A while back, someone smarter than I said that the reason for prices being higher for commodities today was inflation. He continued my education by pointing out that a suit of clothes that cost a man 1 ounce in gold in 1929 still costs the same 1 ounce of gold today.
That was told to me when gold was $300 U.S. an ounce, and I could buy a good suit for $300 U.S., so I had little reason to doubt it.
However, gold is now $1200 U.S. an ounce. In the twelve years since that lesson I can still buy a good suit for $300 U.S. (not Armani, but a suit of clothes good enough to wear to court)
Have there been that many improvements in clothes making technology ? Has there been that big an influx of new clothiers ?
If price is all about supply and demand, and it is when there is no government interference to skew anything, then what happened ?
In an effort to see what prices have been effected by inflation I looked at the staples from 1925 (gold valued at $20.64 U.S.):
Flour 31¢/5 lb
Milk 28¢/1/2 gal.
Potatoes 36¢/10 lb
Assuming that there were no disproportionate adjustments in supply and demand and no change in government subsidy/taxation, this would translate to a current value of(gold valued at $1210 U.S.):
Flour $18.17/5 lb
Milk $16.41/1/2 gal.
Potatoes 21.10/10 lb
Either we have done some incredible things when it comes to producing and distributing staples to the American populace or the government has subsidized foodstuffs to the point that we are all paying for the savings at the grocery store in higher taxes elsewhere or the price of gold is over valued or there is a reckoning coming of epic proportions.
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