April 19, 2006

The Value of U.S. Currency Over Time

Posted in Money, Politics at 7:58 pm by mj

Somebody by the name of Finster has produced a plot of the value of currency from 1665 – present:

This chart purports, in context, to show that the value of currency in the U.S. was relatively flat until the Federal Reserve Bank was created in 1913. I’m not sure if it does so accurately, and it seems there is controversy surrounding the use of FDI as a measure of currency valuation.

Apart from any controversy, though, I wonder if there is a less sinister explanation.

For example, the cliff does not appear until 1918, corresponding to the U.S.’s entry into WWI. Post-war, it recovers and again stays relatively flat, until 1940 or so, corresponding to WWII. (This is more apparent if you look at the Excel data series he provides.) Then it’s all down-hill.

But the latter half ot the 20th century is marked not only by wars and cold wars, but also by the industrialization of most of the world–even the backwards communist countries. Since the FDI (if my understanding is correct) measures the relative importance of the U.S. versus the rest of the world, that would also account for some of the erosion.

My curiosity has been piqued, however.

(Link via Catallarchy.)