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It's a damn good thing people on fixed incomes don't live to be 400 and don't have to hold all their savings in cash. Aside from the basic nonsense of projectin

It's a damn good thing people on fixed incomes don't live to be 400 and don't have to hold all their savings in cash. Aside from the basic nonsense of projecting purchasing power over periods in which what you can now purchase didn't exist. This is of course also nonsense, but the one good that has existed that entire time is land. Manhattan was purchased for 60 guilders in 1623, projected to $24. According to Bloomberg, the estimate of Manhattan land value in 2018 was $1.74 trillion. Amusingly, thanks to the magic of compounding, that actually only implies a 6.5% average annual inflation rate. Of course, land is a capital asset and expected to appreciate, but this is granting the Hacker News inflation hawks worst case that inflation rates should include nominal price increases in capital assets. I'm having trouble finding decent data on this, but it looks like a guilder averaged about 10g of silver at the time? So saying Manhattan was worth 600g of silver, that's about 21.16 oz. The present value of Manhattan in ounces of silver is 62,142,857,142. That is 5.674% annual inflation denominated in silver. Not bad for the dollar, I guess? Less than 1% per year worse decrease in purchasing power compared to silver? I have no idea how the website I was looking at computed a dollar to guilder conversion rate a century and a half before the United States existed, though.

leoedin 5y ago
The problem with looking at Manhattan's value inflation is that nobody at the time knew what Manhattan would become. What was the going rate for similarly occupied land that didn't become Manhattan further north or south? What's that land worth today?
- ghaff 5y ago
  Picking a random listing for forest land in upstate New York (no land), maybe $1K-$5K per acre. (Of course, even at the time, Manhattan was known to be on the ocean with a good harbor so not really a fair comparison.)
- ballenf 5y ago
  Yes, it makes about as much sense to talk about the ROI of a soon-to-be-winning lottery ticket before and after the winning numbers are announced while ignoring the losing tickets.
- NickM 5y ago
  I think that's exactly the point OP was making. They are saying that even in a situation like Manhattan where nobody had any idea that the land would one day be worth a fortune, the average annual percentage increase in land value has not actually been that high. Certainly if you picked some random plot of land that's not part of a huge city, the numbers would be even smaller.
RamshackleJ 5y ago
most people globally do hold most of their savings in cash, many people are unbanked and physical currency is the only way they have to preserve wealth.
- kube-system 5y ago
  Savings, yes. But those same demographics also save very little, and spend most of their income almost immediately with no opportunity for it to inflate.
  - iso1210 5y ago
    Where they do typically have debts, which massively benefit from deflation
    - variaga 5y ago
      No, debts are massively _hurt_ by deflation. Since debts/credits are made in nominal terms debtors are benefited by inflation, and creditors are benefited by deflation. Example: in 2021 I borrow $100, with an agreement to pay back $105 in 2022. If inflation over that year is +10% (or any amount of inflation > 5%), then I benefit because the real value of what I pay back is only worth $105 * (1-0.1) = $94.5 in constant 2021 dollars. If on the other hand, there is deflation (or any amount of inflation < 5%), I lose because the real value of what I pay back is higher than what I received. E.g. if there is 10% deflation, then the amount I have to pay back is now worth $105 * (1+0.1) = $115.50 in constant 2021 dollars.
      - iso1210 5y ago
        Sorry you're absolutely right -- typo honest, not me brainfarting. Inflation whittles away at your debt, which is why inflation is good for the average person who owns very little cash and has lots of debt (i.e. someone with a mortgage) - assuming that wages keep up with inflation so the cost of the weekly shop is still x% of the weekly pay slip. Of course high interest rates offset that somewhat, but if interest rates are around inflation level, for those with debt (ie young people who haven't benefited from inheritence a lot) it's a good thing.
an_opabinia 5y ago
> Amusingly, thanks to the magic of compounding, that actually only implies a 6.5% average annual inflation rate. That's funny. I wanna add some perspective on how meaningless that is though. In 1623 most people you meet could not do exponentiation. In 2021 you can turn a muni bond ETF into 6.5% return by levering it ~2x. People harp about what you could and could not buy in 1623. Blah blah blah. That is a complicated argument to make about purchasing power. Its real limitation is the inability to model credit.
- ddalex 5y ago
  > In 2021 you can turn a muni bond ETF into 6.5% return by levering it ~2x. Until the black swan event comes and you lose your shirt.
RC_ITR 5y ago
The right response to all of these kinds of things is 'so an iPhone only cost $150 in 1665?' EDIT: To make the point more clearly - we get a very accurate global map for free (with ground level pictures, even!), but that would have been an unimaginable luxury anytime before 2000.
- Retric 5y ago
  Just as you can get a live Passenger Pigeon, Dodo, etc in 2021 for ??? Inflation is a measure of the value of Money not other things.
  - RC_ITR 5y ago
    Lol, inflation is a measure of the supply of money vs. the supply of any non money thing. The whole “inflation is a monetary phenomenon” belief is why we’ve had “unexplained” falling inflation since China began exporting goods to the US. And to the pigeon point, I can? It’s just a very very small part of the inflation basket, so it’s not super relevant. As for the dodo, were those ever consumption goods? I’m not getting your point. EDIT: I’ll take an L where it’s due. The species passenger pigeon (which is extinct), not a pigeon used to transmit messages. But I guess the same point as the dodo applies, then.
    - Retric 5y ago
      The Passenger Pigeon went extinct because we used it as a cheap food source. They where sometimes fattened in captivity, but often just hunted. As such it was a commodity in much the same way as iPads or Oil.
      - RC_ITR 5y ago
        iPads are famously not a commodity. They are a branded good. And just to be clear, people still eat squab all the time. The fact that it’s a different species of pigeon likely has 0 impact on consumer welfare. Is your point that resources are finite? I agree. And I also agree that fact is a major forward looking risk that could drive inflation, but if your argument is that there are numerous desirable things from the 17th Century that we do not have access to, then I’d have to disagree. Human innovation has just been too rapid over that period.
rebuilder 5y ago
Well, price discovery in illiquid markets is notoriously noisy.
lend000 5y ago
Some problems with this line of thinking: for much of US history (as demonstrated by the graphic), the value of the US dollar did not steadily decrease, but oscillated around the value of gold, and during many periods increased. So most of that inflation occurred in the last half century, dramatically increasing the inflation rate. Granted, Manhattan had no buildings or relative importance in the economy when it was purchased either, so a better example might be some comparable tracts of farmland using their 1970 value (during Bretton Woods) and current value, and calculating from there. EDIT: Doing so with this data [0] does indeed yield an inflation rate much higher than reported CPI, at 5.7% average over the last 50 years. You can see a similar higher rate by looking at the Big Mac Index [1]. Conclusion: Real inflation is higher than CPI. [0] https://www.ers.usda.gov/webdocs/charts/55910/farmrealestatevalue2020_d.html?v=2093.2 https://www.ers.usda.gov/webdocs/charts/55910/farmrealestate... [1] https://capstoneinvest.com/inflation-cpi-and-the-big-mac-taking-a-bite-of-reality/#:~:text=By%20graphing%20the%20trend%20of,the%20Bureau%20of%20Labor%20Statistics.&text=Since%201986%2C%20the%20price%20of,its%20current%20price%20of%20%244.93 https://capstoneinvest.com/inflation-cpi-and-the-big-mac-tak....
arcticbull 5y ago
It genuinely does not matter whatsoever how much $1 buys you at any given time. It's a unit, like a liter, except one whose definition changes over time. Roughly speaking, you can approximate this in your head by vintaging a dollar. A 2019-dollar is worth more than a 2020-dollar. They're different 'things.' But it doesn't matter because... Your job is not to save money. Your job is to save value. You save value by exchanging dollars for investments. It's a medium of exchange and an intentionally-lossy short term store of value. A currency should be (1) predictable (2) stable (3) fungible and (4) cheap and easy to exchange. It only needs to hold its value for as long as it takes you to either invest it or spend it on productive assets. Any longer than that is a non-goal. Wages have kept pace with inflation. You can argue they should be higher but that's a social policy issue not a monetary policy issue. Without inflation they would have just been flat in notional terms. In a deflationary environment they would have gone down in notional terms. That part doesn't matter. If you want to make things better for the lower class and reduce inequality, go talk to Congress. Vote for stronger unions, vote for a higher inflation-pegged minimum wage, vote for a wealth tax, vote for an estate tax, vote for universal healthcare. Stop tilting at windmills.
- lend000 5y ago
  > Your job is not to save money. Your job is to save value I could not disagree more. For much of human history, and most of American history, saving currency was exactly how you saved value. You already created value in exchange for the money; now you should be able to hold on to that value until you want to spend it. The fact that putting money under your mattress is no longer a viable strategy is why we have massive and growing wealth inequality. It is horribly unrealistic to assume that every person can or should become financially savvy enough to make smart investments in the global economy, and it is naive to think that just buying some index is efficiently allocating capital. > Wages have kept pace with inflation. Wages have barely kept up with CPI [0], which is not true inflation (see my other comment on this thread). While I don't agree with most of their economically illiterate proposed solutions (minimum wages, wealth taxes, etc.), the people clamoring about a living wage have a point these days. It makes sense that CPI and CPI-adjusted wages will always be a flat line, by the way. I recently learned that the CPI basically just measures the annual median American's budget via their consumer spending survey, which is of course directly related to wages. [0] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
yaa_minu 5y ago
The US dollar for a long period of time was backed by gold and was therefore pretty stable for that period so calculating inflation over 400 years is disingenuous at best. It would be interesting to see how much value it's lost since the gold standard started to be compromised and eventually discontinued in 1971.
- hakfoo 5y ago
  The spec of a gold-backed dollar can still be redefined. A $10 gold piece from the 1790s contains about 6% more gold one from the 1930s.
rovolo 5y ago
> Manhattan was purchased It wasn't purchased from the people who inhabited the island. [0] The dutch created a deed to claim the island, and paid one village to move to make the deed seem legit. [1] [0] https://en.wikipedia.org/wiki/New_Amsterdam#1624%E2%80%931664 https://en.wikipedia.org/wiki/New_Amsterdam#1624%E2%80%93166... [1] https://www.americanheritage.com/24-swindle# https://www.americanheritage.com/24-swindle# Claiming that Manhattan was purchased for cheap is similar to claiming that the Louisiana purchase only cost 65¢ per acre. The Louisiana purchase didn't transfer land to the U.S. from the inhabitants, it purchased conquest rights from the other European powers. > for the majority of the area, what the United States bought was the "preemptive" right to obtain Indian lands by treaty or by conquest, to the exclusion of other colonial powers. https://en.wikipedia.org/wiki/Louisiana_Purchase https://en.wikipedia.org/wiki/Louisiana_Purchase
trylfthsk 5y ago
> Of course, land is a capital asset and expected to appreciate I believe Henry George made a strong case that, while land is many things, it is distinct from capital.
refurb 5y ago
Not sure land is a great asset to use to estimate inflation. Does Manhattan have the same value back when it was a spare key inhabited island 6,000 miles from Europe versus today when it’s a international hub with advanced infrastructure in place? Land is weird in that it’s value is self-reinforcing. The more you do with it the more it’s worth (or at least more higher people value it).

leoedin 5y ago

The problem with looking at Manhattan's value inflation is that nobody at the time knew what Manhattan would become. What was the going rate for similarly occupied land that didn't become Manhattan further north or south? What's that land worth today?

ghaff 5y ago
Picking a random listing for forest land in upstate New York (no land), maybe $1K-$5K per acre. (Of course, even at the time, Manhattan was known to be on the ocean with a good harbor so not really a fair comparison.)
ballenf 5y ago
Yes, it makes about as much sense to talk about the ROI of a soon-to-be-winning lottery ticket before and after the winning numbers are announced while ignoring the losing tickets.
NickM 5y ago
I think that's exactly the point OP was making. They are saying that even in a situation like Manhattan where nobody had any idea that the land would one day be worth a fortune, the average annual percentage increase in land value has not actually been that high. Certainly if you picked some random plot of land that's not part of a huge city, the numbers would be even smaller.

RamshackleJ 5y ago

most people globally do hold most of their savings in cash, many people are unbanked and physical currency is the only way they have to preserve wealth.

kube-system 5y ago
Savings, yes. But those same demographics also save very little, and spend most of their income almost immediately with no opportunity for it to inflate.
- iso1210 5y ago
  Where they do typically have debts, which massively benefit from deflation
  - variaga 5y ago
    No, debts are massively _hurt_ by deflation. Since debts/credits are made in nominal terms debtors are benefited by inflation, and creditors are benefited by deflation. Example: in 2021 I borrow $100, with an agreement to pay back $105 in 2022. If inflation over that year is +10% (or any amount of inflation > 5%), then I benefit because the real value of what I pay back is only worth $105 * (1-0.1) = $94.5 in constant 2021 dollars. If on the other hand, there is deflation (or any amount of inflation < 5%), I lose because the real value of what I pay back is higher than what I received. E.g. if there is 10% deflation, then the amount I have to pay back is now worth $105 * (1+0.1) = $115.50 in constant 2021 dollars.
    - iso1210 5y ago
      Sorry you're absolutely right -- typo honest, not me brainfarting. Inflation whittles away at your debt, which is why inflation is good for the average person who owns very little cash and has lots of debt (i.e. someone with a mortgage) - assuming that wages keep up with inflation so the cost of the weekly shop is still x% of the weekly pay slip. Of course high interest rates offset that somewhat, but if interest rates are around inflation level, for those with debt (ie young people who haven't benefited from inheritence a lot) it's a good thing.

an_opabinia 5y ago

> Amusingly, thanks to the magic of compounding, that actually only implies a 6.5% average annual inflation rate. That's funny. I wanna add some perspective on how meaningless that is though. In 1623 most people you meet could not do exponentiation. In 2021 you can turn a muni bond ETF into 6.5% return by levering it ~2x. People harp about what you could and could not buy in 1623. Blah blah blah. That is a complicated argument to make about purchasing power. Its real limitation is the inability to model credit.

ddalex 5y ago
> In 2021 you can turn a muni bond ETF into 6.5% return by levering it ~2x. Until the black swan event comes and you lose your shirt.

RC_ITR 5y ago

The right response to all of these kinds of things is 'so an iPhone only cost $150 in 1665?' EDIT: To make the point more clearly - we get a very accurate global map for free (with ground level pictures, even!), but that would have been an unimaginable luxury anytime before 2000.

Retric 5y ago
Just as you can get a live Passenger Pigeon, Dodo, etc in 2021 for ??? Inflation is a measure of the value of Money not other things.
- RC_ITR 5y ago
  Lol, inflation is a measure of the supply of money vs. the supply of any non money thing. The whole “inflation is a monetary phenomenon” belief is why we’ve had “unexplained” falling inflation since China began exporting goods to the US. And to the pigeon point, I can? It’s just a very very small part of the inflation basket, so it’s not super relevant. As for the dodo, were those ever consumption goods? I’m not getting your point. EDIT: I’ll take an L where it’s due. The species passenger pigeon (which is extinct), not a pigeon used to transmit messages. But I guess the same point as the dodo applies, then.
  - Retric 5y ago
    The Passenger Pigeon went extinct because we used it as a cheap food source. They where sometimes fattened in captivity, but often just hunted. As such it was a commodity in much the same way as iPads or Oil.
    - RC_ITR 5y ago
      iPads are famously not a commodity. They are a branded good. And just to be clear, people still eat squab all the time. The fact that it’s a different species of pigeon likely has 0 impact on consumer welfare. Is your point that resources are finite? I agree. And I also agree that fact is a major forward looking risk that could drive inflation, but if your argument is that there are numerous desirable things from the 17th Century that we do not have access to, then I’d have to disagree. Human innovation has just been too rapid over that period.

rebuilder 5y ago

Well, price discovery in illiquid markets is notoriously noisy.

lend000 5y ago

Some problems with this line of thinking: for much of US history (as demonstrated by the graphic), the value of the US dollar did not steadily decrease, but oscillated around the value of gold, and during many periods increased. So most of that inflation occurred in the last half century, dramatically increasing the inflation rate. Granted, Manhattan had no buildings or relative importance in the economy when it was purchased either, so a better example might be some comparable tracts of farmland using their 1970 value (during Bretton Woods) and current value, and calculating from there. EDIT: Doing so with this data [0] does indeed yield an inflation rate much higher than reported CPI, at 5.7% average over the last 50 years. You can see a similar higher rate by looking at the Big Mac Index [1]. Conclusion: Real inflation is higher than CPI. [0] https://www.ers.usda.gov/webdocs/charts/55910/farmrealestatevalue2020_d.html?v=2093.2 https://www.ers.usda.gov/webdocs/charts/55910/farmrealestate... [1] https://capstoneinvest.com/inflation-cpi-and-the-big-mac-taking-a-bite-of-reality/#:~:text=By%20graphing%20the%20trend%20of,the%20Bureau%20of%20Labor%20Statistics.&text=Since%201986%2C%20the%20price%20of,its%20current%20price%20of%20%244.93 https://capstoneinvest.com/inflation-cpi-and-the-big-mac-tak....

arcticbull 5y ago

It genuinely does not matter whatsoever how much $1 buys you at any given time. It's a unit, like a liter, except one whose definition changes over time. Roughly speaking, you can approximate this in your head by vintaging a dollar. A 2019-dollar is worth more than a 2020-dollar. They're different 'things.' But it doesn't matter because... Your job is not to save money. Your job is to save value. You save value by exchanging dollars for investments. It's a medium of exchange and an intentionally-lossy short term store of value. A currency should be (1) predictable (2) stable (3) fungible and (4) cheap and easy to exchange. It only needs to hold its value for as long as it takes you to either invest it or spend it on productive assets. Any longer than that is a non-goal. Wages have kept pace with inflation. You can argue they should be higher but that's a social policy issue not a monetary policy issue. Without inflation they would have just been flat in notional terms. In a deflationary environment they would have gone down in notional terms. That part doesn't matter. If you want to make things better for the lower class and reduce inequality, go talk to Congress. Vote for stronger unions, vote for a higher inflation-pegged minimum wage, vote for a wealth tax, vote for an estate tax, vote for universal healthcare. Stop tilting at windmills.

lend000 5y ago
> Your job is not to save money. Your job is to save value I could not disagree more. For much of human history, and most of American history, saving currency was exactly how you saved value. You already created value in exchange for the money; now you should be able to hold on to that value until you want to spend it. The fact that putting money under your mattress is no longer a viable strategy is why we have massive and growing wealth inequality. It is horribly unrealistic to assume that every person can or should become financially savvy enough to make smart investments in the global economy, and it is naive to think that just buying some index is efficiently allocating capital. > Wages have kept pace with inflation. Wages have barely kept up with CPI [0], which is not true inflation (see my other comment on this thread). While I don't agree with most of their economically illiterate proposed solutions (minimum wages, wealth taxes, etc.), the people clamoring about a living wage have a point these days. It makes sense that CPI and CPI-adjusted wages will always be a flat line, by the way. I recently learned that the CPI basically just measures the annual median American's budget via their consumer spending survey, which is of course directly related to wages. [0] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

yaa_minu 5y ago

The US dollar for a long period of time was backed by gold and was therefore pretty stable for that period so calculating inflation over 400 years is disingenuous at best. It would be interesting to see how much value it's lost since the gold standard started to be compromised and eventually discontinued in 1971.

hakfoo 5y ago
The spec of a gold-backed dollar can still be redefined. A $10 gold piece from the 1790s contains about 6% more gold one from the 1930s.

rovolo 5y ago

> Manhattan was purchased It wasn't purchased from the people who inhabited the island. [0] The dutch created a deed to claim the island, and paid one village to move to make the deed seem legit. [1] [0] https://en.wikipedia.org/wiki/New_Amsterdam#1624%E2%80%931664 https://en.wikipedia.org/wiki/New_Amsterdam#1624%E2%80%93166... [1] https://www.americanheritage.com/24-swindle# https://www.americanheritage.com/24-swindle# Claiming that Manhattan was purchased for cheap is similar to claiming that the Louisiana purchase only cost 65¢ per acre. The Louisiana purchase didn't transfer land to the U.S. from the inhabitants, it purchased conquest rights from the other European powers. > for the majority of the area, what the United States bought was the "preemptive" right to obtain Indian lands by treaty or by conquest, to the exclusion of other colonial powers. https://en.wikipedia.org/wiki/Louisiana_Purchase https://en.wikipedia.org/wiki/Louisiana_Purchase

trylfthsk 5y ago

> Of course, land is a capital asset and expected to appreciate I believe Henry George made a strong case that, while land is many things, it is distinct from capital.

refurb 5y ago

Not sure land is a great asset to use to estimate inflation. Does Manhattan have the same value back when it was a spare key inhabited island 6,000 miles from Europe versus today when it’s a international hub with advanced infrastructure in place? Land is weird in that it’s value is self-reinforcing. The more you do with it the more it’s worth (or at least more higher people value it).