Is a Dollar Really Worth a Dollar?
What’s a dollar worth? This question constantly comes up on my weekly radio show. A question that prompts several answers, all accurate, depending on your point of view. The dollar is worth less but it’s also worth more than it used to be compared to years past. I can already hear you disagreeing.
Let’s start by defining what a dollar actually is and move on from there.
The United States went off the gold standard in 1971 during the Nixon Administration and became fiat money. Up to that in time, US dollars were backed up with gold. Now your dollars are backed by the “full faith and confidence of the United States of America.” In other words … an IOU.
Under fiat money, the US was able to begin deficit spending since dollars could be printed with a promise to pay on demand but not backed up by a tangible asset you could hold in your hand. The populous then found they could vote themselves “gifts,” or entitlements and earmarks, from the government. As a result, 53% of Americans pay taxes to provide free stuff for the other 47% who don’t pay any taxes. Is this a great country or what?
Getting back to the original question, “What’s a dollar worth today?” As I said earlier, it depends on your point of view. In 1964, I was making $2.00 an hour working at a glass factory in southern Illinois. In 2010 dollars, I would have to make $14.11 to have the same purchasing power today that I had then. Therefore, it would seem that the dollar is worth a lot less today than 46 years ago. Once again, it depends on your point of view.
Let’s look at this from a different perspective. If you go down to your local grocery store and buy a can of green beans, chances are it costs more than it did last year. In that example, my dollar will buy less than it used to. But, what about my cell phone? Can’t I get a better phone, for the same money today, than I could say … two years ago?
What about computers? A brand new computer is almost obsolete the minute you take it out of the box. In most cases, you will replace it, not because it’s worn out, but because it’s out of date. When I was growing up, things were built to last. Now, due of the rapid advancements in technology, you can get a better product, that does more, for almost the same or less than the original. People line up around the block to be the first to get the new iPod or iPhone. When videocassette recorders hit the market, they were $700 to $800. Today the CD has sent them the way of the eight track and they are less than $50 in some stores. Sure seems like the dollar can buy more than it used to.
Is your dollar worth more in Montana?
Again, it depends on your perspective. A $10.00 shirt at a Montana Wal-Mart would cost $10.90 at a store in California or New York because of sales tax. The same shirt might be a better value in states with no sales tax or state income tax. Therefore, in some cases it depends on where you are when you pull that dollar out of your pocket as to how much purchasing power you actually have. Gas stations close to the freeway off ramps often cost more per gallon than stations in town.
What determines the cost of a product?
Most people answer this question with, “Whatever the market will bear.” There is a small amount of truth in that. My last haircut was around $15.00. Yet, if I wanted a haircut on Rodeo Drive in Los Angeles, I would be paying around $400.00. Not sure I would pay that even if I could afford it. Nevertheless, the point is, not what the dollar is worth, but what is the value of spending the dollar to you?
I don’t ski or skateboard. Therefore, the price of these products is of no interest to me. They could be one dollar each and I would not feel the need to purchase them. How many of you reading this have ever bought a CD to get one song? I see many hands. Does that make sense? In order for our dollar to buy more value, we make an emotional decision, and then we create a logical argument to support that decision. One song $12.95, eleven free, I like it.
When it “positively, absolutely has to be there overnight,” it costs more. “When you care enough to send the very best,” it costs more. Box seats cost more. Premium is more than regular. The “large economy size” saves in the long run, but has a higher up front cost.
The bottom line is not what the dollar is worth, but how valuable is what the dollar will buy worth to you? If you don’t see the value of the product or service, for the price offered, you are not going to make that purchase. The dollar is not really worth anything. It’s only a tool used to fill a personal need and therein is the true value.
Tom Egelhoff is the host of “Open for Business” airing on AM 1450 KMMS, Saturdays 11-2 PM Mountain Time. His website is www.smalltownmarketing.com/ Check out Tom’s Radio Show, “Open for Business,” on http://kmmsam.com – Saturdays 11 – 2 PM Mountain Time. Click on Listen Live. Make friends with Tom on Twitter http://www.twitter.com/smalltownmarket and Facebook at http://bit.ly/bXrOwG