Six Ways to Compute the Relative Value of a Spanish Peseta (or Euro) Amount, 1850 - Present
Determining the relative value of an amount of money in one year compared to another is more complicated than it seems at first. There is no single "correct" measure, and economic historians use one or more different indicators depending on the context of the question.
Most indices are measured as the price of a "bundle" of goods and services that a representative group buys or earns. Over time the bundle changes; for example, carriages are replaced with automobiles, and new goods and services are created such as cellular phones and heart transplants.
These considerations do not stop the fascination with these comparisons or even the necessity for them. For example, such comparisons may be critical to determine appropriate levels of compensation in a legal case that has been deferred. The context of the question, however, may lead to a preferable measure and that measure may not be a price deflator, which is used far too often without thought to its consequences.
Presented here are six indicators for making such comparisons in Spanish Pesetas (or Euros) between any two years from 1850 to 2015. They are the GDP Deflator, the average wage, the unskilled wage, the GDP per capita, and the GDP.
One or more of the indicators may be most appropriate for you depending on the nature of your query. See below for the definitions of the indicators and some examples.
You can make this computation among all the years between 1850 and the present.
Peseta or Euro?
In 2002, Spain changed its official currency from the Peseta to the Euro. Anyone with Pesetas could exchange them for Euros at rate of 166.386 Pesetas to one Euro. On March 1st of 2002, the Euro became the legal currency in Spain.
Descriptions of the indicators
- The GDP Deflator is an index number that represents the "average price" of all the goods and services produced in the economy. It a weighted number that is based on what is paid for the entirety of GDP, that is, for everything from a loaf of bread to a new office building. Changes in the deflator are a broad measure of inflation.
- The Average and the Unskilled Wage Rate are good ways to determine the relative cost of something in terms of the amount of work it would take to produce, or the relative time it would take to earn its cost. It can also be useful in comparing different wages over time.
- The GDP per capita is an index of the economy's average output per person and is closely correlated with the average income. It can be useful in comparing different incomes over time.
- The GDP is the market value of all goods and services produced in a year. Comparing an expenditure using this measure, tells you how much money in the comparable year would be the same percent of all output.
(Note that these are comparisons of the relative value of an amount of money,
and thus the last two are using nominal GDP.)
Leandro Prados de la Escosura, "Five Ways to Compute the Relative Value of a Spanish Peseta Amount, 1850 - Present," MeasuringWorth,
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