currency value

[waimarie]

These days we are used to the idea of money devaluing over a short period of time. House prices are a pretty good yardstick of this.

Is this rapid devaluing a new phenomenen or has it always been so?

Has there been a time in UK history when the value of money remained fairly static for a longish period of several decades/century?

[kempie]

There has not been any recent rapid devaluation of UK currency.

Choosing just one commodity as a yardstick for analysing the change in purchase power of a currency is bad economics.

For the years 2000-2004 average house prices increased by 88%. This would seem to indicate that �1 in 2000 would be worth 53p in 2004, whereas in reality the figure is more like 91p. This is consistent with annual inflation rates of around 2%.

[dannydingbat]

I don't think there is any such thing as house prices rising and falling. House prices reflect what someone is willing to pay and what the seller thinks they can get away with.

[jno]

it's not so rapid at the moment - it was around 20% a year in the early 80s, and in the time of oil price rises 10 years earlier were getting on for 30%. Figures from 1978 (doubtless with a political spin) are given low down the page here. Compared with those, current inflation isn't much - as kempie says, house prices aren't a good indicator. People like house price inflation, as long as they have a house already - those are the sort of people whose votes political parties like to attract, so they don't try too strenuously to keep the prices down. Rising consumer prices for food, for instance, cause more concern.

[waimarie]

Obviously I used a wrong analogy!!!! Still the same question though. If inflation is running at 2% say, has this always been so? For example, throughout the 16th century was the value of money fairly static or did it devalue as much as the 20th century?

[Octavius]

In 2003 the House of Commons Library published a research paper which included an index of the value of the pound for each year between 1750 and 2002, where the value in 1974 was indexed at 100. (This was an update to an original document published in 1998.)

Regarding the period 1750�1914 the document states: "Although there was considerable year on year fluctuation in price levels prior to 1914 (reflecting the quality of the harvest, wars, etc) there was not the long-term steady increase in prices associated with the period since 1945". It goes on to say that "Since 1945 prices have risen in every year with an aggregate rise of over 27 times."

The value of the index in 1750 was 5.1, increasing to a peak of 16.3 in 1813 before declining very soon after the end of the Napoleonic Wars to around 10.0 and remaining in the range 8.5�10.0 at the end of the nineteenth century. The index was 9.8 in 1914 and peaked at 25.3 in 1920, before declining again to 15.8 in 1933 and 1934 � prices were only about three times as high as they had been 180 years earlier.

Inflation had a dramatic effect during and after the Second World War � the index was 20.2 in 1940, 33.0 in 1950, 49.1 in 1960, 73.1 in 1970, 263.7 in 1980, 497.5 in 1990, 671.8 in 2000 and 695.1 in 2002.

Peaks and troughs.

You can visit here for a calc of todays value against historical. And you can visit here for lots more research.

[Famous5]

Surprisingly the government isn't always blameless in devaluation. Both Henry VIII and Edward VI devalued the currency by increasing the proportion of base metals (ie not gold or silver) in the coins, so people thought they were getting more than they were. Elizabeth I recalled the coinage, melted it down and reissued it with the lower proportion of base metals

[waimarie]

Many thanks to everybody for those answers. That only leaves the final question for me. If monetary devaluation was relatively low throughout the centuries up to 1945, what has caused this rapid increase sinve then over such a short time period. (In layman speak, please!!)

[waimarie]

I should have perhaps added as a result of Octavius' information - I imagine the depression was a partial reason for the fairly static period of the 1920's and 1930's. whilst WWII was a cause of higher inflation of the 1940's and 1950's, what is causing the spiral today?

[Hippy]

The cause of price inflation is a rise in the cost of raw materials and the cost of labour, and the government's response in increasing money (notes & coins) supply beyond that of the wealth that these tokens represent. Since 1945 we have finally relinquished the Empire and it cheap source of materials and labour, and joined the world market for post industrial revolution life. Once a centre for manufactured goods, Britain is now a service economy. Both raw materials and labour are cheaper abroad, so we import the majority of manufactured goods.

In order to maintain a lavish (by 1720s standards) lifestyle requires us to generate wealth as a country so that the circulation of that wealth can maintain the purchasing power of the individual. Inflation is fuelled by there being more money tokens in circulation than the wealth it signifies. This is fuelled by "borrowing" where a promise of future wealth is spent today. We all have to some extent borrowed, or mortgaged, our future; something our forebears, except the already wealthy, were unable to do.