I visited my grandparents every summer between 1977 and 1990 when I was growing up.  This is why I like flying so much.  Every summer, my parents would drive me down to Hartsfield Airport south of Atlanta, where we would meet my cousins to fly the hour and half to Baton Rouge.  Our grandparents would pick us up there and drive us down the rhythmic I-10 for an hour to Lafayette, where we would spend the next week or so encased in the luxury of grandparental dotage and schedules.

It was on one of these transporting rides, when my grandfather was griping about inflation, Carter, and several unmentionably southern topics, that I asked him “What Causes Inflation?”.  He pensively replied “I don’t know” brought up short.  I was too you to be a self righteous pain yet.  This was probably at the tail end of my tedious “Why” phase that all normal children pass by the time they are 5.

I’m not prepared to answer why inflation happens, for two reasons.  Its not that useful of a question, as there’s little that you and I could do with that knowledge.  I also would just be regurgitating a lot of text from Samuelson, and neither of us enjoy transcription.

What I am prepared to talk about is something interesting I found out about the history of inflation.  Namely, it has not always been there.  Deflation, seemingly impossible today, is the notion that money we hold would be worth more next year than last year.   My whole life, inflation has been a fact of life.  Every year, our money buys less and less.  But this has not always been the case.

This is not even the case with all things.  With technology, for example , the tendency iOS still deflationary.  You can get more and more gadgets and programs for less and less money.  I can now buy a smart phone that fits in my hand for the amount my parents got me a Vic-20 the Christmas of 1984.  The base model iPod has over 100 thousand times the memory of the Vic-20.  The inflation adjusted price of the Vic-20 was almost $500 in today’s.  It was not an inconsiderable investment.  It was one of the highest value computers at the time.  Its full grown cousin, the Commodore 64, was $500, over 1,100 in todays dollars.  A little over the price of the Macbook I am typing this on today.

But enough about special cases.  For overall goods, like clothing and food, our money has been buying less and less every year for quite a while.  But look at what was happening before the Great Depression.  When the economy was still on the gold standard, the price of goods more or less stayed the same.  Particularly, it peaked, with high inflation in some years, but stayed flat or declined in most years.  Inflation began in earnest afar the Breton Woods agreement of 1944.  Forevermore, each year’s money has been worth less than last.

CPIInfLongX

American History, in Soap and Shirts

Note the green and purple Measles around the gray annual deflation/inflation line.  Those show the 5 and 10 year changes in CPI value, and are much larger than the individual years.  The 1870 inflation from the Civil War is obvious, but the next 30 year saw endless deflation.  This is the period when private transit blossomed in the cities and even the towns, with the development of the recessed rail in 1852, the cable car in 1873, the overhead power supply in 1888 and multiple unit control in 1897.

Transit was a revelation then, in an era when transportation was mostly by walking or dealing with a temperamental horse.  Even if the top speed was 6 miles per hour, that was twice as fast as most people could move on their own.  Much of the wealth in transit was in land development , opening up lands that were previously unreachable by muddy farm roads.  By the 1890s, the transit in many cities was consolidating under corporations or trolley barons like Yerkes or Widener.  Part of the agreements with the cities was a fixed fare of five cents per ride on transit.  And why not?  Five cents was worth more and more every year. Until it wasn’t.

NickelChart

What a Nickel was worth*.
That peak and decline in valuation is pretty close to the peak and decline of transit’s fortunes.  The next 50 years was just carving off hunks of its former glory.

Oh, I found this for you while researching the article.  I wish I could find the data on interest rates, but it s not the sort of thing they keep in one place.

GDPCapita

http://oregonstate.edu/cla/polisci/download-conversion-factors
http://www.measuringworth.com/datasets/usgdp/result.php

* I did some even more expeditionary calcualtions a month ago and found that the fare of the first transit, ever, in 1662 Paris, was $1.01 in 2009$.  I’m willing to admit I may have been off by an order of magnitude.

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