Prices in the past

[nou]

In my local history research, when I’m quoting a monetary value from the past I also give the equivalent in modern terms, using the Bank of England inflation calculator. This helps understanding to some extent, but leads to things like the modern-equivalent annual rent for a shop plus living accommodation being given as £5,846 (£50 in 1870), which feels absurdly low.

Then I saw an essay going around at the moment, “How do we know the history of extreme poverty”? from the Our World In Data project, which is not only very interesting but also includes data on historical per-capita GDP in England (adjusted for inflation and including non-market production such as households growing their own food).

This made me wonder if I should move to using per-capita-GDP-adjusted inflation-adjusted prices instead of just inflation-adjusted prices. Using the example above, the annual shophouse rent quoted would map to £42,666 (per-capita GDP was £4,149 in 1870 and £30,281 in 2016, so £5,846 in 1870 is equivalent to £5846*£30281/£4149 today), which feels rather more realistic.

Obviously I can’t be the first historian to think of this, but I haven’t managed to find any discussion or guidelines on it, partly because my Google searches keep filling up with economics and accounting instead.

Does anyone have any thoughts on this, or can see an error in my reasoning, or can point me at existing guidelines? (No need to point out rounding errors in the maths — I’ve simplified for clarity.) (Also, for those who don’t know, I have no formal historical training whatsoever. I intend to do something about this at some point.)

Comments

[bryangb]

I can't offer any thoughts beyond: thanks, that's a really interesting thought! 🤔

(That's supposed to be the "thoughtful" smiley...)

[nou]

Glad you found it interesting! I think if nobody pops up to say “no, this doesn’t work and here is why” then I’m going to go ahead with doing it. I’m just a bit wary that I’m accepting the method mainly because it gives answers that seem to make sense.

[emmy_mallow]

But the whole of science generally looks for a method to make the answers make sense :)

[nou]

Sort of. If your answers don’t make sense, then your method’s probably flawed, but it doesn’t work the other way around — you can’t conclude that your method is sound just because your answers make sense. (For example, you might be making two assumptions that are both wrong but cancel each other out.) My concern is that my method’s flawed but my brain is telling me to accept it because it likes the answers!

[emmy_mallow]

Ha. It works this way in geology - we know something happened to wipe out the dinosaurs, for instance and we have to work backwards and make sense of an event with the data we have. We have no real idea of knowing exactly what happened, so we make sense of the answers and invent lots of theories. Then scientists argue a lot with one another and the data gets honed or new methods are developed to prove which theory is right :)

[bryangb]

OK, here's a thought after all: have you seen the National Archives calculator? It's based on retail prices rather than GDP, so I'm curious to know how the results of the two methods compare.

http://www.nationalarchives.gov.uk/currency-converter/

[nou]

Someone else pointed me at that on Twitter — it gives answers that are the same order of magnitude as the inflation calculator, which makes sense given that inflation and prices of goods are linked.

I think part of what’s missing in a retail-prices conversion is that the amounts of money I’m converting aren’t always prices of goods — they’re rents, fines, loan repayments, that sort of thing. Incomes and household expenditure worked differently in the past, so you can’t always directly compare money spent.

Think of a household where you have one person earning an income and several more doing unpaid household work including making clothes and growing food, in comparison to one where all the adults are earning income and all the clothes and food have to be bought in. Those households will have different ideas about the value of £100 in cash.

[bryangb]

I'm wondering how interesting those comparisons would be - whether there's anything useful to deduce about how different stuff was differently valued in the past. Maybe it's all been done already, I don't know.

[nou]

I’m currently trying to get my head around “Defining measures of worth”, which is a very good read but requires some digesting.