Quite often I see posts such as this one, where they discuss what a dollar could buy a long time ago vs. what it can buy today. This argument is used to discuss how the purchasing power of the Dollar has been destroyed by the FED. In my opinion this example is wrong. The dollar is a currency and a currency does not fulfill all the requirements of money:
A currency is only a medium of exchange and an unit of account. There is a difference between currency and money. Armstrong Economics states:
“Currency” is an official monetary instrument used in commerce. Currency must be “legal tender,” which means the government will accept it in payment for taxes. “Money” is a much more questionable element for it is different things to different people.”
The infographic states:
$1 could buy a woman’s dress in 1900 but you cannot today. That is true $1 will not buy a dress. But this view assumes everyone is born with a certain amount of dollars and it has to last until you die.
How do we get dollars? We work.
In 1910 the average salary of government workers was $590/year. That salary, assuming the employee only worked 40 hours a week, the hourly wage is $0.28/hour. At that wage it took 3.5 hours of labour to earn enough money to buy a dress.
Today the average hourly wage in the US is $21.96/hour.
Go search Amazon, $76 still buys a dress. In fact my girlfriend is always showing me dresses she bought on sale for much less.
The dollar is a just median of exchange. We trade our labour for dollars to avoid the double coincidence of wants.
In 1900, the price of gold was $20.67oz. Today it is approximately $1250. At the average hourly wage it took 72.8 hours to buy an oz.
Today it takes 56.9 hours.
Our labour buys more than in 1900. It takes half the time of work to buy gold. The figures on the dollar have changed but the purchasing power of US labour has increased.