Investing: The Factors Of Inflation

Suppose that Joe Bugleblow had received some very good news in the spring of 1940. By registered letter he learned that he was one of the heirs of a certain Mathilda Abigail Bugle-blow, and that he was to present himself at the offices of the law firm of Smith, Cypher, and Zero with proof of his identity, in order that he might receive this bequest. Joe did so and found that each of several nephews had been bequeathed the sum of $500 in cash. In the fall of the year Joe again appeared for fund distribution of the estate and was presented with his proper share.

At first Joe thought of many ways of spending this money: a new camera, a new suit, a pair of field glasses, etc. He even jotted these items down on the envelope in which the currency was contained, and opposite each item he also set down its approximate cost. Again and again he fingered the five crisp $100 bills, each bearing the likeness of Benjamin Franklin; but the originator of Poor Richard seemed both dignified and forbidding that morning, so that this impression, coupled with the recent outbreak of war and the prospect of being drafted, caused Joe to make his decision. He very quickly placed the envelope with its contents in his safe-deposit box at the local bank; for the moment he made no decision about the disposition of the legacy.

Years passed. Joe went overseas, was wounded, hospitalized, and finally, after spending some time in various parts of the world, returned home and married his childhood sweetheart. He had been promised a good job in California by a war buddy, so he went to the bank, took out all of his effects from the safe-deposit box and was surprised and pleased to find the envelope, which by this time he had completely forgotten. The five $100 bills still looked as fresh as the day he had received them, but when Joe glanced at his memo of prospective purchases he received a severe shock, for the prices of these items had advanced in a startling fashion. We reproduce his notes, with the original (1940) prices at the left and the new (1952) ones below:

$ 40 Suit of Clothes $ 75.00
45 Camera 85.00
18 Field Glasses 37.50
16 Luggage 28.50
24 Dozen Shirts 40.00
135 Refrigerator 225.00

Need we go on? Need we show that a pound of butter jumped from 35¢ to 55¢ and that many food items bore price tags which represented advances of from 50 to 100 per cent; appliances, furniture, and many other forms of household goods had advanced in the same fashion, and some of the more durable items had nearly tripled.