Calculating the Cost

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March 3, 2013 by Freems

001_Paper_Money

While doing research for a future post, I ran across this website – www.MeasuringWorth.com.

I’ve found similar sites for calculating the relative cost of the U.S. dollar from different time periods. At these sites, typically, one just types in a year and a contemporary dollar amount and the calculator it spits out an amount in terms of current value.

This site is different, it breaks dollar value in terms of the cost of a commodity, wealth or income, the cost of a project. Then the values are broken down further into different indicators and factors.

Some of the information is esoteric, but it gives one some insight into how complicated value determination can be.

As far as the American Civil War goes, there are a couple of example facts that are listed – quite staggering in terms of historical real world costs:

Slavery

  • Slavery in the United States was an institution that had a large impact on the economic, political and social fabric of the country. The average price of a slave in 1860 was $800 and the economic magnitude of that price in today’s values ranges from $17,000 to $266,000, depending on the index used.
  • In that year, there were an estimated four million slaves living in the South and it is estimated that their aggregate market value was over $3 billion then. That corresponds to $10 trillion today (as a share of GDP).

The Cost of the Civil War

  • The Civil War was one of the most devastating events in the history of the United States. It lasted from 1861 to 1865 and has been estimated to have direct cost of about $6.7 billion valued in 1860 dollars. If this number were evaluated in dollars of today using the GDP deflator it would be $140 billion, less than one-fourth of the current Department of Defense budget. This would be inappropriate, as would be using the wage or income indexes.
  • The only measure that makes sense for an expenditure of this size is to use the share of GDP, as the war impacted the output of the entire country. Thus the relative value of $6.7 billion of 1860 would be $22.6 trillion today, or over 150% of our current GDP.The $6.7 billion does not take into account that the war disrupted the economy and had an impact of lower production into the future. Some economic historians have estimated this additional, or indirect cost, to be another $7.3 billion measured on 1860 dollars. This means the cost of the war (as a share of the output of the economy) was nearly $47 trillion as measured in current dollars.

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