Price/Cost Indexes from 1875 to 1989; Estimated to 2010

Price/Cost Indexes from 1875 to 1929

United States

October, 1993 expanded for release in November, 1993

[Originally published as a column entitled:

THE RATE OF CHANGE OF THE RATE OF CHANGE by Michael S. Hart

In The Electronic Journal of Virtual Culture]

WHILE IT APPEARS THAT COMPUTERS ARE AN INCREDIBLE DEAL THEY ARE REALLY TWICE AS GOOD A DEAL AS IT SEEMS TO BE

COMPUTERS INCREASED IN VALUE TWICE AS MUCH AS IT APPEARS SINCE THE FIRST CONSUMER HARD DRIVES BECAME AVAILABLE IN APPROXIMATELY 1979

WHERE DOES OUR MONEY GO?

Many of you are aware that the $3,000 you spent on computers last year could be replaced by $2,000 spent today. However, only recently have I actually purchased computer gear that I bought with dollars that were only half as valuable as those with which one of my drives was purchased in 1979.

Many of you are aware that the average personal computer was $5,000 - $10,000 some 10 - 15 years ago when Apples and IBMs first appeared on the scene, but you might not be aware of a trend beyond the price reduction that makes today's computer prices an even better bargain in comparison.

In fact, computers today are TWICE as good a bargain as they appear in comparisons with those early computers, and it was already looking as if they were bargains beyond all belief.

In earlier articles I mentioned the fact that today's cheapy 486 DX2/66 computers were 100 times as fast as the originals from IBM, and were likely to also have 100 time as much hard drive storage. [After all, the original PC didn't even have hard drives, and still cost a fortune.]

Here are a few examples to jog your memory:

These are "bare bones" prices for the computer systems; when filled out with color monitors, printers, ports, modems, and the rest of an average computer system, these prices usually doubled, and the prices I usually quote as modern comparison figures include VGA, printer, modem, mouse, and software.

1979 Konan 5M External Hard Drive Kit for Apples $3,000 1981 PC-DOS CP/M 1-Floppy 128K-RAM serial-parallel $2,000 1983 PC-XT added 3 slots and 10M hard drive $3,600 1983 PC to XT Upgrade kit with 5M ST-506 Hard Drive $1,500 1984 PC-AT 1.2M Floppy 256K-RAM no ports 3x faster $4,000 1984 PC-AT Enhanced added 20M hard drive no ports $5,800

[These two Hard Drive Kits both included the ST-506 drives— but the Apple was External while the IBM was Internal: both were from third-party vendors.]

Back in those days extra floppy drives from Apple or IBM for around $325 to $475 respectively [and don't forget that many of these floppies were single sided and held around 150K but we only tend to remember the double sided floppies. If your memory includes "flippies" you know what I mean. (Flippies: single sided floppy disks which were notched so you could do a "flip-over" with the floppy, and use the other side, which was supposed to be unusable but which in most cases was just as good as the side you actually paid for. Don't forget the floppy disks started at $10 each, with dollars that were the equivalent of $2 in 1993 dollars: so, each time you punched a notch and turned one over, you basically gained $20 in the money we use today. You then also needed only half as much, in terms of physical shelf space, to store as much data. It might stagger the present day mind to actually think of that monstrous storage problem we had when we wanted to store any huge books, such as the Bible, on single sided floppies.

The two points I want to make here are that for the cheapest of these machine prices back then, you can now get a machine that is 100 times faster with 100 times the disk space: and that the same is true for the most expensive AND that prices today are actually half what they appear to be in comparison to the prices listed above.

So, when you spend $3,000 on computer gear today, you are in fact only spending half as much as was spent back in '79 for the Konan drive. . .you are really only spending $1,500 from 1979. . .due to changes in the value of the dollar as per an assortment of Consumer Price Index figures [none of which is in agreement with any of the others, so you are encouraged a bit to look up additional information on the subject. These figures [below] are presented only to provide a continuum to make comparisons. Actually these figures are a conservative estimate [as most government figures seem to be [example, no double digit inflation for any year since 1947, which was an extremely good year, by the way.]

So, while other prices were rising to make up for weakenings in the dollar. . .you are probably aware that your expenses, in general, have just about exactly doubled since 1979, when we bought that first hard drive for $3,000. Those $3,000 in a bank account that created no real profit other than enough interest to keep up with the Cost of Living increases, would now be $6,000 and would buy you a computer more powerful and with more RAM and hard drive space than most of you want. A Pentium with 8 megabytes of RAM and adding several gigabytes of hard drive, or a 486 with even more RAM and hard drive.

While the prices of everything else had been going up at 5%, 6%, 7%, 8%, 9% a year, the price of computers has gone down, at about 33% per year. . .a truly astonishing rate that lets you buy something hundreds of times better for less than the price was just 10 or 15 years ago.

Below you will find a short index of the computers we bought since 1979, and then a price index from 1875 to 2010 in case you want to look up some prices mentioned in certain years a decade or a century ago would actually be today.

For example, a teenager watching Roger Rabbit mentioned that the $100 Bob Hoskins received for working on the case was an extremely low figure. However, an examination of the figure below for 1947 will reveal that prices then were about 17.5% which would make Hoskins' fee about $600 in our 1993 dollars we use today. . .even if the physical dollars are the same.

So, what happens to the value that was lost from our dollars that do not buy as much by a factor of 17.5% since 1947 ?

Let's imagine for a moment that we are financial wizards and have all the financial connections open to such wizards; the early 1970's are a perfect example: Nixon is in office, and he releases the dollar from the $35 per ounce price supports the dollar has had since Roosevelt took us off the standards of direct gold exchange to end the Depression in the 1930's.

As an example, we send a million of our dollars to somewhere we CAN buy gold [it was illegal then for US citizens to have gold, unless they were coin collectors or worked gold in the professions, such as dentistry, jewelry, etc.]

So, we have bought a million dollars worth of gold at around $35 per ounce, which was a pretty fixed price at the time.

Now, the price restrictions of $35 per ounce are removed and the price of gold goes up to $755 per ounce, just about what it did during the next few months after the price release.

Now our gold is worth 21 times as many dollars as it was, so we now can sell the gold and get 21 million dollars.

When we spend this 21 million dollars, we are competing with all the other dollars in the marketplace, and prices have to go up as a result, because there are now more dollars but no more anything else. . .so dollars get cheap, and all dollars everywhere give up a percentage of their value to pay for an increase in the number of dollars WE have. So, if all these dollars lose 5% of their value, then we can buy a 20 million dollar share of the future with our 21 million dollars while everyone else loses 5% of the money they let sit in pockets, under the mattress, or wherever.