Inflation

[SidS]

The beauty of the pound sterling is that it has endured for over a thousand years. So comparisons between then and now can be very clear, if one takes the time to look.

Consider true inflation:

Edited March 25, 2023 by SidS

[FriedrichVonHayek]

1 hour ago, SidS said:

The beauty of the pound sterling is that it has endured for over a thousand years. So comparisons between then and now can be very clear, if one takes the time to look.

Consider true inflation:

Here's an interesting site, I know it's a bit earlier than the 1370's but Caernarfon and Conwy Castle each cost £15500 to build between 1282 and 1304, this would equate to around 11,468oz of Gold in 1370's money.

https://castellogy.com/history/medieval-money

Edited March 25, 2023 by FriedrichVonHayek

[SidS]

6 hours ago, FriedrichVonHayek said:

Here's an interesting site, I know it's a bit earlier than the 1370's but Caernarfon and Conwy Castle each cost £15500 to build between 1282 and 1304, this would equate to around 11,468oz of Gold in 1370's money.

https://castellogy.com/history/medieval-money

Some good info there! I'd never heard of the ora before.

Interesting to note the stability in the earlier days. A nobleman living on about £200pa over a few centuries and only going up to £500 or do in the mid-1400s, which coincides with the silver bullion shortage of the mid fifteenth century. There was a lot of debasement in that era (by weight in England and by fineness on the continent).

As we all know: poor money leads to higher prices.

[Petra]

Henry V111 debased  a lot of the silver coins to fund his castle and ship building and improvements in cannons. Put copper in with the silver. As the coins wore down, particularly on his face, Henry became known as ‘copper nose’🫢😮🤔

[Bratnia]

The Pound dates back to the 700's, when it was a Saxon pound weight of silver value. For lugging around larger value amounts it was easier to carry gold (less weight for the same value).

Prior to September 21st 1931 and Sovereign gold one pound coins were the same as one Pound note paper currency, both were cash, and fixed/exchangeable. Savers wouldn't keep cash (gold coins) at home, they deposited them for safety and interest (more gold). Inflation broadly averaged 0% (finite gold) so interest was like a real (after inflation) rate of return. Bond total returns compared to stock total returns, but stocks were more volatile so most simply held bonds.

In 1931 the UK ended convertibility, so gold sovereigns you might have deposited for interest, had to be drawn as Pound note paper currency.  The early stages of fiat currency, that has subsequently seen predominately inflation. If the state/central bank print/spend a new note that devalues all other notes in circulation, is a form of micro-taxation, benefits the printer/spender at the cost of devaluing all other notes in circulation. Combined inflation and actual taxation ended bonds (and hence gold) generally paying a real rate of return to instead broadly average 0% real. In view of gold and bonds generally yielding 0% real, investors turned to stocks. 100% stocks however is risky, especially for retirees, so many opt to blend stocks and bonds, but could do comparatively well with stocks and gold. Tends to make bad case outcomes less bad (better/safer).

All fiat currencies decline sooner or later, just a matter of how much time that takes. A US dollar from a century ago has devalued more than 95%. A -3% annualised devaluation rate (or otherwise known as inflation). Gold like any item that is in demand tends to maintain its price in real (after inflation) terms. Someone is inclined to buy such items from you for similar reasons to why you bought it in the first place, for security/diversity/whatever reasons. US stocks in 1946 paid 4% dividends, as did they in 1986. Investors might have bought stocks at those times for that same 4% dividend yield reason. Over those years however the price of stocks increased 11-fold, as did the price of gold.

[Bratnia]

On 25/03/2023 at 14:33, FriedrichVonHayek said:

Here's an interesting site, I know it's a bit earlier than the 1370's but Caernarfon and Conwy Castle each cost £15500 to build between 1282 and 1304, this would equate to around 11,468oz of Gold in 1370's money.

https://castellogy.com/history/medieval-money

Around 14,000 ounces of gold in 1290, or the same in 2022, around £20M equivalent recent cost price. https://www.measuringworth.com/calculators/inflation/ and https://www.measuringworth.com/datasets/gold/

If instead they'd stuck £15,500 Pounds in a box and buried it, then in currency (purchase power) terms the present day value would be around £11. The equivalent of burying £20M back then, to nowadays be worth less than a couple of pints down the local (or as of more recent maybe a pint and a bag of crisps).

[JohnA1]

£1=1/51th of a gram now, which is quite close to zero indeed..

[Midasfrog]

18 minutes ago, JohnA1 said:

£1=1/51th of a gram now, which is quite close to zero indeed..

Don't tell the Royal Mint they will strike a gold proof to that size and put it in a walnut box 🤫