What’s a dollar worth? Why is that?

||| ORCASIONAL MUSINGS BY STEVE HENIGSON |||

The U.S. dollar was created in either 1774 or 1775, depending upon which history book you’re reading. As you might guess, at creation the new dollar was worth exactly one dollar, but that didn’t last very long. Inflation is as old a concept as money itself, and the U.S. dollar has never been immune.

During its first ten years, our dollar was merely printed paper, due to the wartime lack of stable government, precious metals, and dependable commerce. In fact, it inflated so quickly, as printed money is bound to do during times of economic uncertainty, that it became worthless. Benjamin Franklin called this devaluation the tax that paid for our War of Independence.

The new republic replaced its worthless paper money as soon as it was able. It minted gold and silver coins, which were much better at retaining value. But still the purchasing power of the dollar declined, and pretty steadily at that. It hit its first low in about 1800, at a purchasing-power value of approximately 65¢.

The War of 1812 didn’t do much damage to our money supply, so the dollar’s value started to rise, although very slowly. By 1850, the U.S. dollar was worth a dollar once again. But then, driven by the costs of the Civil War, it began the free-fall which we’re still experiencing today.

In 1974, a ’round-trip ferry ride to and from Orcas cost about $5; today that same off-season ride costs approximately $45. That tells us that today’s dollar buys less than 1/7 of what it bought in 1974. Compared with the dollar of 1850, today it’s worth about 3¢.

This devaluation is the result of “controlled inflation,” which our government, independent of whether it’s dominated by Republicans or Democrats, believes is good for business. It may indeed be good for business, but for ordinary people, continuous inflation makes saving for future emergencies a losing proposition. Money in a bank savings account now actually loses purchasing power, even as it sits there earning interest.

A Greek man once told me that he successfully shepherded his family through World War Two because he had always converted his savings into gold coins, specifically English sovereigns. No matter how bad things got, he said, there always were people who were willing to trade the necessities of life for gold coins. An English gold sovereign held its purchasing power, and, in normal times, would always buy a good-quality men’s woolen suit, regardless of what its price was in his country’s money at the time. But in the middle of World War Two, sometimes a gold sovereign would buy only a loaf of bread.

A gold sovereign contains about 1/4 ounce of gold, and its current price is approximately $350. According to Google Shopping, the price of a good-quality, three-piece, men’s woolen suit averages $310.