I heard a statement from Peter Schiff yesterday and I’m having some trouble thinking about it.
The average Ford worker in Henry Ford’s era (1914) earned approximately $5 per day in wages – the equivalent of 1.25 ounces of gold per week.
The average Ford worker today earns approximately $250 per day in wages – the equivalent of 0.5 ounces of gold per week.
Therefore, the Ford worker in 1914 earns 150% more in real terms, in real buying power, than today’s Ford worker. [(1.25oz - 0.5oz) / 0.5oz] = 150%
Does the final sentence necessarily follow from the first two statements? I’m not saying it doesn’t, but I have some questions about it.
Are there other factors that we must consider before the final statement can be deemed correct? What about the general price level at both points in time? Once the wage levels are both stated in gold, then it seems like we’ve taken a good step towards comparing them, but wouldn’t we need to know what $5/1.25 oz of gold was able to buy in 1914, and then compare that to what $250/0.5 oz of gold is able to buy today?
I know what $250 can buy me today. Anyone know what $5 could buy in 1914?
Are these the right questions to ask? Anything else that should be considered?
I don't think you can use gold to measure purchasing power. The price of gold back in 1914 was fixed. Today it is traded on the open market. Additionally the dollar is no longer backed by gold. A fair comparison cannot be made. You may get a better comparison by how many oranges, bricks, barrels of oil, etc you could buy with a week's worth of wages.