"Correcting for Inflation: Is It Possible?"

    Yesterday, Patrick Wahl posted to a bulletin board a thoughtful and thought-provoking counterpoint to my use of the Consumer Price Index  Patrick's point was that when you compare the price of a car in 1950 with the price of a car in 2000, you're comparing two very different animals. The year-2000 Oldsmobile has a wealth of features that are missing from a 1950 Oldsmobile. His grandmother bought "flour and unsewn cloth"; his grocery list is quite different.
    I have thought about this at length. Of course, I'm absolutely no economist, and in no position to properly assess the consumer price index. For what it may or may not be worth, my current opinion is that the Consumer Price Index is, perhaps, valid. A lot of research has gone into its establishment, and goes into its updating. I prepared a list of goods and services that we bought in the thirties, together with their prices at that time (which I remember), and the CPI-adjusted equivalents of their prices today, so that you can judge for yourself. Here they are.

.    The consumer price index shows that $1 in 1932-through-1940 would be worth about $13 today.
.    As Chief Clerk of the Baltimore and Ohio Railroad office in Akron, Ohio, Dad's salary dropped to $200 a month at its lowest point, equivalent to $2,600 a month ($31,200 a year) today. My aunts and grandparents helped my parents, adding, maybe, another 50% to their income, bringing it to, perhaps, $46,800 a year. In those days, families owned one car. Mother drove Dad to the bus stop, where he caught the bus to work. Dad and Mother owned one floor radio, although my aunts bought me a table radio for my 7th birthday. We had one telephone.
.    Hershey and Nestle bars cost 5¢, equivalent to 65¢ today. Hershey and Nestle bars today look exactly like they did in 1932.
.    Mother paid Mr. Neville 50¢ to cut my hair in 1932,, equivalent to $6.50 today. (I pay Curt, the barber, $9 for a haircut today.)
.    Gasoline cost 14¢ a gallon in the 30's. equivalent to $1.80 a gallon today.
.    Movies cost 50¢ at the bottom of the Depression, equivalent to $6.50 today.
.    Mother paid Miss Spaight $1.00 for an hour-long piano lesson at Stow's Corners for Barbara and me, equivalent to $13.00 a lesson today.
.    Bread cost 9¢ a loaf in the 30's and early 40's, equivalent to $1.20 a loaf today.
.    Milk cost 9¢ a quart, equivalent to $1.20 today, delivered before dawn to your doorstep.
.    Soft drinks cost 5¢ in those days, equivalent to 65¢ today.
.    A two-scoop ice cream cone with chocolate sprinkles on top cost cost 5¢ (65¢). On the other hand, Braunlich's Pharmacy sold a really tasty single-scoop ice cream cone for 10¢ ($1.30). (We didn't buy many of Mr. Braunlich's ice cream cones.) Koster's delicious home-made ice cream bars dipped in milk chocolate sold for 10¢ ($1.30 today). Every tenth ice cream bar had a "free" stick that entitled you to a free ice cream bar. In the summertime, (Koster's sold a two-scoop raspberry sherbet ice cream cone made with real raspberries for 10¢ that was out-of-this-world good.)
.    Magazines cost 25¢-to35¢, equivalent to $3.25 to $4.50 today.
.    Hamburgers cost 10¢ ($1.30) at the Tiptop Hamburger Shop. A bottle of Norka Orange to go with it cost 5¢, as did a bag of potato chips. (Look for Norka signs the next time you visit a Cracker Barrel restaurant.) (When Eugene McCoy and I sat at the edge of the cliff behind the Tiptop Hamburger Shop eating the sandwiches our mothers had packed for us, and drinking the Norka Orange we'd bought by taking five Norka bottles back to the Tiptop for their deposits, we never dreamed that "Norka" was "Akron" spelled backwards!)
.    Milk shakes cost 15¢ ($1.95).
.    My electric train cost $14 ($182), but Dad and Mother got it on sale for $7 ($91). My first microscope set, for my 7th birthday, cost $4 ($52). A sled cost $5 ($65 today).
.    Dad and Mother paid $40 a month rent for the 1,000-square-foot house they rented in Cuyahoga Falls, equivalent to $520 a month today. That would be just about right for that small house in that neighborhood today.
.    After shelling out for remodeling, Dad and Mother paid about $8,000 for our house in Stow in 1936, equivalent to $104,000 today. And that's about what a 10-year-old version of that 1,400-sq.-ft.  house would cost in Stow today.
.    Dad and Mother's 1936 Desoto lacked power steering, power brakes and air conditioning, but it went as fast and performed the same functions as Tommie's new Camry. I'm driving a stick-shift car today. I don't think I'd have any problems driving and using Dad and Mother's 1935 Desoto, although I would insist upon seat belts and shoulder straps. (We had these specially installed on our new Volkswagen in 1963.) There have been a lot of bells, lights and whistles added to cars over the past 70 years, and I think the changes have been wonderful, but in a way, I'm surprised at how little cars have changed over that time frame. I'm not telling you that I'd prefer a 1935 Desoto to any current car, but that I think it would perform the same (barebones) transportation functions as a current car.
.    Of course, if you go back to the horse-and-buggy era, and you eliminate electricity and indoor plumbing from the home, you really do get a paradigm shift in lifestyle.
.     Dad's and Mother's Bendix automatic washer in 1939 worked indistinguishably from our modern  Maytag.  (Dryers didn't exist. You had to hang your clothes on a clothesline.) (I have pleasant memories of clothes hanging on the line, but hey! I didn't have to do the work!)  Dad's and Mother's Grunow refrigerator, bought in 1932, had a small freezing compartment, and performed the same functions as our refrigerator downstairs. It didn't have an icemaker, and it didn't have automatic defrost, but it did the job.
.    Prices had to match salaries. During the Depression, people lived on $50 a month ($625 a month today).
.    You say,
.   "It illustrates how the 'market basket' of goods and services (month to month, the fiction behind that Consumer Price Index) is not the same basket my American grandmother might have bought, She never owned a car; I never buy flour and unsewn fabric. The few thing we both purchase (such as water and sugar) are sold at prices subject to heavy government influence. The price of gold? What would I do with gold? Or she, with electronic funds transfer?"
.    I certainly agree with the spirit of what you say. There have been profound changes in what we buy... e. g., at the grocery store. The biggest difference that I see at the grocery store is in prepackaged foods. It's no longer necessary to cook everything from scratch. Another major change is that of frozen foods. While we had freezing compartments in 1932, they were quite small, and frozen food wasn't for sale at the grocery store (other than ice cream and popsicles). Another pleasant feature is the availability of fresh fruits and vegetables all year long. We may have had that in the 30's, but Mother would can fruits, vegetables, and jams from our garden at the end of each summer, and we usually ate them up through the winter (as supplements to our grocery store provender). We kept them in the fruit cellar in the basement, along with a potato bin. Another major innovation is the supermarket. My grandparents bought their meat at the meat market next door, although I imagine that everything else came from their nearby grocery store. My grandfather bought a new Buick every year, which he traded at the end of the year. My grandparents bought their clothes off the rack, although Mother sewed costumes for my sisters' dance recitals.
.    I just returned from the grocery store, where I bought Tommie a sack of flour. I got Tropicana frozen orange juice bars, in lieu of the popsicles we used to get. I got fresh lettuce, shredded carrots, and shredded cabbage for salads. I bought tomatoes, pears, apples, strawberries (which are in season) and bananas. I bought two loaves of bread and a gallon of milk. I bought a dozen eggs. I bought fat-free bologna, and fat-free corn chips. I bought dill pickles. I bought caffeine-free Cokes and Carnation Instant Breakfast for Tommie. I also bought her some Nestle's Crunch bars for her outing on Saturday. I bought canned tomatoes for spaghetti. I bought some pizza sauce (something which wouldn't have been available in the thirties). for toasted cheese sandwiches  But basically, everything I bought at the grocery store this time, I would have purchased in the thirties. Of course, there are other times when I've bought frozen vegetables or Lean Cuisines that wouldn't have been available in the thirties.
..
.    To summarize, I've monitored published cost-of-living figures over the decades, have compared them with my recollections of an earlier world and "found them agree pretty nearly".
.    Another way to address this is through labor costs .Labor rates--money input--comprise  another way to assess inflation, as opposed to purchased items--money outgo. With labor costs, we're trading my time for your time, and this can produce quite a different scale than the cost of manufactured goods.
.    It's worth noting that there was no long-term inflation in the United States before 1940. Prices would rise during a war, but then they would decline again after the war.

    My guess du jour is that the Consumer Price Index is probably a valid yardstick by which to compare past with present, but I'm anything but an authority on this subject. Patrick has raised a good question that I wasn't thoughtful enough to ask: does it make sense to compare prices in 1950 with prices in 2000?.
    Except for 1929, when the stock market dipped far below any previous low, its parameters of earnings yield, dividend yield and price-to-book ratio have varied across a range of about three-to-one, as it reversed course at bull market peaks and bear-market valleys. This, coupled with the fact that the stock market's total valuation must climb at roughly the same rate as the economy as a whole, would seem to me to lend credence to the presumed 1.3% to 1.4% rate of rise of the market indices, and therefore, to their inflation-corrected values (bearing in mind that most of the money thrown off by the stock market has been in the form of dividends).
    As I say, as a Sorcerer's Apprentice, my guess off the moment is that it is possible to correct for inflation, but I'm in a learning mode myself, and I may be wrong. I'm grateful to Patrick for asking this question that I wasn't thoughtful enough to ask.

    The farther we go back in time, the more self-reliant farmers in the United States would have been, and the less they would have depended upon "store-bought" goods. And in 1800, most families in the U. S. lived on farms, or at least, raised their own food. Also, the prices of the vegetables and grains they sold as cash crops must have varied from place to place. Presumably, there would have been no national market price for corn or beans.
    Food for thought.