have existed around us since at least the 1950s and that Buckminster Fuller and King Hubbert described in detail).