My wife and I lived in England from 1971 to 1975, when I was in the Air Force. I was stationed at RAF Upper Heyford, just north of Oxford. We lived in an apartment in Oxford. About three or four times a year we would treat ourselves to a day in London. This would be a special day for us, not something that we would do on a whim, because this would be an “expensive” day.
There were four major costs to our day: round-trip train fare from Oxford to London’s Paddington Station, lunch usually at the Hard Rock Cafe (that chain’s first restaurant and the only place in London where an American could get a real hamburger, fries, and a milk shake), a matinee performance at any London theater, and dinner at the Columbia Club on Bayswater Road, the U.S. military’s officers’ club in London.
The cost of each of these four parts was approximately one pound per person, at a time when the British pound cost $2.50. Therefore, our total cost was $20.00 (eight parts times $2.50). The meal at the officers’ club probably was subsidized to some extent, so we will assume that its cost to us was one-half of the market price, boosting the real cost of an evening meal to $5.00 per person rather than $2.50. Our new total cost of a day in London circa 1971 would be about $25.00.
- Let’s compare that cost of a day in London 1971 to the cost today. I looked up specific prices on the internet for Saturday, February 14, 2015. Below is what it would cost the two of us today.
- Round-trip train ticket from Oxford to London at off-peak times, meaning cheapest, for February 14 was $100 per person.
- The ticket price to see the matinee of Billy Elliot for February 14 was 50 pounds per ticket or $80.00 per person at today’s exchange rate of $1.60 per pound.
- Meal prices are more difficult. The Hard Rock Cafe website shows the menu but not prices. My wife and I go to London almost every year, most recently this past May. We are confident that the cost of a burger, fries, milk shake, tax, and tip at the Hard Rock Cafe would be not less than 15 pounds or $24 per person.
- A dinner of the quality of the old Officers’ Club on Bayswater Road would cost double that, I’m sure. (I remember that our cost included a drink, too.) So we estimate that a nice evening meal of that quality would cost at least $48 per person.
So, grand total: $100 for the train; $80 for the play; $24 for lunch; and $48 for evening meal. The total cost of a day in London for one person on February 14, 2015 would be $252 or $504 per couple. Therefore, the cost of a day in London is 20 times as expensive in 2015, as it was in 1971.
What significant event occurred in 1971 that would explain such price inflation? Just kidding. We all know that President Nixon took the U.S. off the gold exchange standard on August 15, 1971.
For decades the U.S. had been inflating the dollar in violation of the 1944 Bretton Woods Agreement by which the U.S. vowed to deliver gold specie to its trading partners’ central banks at $35 per ounce. When it became obvious that the U.S. was printing dollars to fund its guns and butter policy of fighting the Vietnam War while implementing Lyndon Johnson’s Great Society welfare programs, our trading partners started asking for gold at the promised price. When our gold stocks started shrinking dramatically, President Nixon, backed into a corner, took the U.S. completely off the gold standard rather than devalue the dollar to some new dollar-to-gold ratio and accept monetary discipline henceforth.
Two things followed:
1. We entered into a New Age of Floating Exchange Rates among different fiat monies.
2. We embraced a permanent policy of Planned Inflation, which means continuous
debasement of our currency, with no end in sight.
Thus, there was no longer any pretense that the U.S. would maintain monetary discipline. Every crisis became an excuse to print more money. Over four decades this increase in money has caused prices to rise magnificently, as our “expensive” day in London in 1971 shows compared to today.
With this planned inflation policy in place, can you guess what an “expensive” day in London will cost 44 years from now? Answer: Every day is becoming an “expensive” day.
Patrick Barron is a consultant to the banking industry. He currently teaches Bank Management Simulation at the University of Wisconsin Madison and has taught Austrian Economics at the University of Iowa.