Articles

Here’s What’s Happened to Your Buck

Through the maze of inflation theory conies the unpalatable fact that Canada’s dollar is now worth 58 cents, compared with its 1939 value. Even so, most of us are living much better than we did before World War II

SIDNEY MARGOLIUS January 1 1951
Articles

Here’s What’s Happened to Your Buck

Through the maze of inflation theory conies the unpalatable fact that Canada’s dollar is now worth 58 cents, compared with its 1939 value. Even so, most of us are living much better than we did before World War II

SIDNEY MARGOLIUS January 1 1951

Here’s What’s Happened to Your Buck

Through the maze of inflation theory conies the unpalatable fact that Canada’s dollar is now worth 58 cents, compared with its 1939 value. Even so, most of us are living much better than we did before World War II

SIDNEY MARGOLIUS

•' /" • . - •'••V v. > --• ; . .rv; WHERE THE CAN .MN FAMILY’S MONEY GOES (YEARLY EXPENSES) Moderate Income Higher Income 1948 1950 1.950 Housing .......... Fuel .... ;........ Electricity, Laundry. , Soap, Tobacco, etc.. . Food . ........... Beer, Other Alcoholic Drinks ......... Furniture, Equipment . Clothing, Cleaning.. Transportation ..... Medical Care...... Personal Care..... Education, Recreation Charity, Insurance . . Miscellaneous ..... Savings .......... $6000 100%

TO MOST Canadians the uneasy mysteries of inflation boil down to five words: “What’s it doing to me?” Only for the minorities is the answer either

drastic or dramatic. For one minority—pensioners and people living on their savings—the 10-year jag oi the dollar bill has been a cruel tragedy. For another minority—lucky or far-sighted investors— it has been a golden jackpot.

For the majority it has been neither. The arithmetic of dollars, doughnuts and new shoes for the kids says the average Canadian family is living much better than it lived in 1939, but not so well as it lived in 1945 at the peak of the wartime boom.

The overriding facts about the race between income and living costs are these:

If you parcelled the total income in 1939 among every Canadian man, woman and child, each had $386. In 1945 the per capita income had zoomed to $804, and in 1949, the last year for which such figures are at hand, to $948. But the 1945 average income could buy $671 worth of goods at 1939 prices. The 1949 average income could still buy $589 worth. That means the average Canadian has approximately 50% more buying power than before the war and about 12% less than in 1945.

“But what about the higher taxes we pay now?” it might be asked. Actually they’re not enough higher to absorb the rise in real buying power since 1939. Also the average family is getting more aid from the government, which offsets to some unknown extent the higher levies. Such government payments as veteran and other pensions, family allowances and interest to bondholders have

increased a half-billion dollars—about 15% in the past three years.

Biggest boost in the Canadian standard of living has been in durable goods. We’re buying more than twice as many autos, home appliances and furniture than we were in 1939. We’re dressing better. To a lesser extent, as the government’s national accounts show, we’re eating more and better food

Canadian industrial workers have shared in the general advance toward better living during the past decade, and since ’45 have just about managed to keep even with leaping prices. The average industrial worker earned $20.11 a week in 1939, $31.23 in ’45 and by mid-1950 he was getting $43.50. According to the Dominion Bureau of Statistics he’s about 25% better off in real earnings than in ’39; his present wage could buy him $25.57 worth of living at prewar prices. But it buys him no more than $31.07 did in ’45. He’s out 16 cents a week in real earnings since then.

For many families, of course, family allowances have more than cushioned these minor dips. Introduced in the peak year of ’45 the baby bonus gives a family with two eligible children an extra $2.72 a week. That means an additional $1.60 of purchasing power over ’39, and $1.76 over ’45.

The average Canadian family is 3.9 persons.

For most Canadians the shock of inflation has been psychological rather than material. And it has been deepened by the fact that inflation made its giddiest spurt after many of us thought it was

ready to halt. In 1947 Canada’s cost of living had risen only 35% compared with a dramatic 60% in the United States. But in the intervening three years the shrinkage of the Canadian dollar has almost caught up with the total shrinkage of the American dollar.

The buck in your pocket at this writing is worth 58 cents in 1939 purchasing power. The American dollar is now worth 57 cents compared with its 1939 stature.

In 1949 this writer compared the cost of a budget for a family of three in Hamilton, Ont., and Trenton, N.J., two cities of comparable size and industrial character. The yearly expenses fori the Hamilton family totaled $2,188. The six per] cent jump in expenses since then now makes that bill $131 more, or $2,319. The Trenton family’s costs have gone up only 2.4% and the bill there is now $2,416. (The average Canadian industrial worker currently earns $43.50 a week compared with $60 for the American.)

Food is still a bit cheaper here. In ’49 a Hamilton family could feed itself for 10% less than in Trenton. Late in ’50, a basket of 11 items, weighted for their importance in the food budget, cost $4.64 in Hamilton and $4.91 in Trenton.

Your dollar’s buying power took a rough pummeling in 1950, almost as severe as in ’47 when controls were first lifted. Then the buck was still worth 79 cents. At the beginning of 1950 you could buy 62 cents worth of goods with it. During the last 12 months it shed another four cents through a jump of 10% in the food bill, and

nine per cent in rent,

Continued on page 46

Continued from page 7

since shelter controls were softened late in ’49.

The leap in meat, which often takes up 35-40% of a family’s food money, has been chiefly responsible for your dollar’s poor showing in a food store these days. The four meat items in the Hamilton market basket now cost 13% more than in ’49.

At the moment you can buy about as much clothing and furniture with your dollar as in 1949, and go to the movies, have teeth pulled and enjoy similar services about as often.

The tables of expenditures on page seven show where the average family’s money goes. These charts are based on a survey started in 1948 by the Dominion Bureau of Statistics which got 4,200 families to list in detail their expenses that year down to the last pack of tobacco and bar of soap. T have brought these reports up to date for 1950 by enlarging each expense item to account for the price rises since 1948. For example, the food expense has been enlarged to reflect the percentage rise in I he cost of food since ’48, the clothing hill has been increased four per cent, etc.

This is not a recommended budget but a list of typical expenditures. That’s why you see, “Fuel, $81.” A renting family may pay nothing for fuel; a home-owner, about $125 a year. It’s merely the average.

The actual average rent paid by families who did rent was $295, plus $8 a year for repairs by the tenant. (These again are DBS figures.) That’s about $25 a month, or with the recent increases, about $28. That figure may irritate families who pay a lot more hut the fact is, about 60% of the people still pay less than $33 a month rent.

On S5,000 You Save $500

The average family covered by the DBS survey had total income of $2,701 in ’48. of which $2,283 was from employment. The other $418 is what it collected from such non job sources as family allowances, pensions, insurance proceeds, the inheritance from the great-aunt in South Johannesburg, etc.

It might strike you that the $2,781 the family spent that year is $80 more than it took in. That’s not sleight of hand, but what the economists call “dissaving.” It means a family draws on savings or goes into debt for an installment purchase. In some cases it’s planned dissaving; during the war and immediate postwar periods families put by money for washers, cars and other goods not then available. Widespread dissaving recently is one of the reasons for higher prices.

Note that there aren’t any savings at all in the typical family budget, except in the shape of insurance premiums and contributions to pension plans. The survey disclosed the surprising fact that few families with incomes of less than $4,000 did any cash saving, even in 1948 when living was cheaper. Those with over $5,000 saved about $500 a year.

Expenditures for a higher-income family shown in the chart are based partly on information uncovered by the DBS, and by other surveys of family spending. These aren’t an average for families in the $6,000 bracket, but merely representative expenses these days in that bracket. Families in the $6,000 class spend a strikingly larger amount for recreation and education. They spend a lot more

for food too, but it’s still a smaller percentage of income than the eating tab for moderate-income families.

The average moderate-income family spends about $4 per person a week on food, the survey indicates, just about the minimum for adequate meals in a large city today, judging from budgets worked out by the Montreal Diet Dispensary and the Welfare Council of Greater Toronto.

The $540 for transportation in the higher-income family’s expenditures includes the cost of a car. Families in the government survey who owned cars paid on an average of $896 for them and spent $256 a year to keep them moving.

The taxes shown are chiefly federal income taxes. They don’t include excise, business and other indirect taxes a consuming family ultimately finds included in the prices of the goods and services.

The proportion of total taxes to the total national production is about 22% . Lower income families, of course, pay a lower percentage than that, high income families a higher percentage.

Because of two rudimentary factors —larger armaments programs and the tendency of any large nation like the U. S. to “export” its own inflation— it’s possible to make a reasonable guess at what 1951 may do to the general pattern of prices. If supplies narrow across the border you can expect to see U. S. buyers waving their dollars in Canada as they did last year. It may cost still more to import goods from the States. Fuel for your house and your car, cotton clothing, nylons and some of your vegetables may be affected.

You can probably anticipate that goods containing steel, wool, rubber, tin and other metals will cost moie in 1951. Your breakfast coffee isn’t likely to drop in price. These are all items for which there’s strong world-wide demand and in skimpy supply.

Higher prices for suits, coats, shoes and some cotton items have already been scheduled for next spring. There’s a severe world deficit of raw wool on which prices soared 40-56% in the past year. A suit will probably cost $5 more next spring and retailers expect suits will go up again next fall. The cost of cotton clothing is being nudged up by a short cotton crop in the U. S.

and by general shortage, fears and speculative tendencies.

You can expect continued high prices for food. Meat looks more reasonable at the moment, because the heaviest marketings of hogs and steers are in fall and winter. But next summer, when supplies dwindle seasonally, the butcher’s price tags will again be frightening.

Recent moves to rein the widespread dissaving, such as new requirements for a 33% down payment on purchases of cars, and 20% down on other goods, will help hold prices on some merchandise like used autos, at least temporarily.

There’s one loophole in the credit curbs. Some people now borrowing from banks and loan companies for such purported reasons as doctor bills actually use the cash for merchandise on which credit has been shortened. A lender can have a borrower sign a statement that he won’t use the cash for restricted merchandise, but there’s no way to prevent it.

When you’re facing higher prices it’s supposed to be clever to turn cash into goods, even go into debt so you can pay back later with, say, 48-cent. dollars.

There are shoals in that channel. For one thing, no one knows the ultimate size of rearmament. If it’s held down or lags, prices may sink. You could be stuck with extra shoes and shirts bought at high prices. (In the U. S., where the rush to beat shortages last summer reached panic proportions, one woman bought three electric refrigerators. She wanted a fourth, but the dealer refused to sell it to her.) And people who go into debt to beat price rises often find they pay out more in interest charges on their loans or installment purchases than they saved by buying ahead. Most important, widespread panicbuying to beat price rises helps bring them about sooner—and bigger.

There are certain policies a family can adopt to protect the buying power of its beat-up dollars. Even in a period of rising prices, merchants and producers have legitimate sales which help to anticipate your needs. A retailer may realize coats will be more expensive next winter hut he can’t carry over broken assortments of sizes and colors. Businessmen sometimes build over-large inventories and must cut prices to get cash, which offers buying opportunities even in an inflation. During an inflation it’s important to make sure anything you buy is well-made and simply styled. Simple designs are less likely to go out of date, and more of your money goes into actual good construction.

These are weapons for battling inflation in your own home. And don’t try to run away from it all. If you go to Mexico, for example, you’ll find the cost of living has gone up 256% in the last decade. ir