The Changing Value of Money

How can we work out the true value of money in the past? It depends how you do the sums.

Illustration by Darrel Rees.How wealthy was Mr Darcy? This question must have occurred to millions of readers of Pride and Prejudice when Jane Austen reveals that he was worth £10,000 a year. The sum certainly impressed Mrs Bennet, but does it – in modern terms – put Darcy among the super-rich or was he merely well off? What does £10,000 – which is only two fifths of the average wage in Britain today – mean to us when we read it today and what did it mean in the world of 1813?

Questions about the meaning of money in the past abound. The Crystal Palace, which housed the Great Exhibition of 1851, cost £85,800. A Lord of the Bedchamber, paying court to George II, was paid £1,000 a year. A ‘Tommy’ in the infantry in 1914 was paid one shilling a day, while his commanding officer got 28 times as much. What meaning do these numbers have?

Such sums of money are regularly quoted in history books but rarely converted into modern values. Even when they are, the results are sometimes misleading, even unbelievable. The greatest of English landscape gardeners, Lancelot ‘Capability’ Brown, took up his first post as head gardener to Lord Cobham at the beautiful garden of Stowe, Buckinghamshire in 1741; he was paid £25 a year. Two recent biographies of Brown bravely attempt to make this sum understandable to modern readers; one calculates its modern value to be £2,129 while the other suggests £3,125. Neither, unfortunately, are probable. Both are far below the wage of an unskilled labourer today; £2,129 would cover 272 hours or about seven weeks at the current minimum wage. It is inconceivable that Brown would have agreed to work for such a pittance. Something has gone wrong: but what?

An internet search for ‘convert historic UK prices’ turns up four sites. The first, Historical UK Inflation Rates and Calculator uses rates from the Office of National Statistics to convert prices between 1751 and 2018. The Bank of England inflation calculator, based on work by the Office for National Statistics and the House of Commons Library, describes ‘how prices in the UK have changed over time, from 1209 to 2017’ and converts any sum. The National Archives’ currency converter does the same for the period from 1270-2017 and also shows how many animals, stones of wool and quarters of wheat you could buy with that sum. Unfortunately, the National Archives does not now know what sources were used to construct the converter, although it is likely that they were mainly purchases by the royal household. Finally, gives access to a set of different comparators of relative values for the UK and several other countries, explains each of them and gives the sources on which they are based.

Bad maths

Readers of History Today in the UK are likely to turn first to the authoritative Bank of England – the guardian of our money – or to the National Archives – the guardian of our archival past. Using the Bank site, Lancelot Brown’s £25 in 1741 would have bought him goods and services worth £4,483.17 today. Turning to the National Archives, his pay would be worth approximately £2,955.43. It would, apparently, have bought him three horses, five cows, 53 stones of wool or 15 quarters of wheat and been the same as the wages of a skilled tradesman for 250 days. Historical UK Inflation Rates does not start until 1750, when £25 would have been worth, it calculates, £5,300. Finally, MeasuringWorth states that a ‘simple Purchasing Power Calculator’ would give a figure of £3,385, but adds a cautionary note: ‘This may not be the best answer.’ There is a very wide gap between the highest and lowest answers and all give results which are one fifth or less of the current average wage (about £25,000), let alone what a skilled landscape designer like Brown could expect.

Meanwhile conversions of Mr Darcy’s £10,000 a year also seem wide of the mark. MeasuringWorth puts his fortune at £620,000 in today’s prices, close to the Bank’s £659,509.20. The National Archives is much lower, at £465,252 and Historical UK Inflation Rates a bit higher, at £680,000. All think he had a pretty good income, certainly well within the top one per cent of the population, but it seems unlikely that any of these sums would have allowed him to maintain an estate and stately home – probably in Derbyshire – together with a house in London, each no doubt with a full complement of servants, let alone have enough spare to pay Wickham’s gambling debts.

There seems to be two problems with these comparators of relative prices. First, they give very different answers, although they allege that they are measuring the same thing. Second, all the answers they give seem much too low. Why?

It helps if one understands how the comparators are constructed. They have two components. The first is prices of a range of goods which the ordinary person might buy, such as bread, meat, beer or clothing and possibly rent or the cost of fuel; these are gathered from a range of archives or surveys. These prices have to be added together in a way which reflects the proportions which these items formed in the spending of an average person. If – as was the case in the past – bread accounted for 25 per cent of what the average person spent, then the price of bread has to have an influence of 25 per cent on the overall set of prices. This is known, in the jargon, as its ‘weight’ and the weights add up to 100 per cent. A calculation is then done for each year, multiplying the price of each good by its weight, adding the results together and finally dividing by the number of items to get an average price of goods for that year. Then, if the result is a figure of, say, £10 in 1800 but of £767 in 2017, we say that prices rose between those two dates by about 77 times. Another way of putting it is that £10 in 1800 equates to – or has the same ‘purchasing power’ as – £767 today.

What price bread?

This process leaves plenty of scope for disagreement between historians, while other discrepancies arise from the natural process of new discoveries of evidence in the archives. Different historians may trust, or distrust, some of the evidence of prices, but the main cause of debate is about the weights, the importance to be given in the calculations to the price of bread as against the price of beer or the cost of fuel. These weights have to change from one period to the next, to reflect changes in consumption and the availability of new products, so inevitably they are very different for the 14th century than from today. In fact, until the late 19th century, food made up about half of all expenditure and half of that was bread. Few people today spend their money like that.

This is what explains the comparators’ consistent failure to provide believable answers to our questions about Capability Brown or Mr Darcy. The price indexes for historical periods are based on goods that have become a smaller and smaller part of our spending; in addition, all the goods have got cheaper as production methods have improved or imports have replaced home production. Price indexes give reasonable results for the recent past – perhaps one can rely on them for one’s own lifetime – but they are misleading over longer periods.

So what method might give more believable results? The first is a systematic version of a technique which is used quite often by historians, to put a money value in context by quoting the average wage of someone at the time, such as an agricultural labourer. There are voluminous records, dating back into the early Middle Ages or even before, of wages and other income of labourers and craftsmen; these can be combined – taking account of the relative numbers of people in each trade – into an index of average earnings. Then, if we want to compare money values from the past with the present, we say that a sum which was 150 per cent of average earnings in 1850 equates to a sum which is 150 per cent of average earnings today. These figures are worked out at MeasuringWorth.

Pay gap

The graph below shows the results for the last 350 years. It shows that £1 in 1660 equates to £2,000 today, while £1 in 1800 was worth about £1,000 today.

The modern equivalent of £1 spent at a date in the past, using a comparison with average earnings.

Equipped with this tool, let’s return to our examples. Capability Brown’s wage of £25 in 1741, which by a price index equates to £3,385 today, comes out via the earnings index as £46,760. It is not munificent, but it is well above today’s average earnings of about £25,000 a year and it was, after all, his first job as a head gardener. He also got a housing allowance of £10, so his total pay equates to a very believable £65,470 today.

Meanwhile Mr Darcy’s income of £10,000 a year, far above that of a labourer in 1813, equates to £7,305,000 today, putting him in the same league as chief executives of major British companies – although, of course, he had inherited all the wealth that gave him this income. If he had done some work, for example as a Gentleman of the Bedchamber to George III, he might have been paid an extra £730,000 for spending a few months of the year at the Court of St James’s. It was a very unequal society, as it continued to be; a Tommy in the First World War was paid £16.50 a day in today’s values; his Colonel got £462.

Comparators based on earnings are not infallible. There is plenty of scope for argument about the correct weights to assign to different trades and even more about how to take account of changing hours of work as well as the seasonal unemployment or underemployment which afflicted many occupations. Moreover, just as bread has become a smaller element of our diet, so has the cost of labour become relatively less important as more and more jobs are done by machines.

Poor past

That is why there is a case, particularly when one is trying to compare the cost of very large and complex items such as a stately home or the Crystal Palace, for a final alternative method. This is based not on multiples of average earnings but on fractions of Gross Domestic Product (GDP), the usual measure of the total value of all goods and services sold in the country in a year.

MeasuringWorth again does the sums. The cost of the Crystal Palace was £85,800 in 1850, which equates to £8.7 million by the price index, £66.3 million by the earnings index and £319 million by comparing fractions of GDP. It seems a lot, but remember that the Millennium Dome at Greenwich, now the O2 centre, cost £700 million.

There is no right or wrong indicator of relative values. Some comparators give more believable answers than others but each has to be chosen to suit the particular question. However, it is fair to say that the use of the retail price index – by far the most common procedure – is unlikely to be suitable for comparisons over more than about 50 years and that its use for longer periods has misled many historians and their readers. Compared with today, people were poor in the past but not as poor as the most commonly used calculations make us think.

Roderick Floud is an economic historian and former Provost of Gresham College London. His book, An Economic History of the English Garden, will be published by Penguin in November 2019.


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