Choosing the Best Indicator to Measure Relative Worth

If you are asking what a monetary value in the past is "worth" today, there is no one correct answer. A price or an income in the past would have been valued in different ways in that time by different people and under different contexts. That must be taken into account when asking the same question today.

We suggest ten different measures of worth in our essay "Measures of Worth". We define these different measures to help you decide the context of your query. Here are some examples of different types of expenditures and suggestions concerning which measure to use. All examples are based on using 2009 values for "today."

A Commodity. If your are asking about the "present worth" of buying a loaf of bread or filling the gas tank 40 years ago, are you thinking in terms of the amount of money you are spending today on such things? If so, use the price index of the average household called the CPI (RPI for the UK.) On the other hand, if you are wondering how "affordable" this would be to the average person, use the GDP per capita, or a wage or average earnings index. For the US, we have an index of unskilled wage or the compensation of a production worker, and for the UK we have an index of average earnings.

In 1968, the average price of a gallon of gasoline in the US was 34 cents. Compared to other things that the average consumer bought that year, this would be comparable to $2.10 using the CPI index for 2009. As to how "affordable" it is to the average person, 34 cents in 1968 would correspond to spending $3.48 out of an average income by using the GDP per capita index.

A wage or income. If you are asking about the current equivalence of what someone earned in the past, and you are thinking in terms of the household items that person might buy, then use the CPI. If you are thinking about how this income would compare in terms of affording to run that average household today, then use the Consumer Bundle. A third possibility is that you want to know how that person ranked in status compared to what others earned so it would be best to use GDP per capita. Finally, your question may be how economically "powerful" that person would be, and then you should use share of GDP.

In 1931, an accountant in the US would be earning about $2,250, an amount that would represent a comparative purchasing power of $31,700 in current dollars. However, this salary is almost 45% more than what the average household spent in those days. This would correspond to $168,000 today, a "status" of nearly twice the national average.

Sometimes you want to know how very rich people compare. Recently it was reported that Warren Buffet is the richest person in the world and is worth $62 billion today. When John D. Rockefeller died in 1937 he was worth $1.4 billion. Who is richer in their time? Either man could buy anything they want (that is or was available at the time they live). But the question of how economically powerful they are can be best measured by how big their wealth is compared to the economy they live in. This is measured by share of GDP and for Rockefeller, that number is $215 billion, or nearly four time greater that Mr. Buffet.

A "project". If the amount you are asking about is the construction of a church, the cost of a war, or a new highway, again the context is important. If the question is how much it cost compared to the present cost of materials or labor, you would use the GDP deflator and/or the wage or earning index. However, you may be more interested in how important this project was to the community or the country. In the past there were less amounts of materials and labor available for all projects. So to measure the importance of this project (compares to other projects) use the share of GDP indicator.

In 1931, the Empire State building, a giant of a structure in its day, was built at a cost of $41 million. This may seem inexpensive in today's terms when we compare its cost using the GDP deflator and determine a contemporary cost of $491 million. As a share of the economy, however, an amount of $7.6 billion in 2009 dollars would be the number to use, showing how important this building was in its day.

To determine the present worth of a US dollar amount from any year from 1774 to the present, go to Relative Values - US $. You will have up to six choices.

To determine the present worth of a UK pound from any year from 1830 to the present, go to Relative Values -UK £. You will have five choices. For the years from 1264 to 1830, you can still get a measure of relative value, however, there will be only one choice: the Retail Price Index. This is at Purchasing Power - UK £.

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