The evolving value of money: a century’s journey through goods and services

Driving into town, our 1920s-era traveler is amazed to see families living in huge colonial houses lining the suburban streets. The average new home cost just $7,800 back then. Now similar homes go for 10 times that much in desirable areas. Rentals have seen rapid inflation too – a nice city apartment rented for around $50 per month in the '20s, not the $1,500-plius that is commonplace now.

In fact, as of 2023, the average price of a new home in the United States varied but is notably higher than that of existing homes. The median price for an existing home was $410,200 in June 2023, according to data from the National Association of Realtors. By the third quarter of 2023, the median home sales price had risen to $431,000, marking a 4% increase from the second quarter of the year. Similarly, in September 2023, the U.S. median home price, as reported by Redfin, was $412,000. These figures represent the median prices across the United States and reflect an overall upward trend in housing costs.

These prices are indicative of the general real estate market trends and the increasing costs associated with home ownership in the U.S. It's important to note that these figures can vary greatly depending on the location and specific attributes of the homes in question.

Stopping by the hospital, the time traveler overhears the receptionist explaining to a patient that their bill for a two-night stay comes to $8,563. The traveler nearly faints – an entire year of medical school only cost $500 in the early 1920s. Even simple procedures and medicines have increased exponentially.

In relative terms, the cost of health care has outpaced general inflation. A medical procedure or a doctor’s visit that may have cost a few dollars in the early 20th century could now run into hundreds or thousands of dollars. The proportion of household income spent on health care has also increased significantly. While technological advancements and improved health care standards are positive developments, they come at a financial cost that continues to challenge both individuals and health care systems globally.

In the early 1900s, health care was relatively basic. Medical technology was in its nascent stages, and the range of treatments available was limited. Health care costs were consequently low. Doctor visits were affordable for a larger portion of the population, and health insurance was not as prevalent or necessary as it is today. Hospitals were fewer, and their services were more rudimentary compared to modern standards.

Post World War II, the landscape of health care began to change significantly. With the introduction of employer-based health insurance and advancements in medical technology, the scope of health care expanded. New treatments, drugs and medical devices started becoming available. These advancements, while improving health outcomes, also led to rising costs. The implementation of Medicare and Medicaid in the 1960s further altered the health care landscape, increasing access but also contributing to rising costs due to greater utilization of services.

In the latter half of the 20th century and into the 21st century, the cost of health care has soared. Several factors contribute to this. The development of sophisticated medical technologies and treatments has significantly improved health outcomes but has also driven up costs. Lifesaving procedures like organ transplants or cutting-edge cancer treatments come with high price tags. As life expectancy has increased, so has the prevalence of chronic conditions, which require ongoing, often expensive, medical care.

Also, the health care system's complexity, with its myriad of insurance plans and regulations, has led to a rise in administrative costs. Meanwhile, the cost of prescription drugs has increased, particularly for new and innovative medications.

Finally, the traveler stops at the grocery store for eggs, milk and bread. Peering at prices for everyday food items, they are aghast that a dozen eggs now costs nearly $4 and bread is $2.50 a loaf. With what groceries cost today, their weekly salary of $25 from back in the day would barely cover the basics.

Even with all the conveniences and technological advances over the past century that previous generations could only dream of, from refrigerators to smartphones, our time traveler realizes that relative purchasing power has fallen significantly for everyday people. While costs have risen astronomically, wages haven't kept pace nearly as much.

Beyond feeling sticker shock, the perspective gained from this thought exercise illuminates how significantly inflation impacts purchasing power over long time horizons. While the value of money fluctuates over our lifetimes, the drastic effects over decades are often lost when simply looking at prices and incomes year to year. Perhaps this is why each generation feels the previous ones had it easy. They may just have had it cheaper.

Over decades, inflation erodes purchasing power if wages fail to keep pace. Examining price and income fluctuations since the 1920s provides perspective on consumers' changing economic realities. While necessities like housing and medical care have rapidly outpaced income growth, new technologies demonstrate exceptions where costs have dropped. A historical journey through the decades illuminates the nuances of purchasing power shifts over the past century.

In 1926, average new home prices were $7,000, new cars cost $500-$600, and average rents were $25 to $50 per month. A restaurant meal ran under $1, eggs were 34 cents a dozen and milk delivered to your doorstep cost 18 cents a quart. Gasoline averaged 22 cents a gallon when Ford’s Model T ruled the roads. Workers earning $1,200 a year lived comfortably as a middle-class lifestyle cost around $1,700 annually.

The Great Depression and Dust Bowl brought economic turmoil and uncertainty during the 1930s. Housing construction slowed dramatically but prices stayed flat at around $7,000 for a new home. Apartment rents eased to $15 to $40 per month. Car prices held steady, but sales plummeted as unemployment soared. Restaurants lowered menu prices to entice cash-strapped diners with full meals now 50 cents. Gas dipped to 10 cents a gallon. Grocery staples like bread, eggs and milk actually decreased by a few cents compared to the 1920s. However, average annual incomes plunged 30% to under $1,500.

World War II brought rationing and shortages to the home front. Americans sacrificed as factories focused on war production rather than consumer goods. Few new homes were built from 1942-1945, but prices held around $5,000. Rents increased slightly to $30 to $60 monthly. With limited new car production, used models sold for $500 to $1,500. Restaurant meals cost $1 to $2 by the end of the decade. Gasoline and food saw minimal price hikes, but incomes jumped to nearly $2,400 annually by 1949.

Postwar prosperity reigned despite inflation doubling prices from the previous decade. Buying a home surpassed $10,000 on average by 1959. Monthly rents increased to $60 to $120. Car prices spiked to $1,500 to $2,500 for models with exciting new styling like tailfins. Hospitalization cost $14 per day, up from $7 daily in the 1940s. A dozen eggs exceeded $1, and milk hit 50 cents per quart. Television ownership boomed with sets costing $400 to $600. With manufacturing in high gear, average incomes also rose to around $4,200.

Home prices remained stable at $12,000 to $13,000 through the 1960s. Rentals increased steadily from $100 per month in 1960 to $150 in 1969. Cars grew more powerful and luxurious, now ranging from $2,000 to $4,000 based on features. Medical costs jumped with hospital daily rates doubling to $30. Groceries felt inflationary pressure with bread hitting 39 cents a loaf in 1969. Buying 12 eggs or a quart of milk now cost 60 cents each. The first mass market color TVs sold for a pricey $500 while black-and-white models cost under $200. Incomes just outpaced inflation at around $6,200 annually by decade's end.

The 1970s saw rapid inflation, with new homes averaging $35,000 to $55,000 by 1979. Median monthly rent surpassed $200. Car prices approached $6,000 for some models. Hospital daily rates nearly doubled again to $60 by the end of the decade. Bread cost 69 cents, eggs $1.30, and milk broke the $1 mark per quart. Revolutionary microcomputers like the Altair 8800 debuted for $500. Average annual earnings topped $14,500 but lost buying power as consumer prices continued rising.

Although inflation cooled from the previous decade, housing jumped to $120,000 for the average new home as the McMansion age dawned. Monthly apartment rents exceeded $500. A new Cadillac Coupe de Ville listed for $16,000 in 1989. Hospitalization now cost $630 daily. Milk hit $2 per gallon with bread over $1 and eggs $1.50 per dozen. Early cellular "brick" phones sold for $2,000. The Commodore 64 and Apple Macintosh home computers launched for under $1,500. Median annual incomes approached $30,000.

The 1990s saw another housing boom with average new home prices reaching $170,000 by decade's end. Median rentals crossed $750 monthly. New family sedans ranged from $20,000 to $30,000. Daily hospitalization cost over $1,300. Shoppers now paid $3 for a gallon of milk and $2 for white bread. Pricey new tech like the DVD player retailed for $500 initially. The era's hottest device, the Palm Pilot, sold for $300. Workers averaged $37,400 in annual earnings before the dot-com bubble burst.

The housing bubble peaked in 2006 with average new home prices hitting $290,000 before crashing back down amidst subprime lending woes. Rents continued climbing to $1,000 monthly in many areas. New cars passed $25,000 on average by 2009 as gas neared $4 per gallon. Hospital daily rates topped $2,000. Milk cost over $3 per gallon with bread around $2 and eggs at $2.50 per dozen. Flat-screen TVs initially sold for $2,500 but dropped below $1,000 by the decade's end. The iPhone debuted at $499 in 2007. Average incomes rose to around $50,000.

As this walk down memory lane illustrates, consumer costs evolved at varying rates over the past century, especially relative to incomes. Some essentials like housing and hospitalization wildly outpaced earnings growth since the 1920s. Others like new technologies and activity-based services became more affordable. But the overarching trend shows money losing purchasing power substantially over time, even if not perfectly linearly. In the never-ending balancing act between pricing and paychecks, inflation usually tips the scales.