I took the big financial dive and purchased a copy of How Much Is That In Real Money? by John J. McCusker and published by the American Antiquarian Society in 1992. I’m hoping to use it to analyze some amounts from estate inventories and deeds. I’ll do so keeping in mind that any such analysis is fraught with complications.
One area of interest is the current value of a valued item (farm, estate inventory item, monthly wage, rent, etc.) in today’s economic climate. While I fully understand the concept of the time value of money, present values of lump sums, future values of lump sums, inflation, etc., I sometimes have difficulty with those websites that allow someone to enter in an amount from 1850 and convert it into 2020 terms.
Using the present value/future value calculator at www.wolframalpha.com, I came up with some values for the worth of a farm purchased by my great-grandfather in 1924 from his father’s estate. The range of current values ($8000-$10000 per acre) was converted to the value range in 1924 ($521-$652). Great-grandfather paid $200 an acre for the property in 1924 as per the terms of his father’s will.
According to the present value, great-grandfather got a bargain as he did not even pay half of the 1924 value of today’s value. One could even say he got it for a song.
Not so fast.
Great-grandpa was not dropping an amount into a savings account in 1924 to leave it hanging around for me to cash out in 2020. He was purchasing a farm in 1924. To see if the price he paid in 1924 was low, high, or reasonable in 1924 I need to compare the price he paid with the price paid for similar pieces of property in 1924. To date, I’ve not done that yet, but I have a difficult time believing that the price he paid to his siblings was only a fraction of it’s relative value at the time. I need to do that.
At this point all I have is a quote from my Grandfather when I told him what his Dad had to pay for the farm in 1924. “That was a lot of money. No wonder they had a hard time for quite a few years.” Granddad may be correct–or he may not be correct. But contemporary prices of land are what I need to make my comparison to–at least in my opinion. That’s going to require some contemporary research.
On a side note a piece of cropland today that was owned by your relative in 1850 that’s highly valuable may be valuable partially because in 1880 a new owner finished clearing off most of the trees and brush and because in 2016 the present landowner made a significant investment in tiling that property. Because of those improvements that property today may be worth more than neighboring pieces of property than it was in 1850.
Great-grandfather did not purchase that piece of property in 2020. He purchased it in 1924. That value needs to be analyzed in that context.