When reading an old novel or watching a period drama movie or TV show, it is almost inevitable that some historical currency amounts will be mentioned. This is especially true when the work is dealing with money and wealth, for example the series “The Gilded Age” is about rich people in late 19th century America. So money comes up a lot. I wrote a post a few weeks ago trying to contextualize a figure of $300,000 from 1883 for that show.
A new Netflix series “The House of Guinness” is another period piece that spends a lot of time focusing on rich people (the family that produces the famous beer), as well as their interactions with poorer folks. So of course, there are plenty of historical currency values mentioned, this time denominated in British pounds (the series is primarily set in Ireland, where the pound was in use). On this series, though, they have taken the interesting approach of giving the viewers some idea of what historical currency values are worth today, by overlaying text on the screen (the same way they translate the Gaelic language into English).
For example, in Episode 4 of the first season, one of the Guinness brothers is attempting to negotiate his annual payment from the family fortune. He asks for 4,000 pounds per year. On the screen the text flashes “Six Hundred Thousand Today.”
The creators of the show are to be commended for giving viewers some context, rather than leaving them baffled or pausing the show to Google it. But is 600,000 pounds today a good estimate? Where did they get this number? As with the “Gilded Age” estimate, it’s complicated, but it is probably more than you think.
My new article, “Prohibition and Percolation: The Roaring Success of Coffee During US Alcohol Prohibition”, is now published in Southern Economic Journal. It’s the first statistical analysis of coffee imports and salience during prohibition. Other authors had speculated that coffee substituted alcohol after the 18th amendment, but I did the work of running the stats, creating indices, and checking for robustness.
My contributions include:
National and state indices for coffee and coffee shops from major and local newspapers.
A textual index of the same from book mentions.
I uncover that prohibition is when modern coffee shops became popular.
The surge in coffee imports was likely not related to trade policy or the end of World War I
Both demand for coffee and supply increased as part of an intentional industry effort to replace alcohol and saloons.
An easy to follow application of time series structural break tests.
An easy to follow application of a modern differences in differences method for state dry laws and coffee newspaper mentions.
Evidence from a variety of sources including patents, newspapers, trade data, Ngrams, naval conflicts, & Wholesale prices.
Generally, the empirical evidence and the main theory is straightforward. I learned several new empirical methods for this paper and the economic logic in the robustness section was a blast to puzzle-out. Finally, it was an easy article to be excited about since people are generally passionate about their coffee.
Bartsch, Zachary. 2025. “Prohibition and Percolation: The Roaring Success of Coffee During US Alcohol Prohibition.” Southern Economic Journal, ahead of print, September 22. https://doi.org/10.1002/soej.12794.
Housing is certainly more expensive than in the past. I have written about this several times, including a post from last year showing that between about 2017 and 2022 housing started to get really expensive almost everywhere in the US, not just on the West Coast and Northeast (as had previously been the case). I don’t think the housing affordability crisis is in serious doubt anymore, and it can’t be explained over the past few years by increasing size and amenities, since those haven’t changed much since 2017 (though it is relevant when comparing housing prices to the 1970s).
But why did this happen? Knowing why is crucial, not merely to blame the causes, but because the policy solution is almost certainly related to the causes. I and many others have argued that supply-side restrictions, such as zoning laws, are the primary culprit. The policy solution is to reduce those restrictions. But a recent op-ed titled “Why your parents could afford a house on one salary – but you can’t on two,” the authors place the blame for housing prices (as well as the stagnation of living standards generally) on a different factor: Nixon’s 1971 “severing the dollar’s link to gold.” The authors have a book on this topic too, which I have not yet read, but they provide most of the relevant data in this short op-ed.
Does their explanation make sense? I am skeptical. Here’s why.
That’s exactly what he tried to do this past Monday. Trump announced on social media that Lisa Cook, appointed by Biden in 2022, is now fired. Things are about to get awkward.
First, Trump can’t simply fire Fed governors willy-nilly. Remember when DOGE was involved in all of those federal workforce lay-offs earlier in the year? I know, it seems like forever ago. The US Supreme Court ruled on the legality of those firings, including some at government corporations and ‘independent agencies’. The idea behind such entities is that they are supposed to be politically insulated and less bound by the typical red tape of the government. But Trump’s administration argued that the separation from the rest of the executive branch is a fiction and that there is no one else in charge of them if not the president. The Supreme Court agreed with the administration, with one exception.
In 1967, about 56 percent of families in the US had incomes between $50,000 and $150,000, stated in 2023 inflation-adjusted dollars. In 2023, that number was down to 47 percent. So the American middle class shrunk, but why? (Note: you can do this analysis with different income thresholds for middle class, but the trends don’t change much.)
As you can see in the chart, the proportion of families that are in the high-income section, those with over $150,000 of annual income in 2023 dollars, grew from about 5 percent in 1967 to well over 30 percent in the most recent years. And the proportion that were lower income shrunk dramatically, almost being cut in half as a proportion, and perhaps surprisingly there are now more high-income families than low-income families (using these thresholds, which has been true since 2017). The number is even more striking when stated in absolute terms: in 1967 there were only about 2.4 million high-income households, while in 2023 there were 11 times as many — over 26 million.
Is this increase in family income caused by the rise of two-income households? To some extent, yes. Women have been gradually shifting their working hours from home production to market work, which will increase measured family income. However, this can’t fully explain the changes. For example, the female employment-population ratio peaked around 1999, then dropped, and now is back to about 1999 levels. Similarly, the proportion of women ages 25-54 working full-time was about 64 percent in 1999, almost exactly the same as 2023 (this chart uses the CPS ASEC, and the years are 1963-2023).
But since the late 1990s, the “moving up” trend has continued, with the proportion of high-income families rising by another 10 percentage points. Both the low-income and middle-income groups fell by about 5 percentage points. Certainly some of the trend in rising family income from the 1960s to the 1990s is due to increasing family participation in the paid workforce, but it can’t explain much since then. Instead, it is rising real incomes and wages for a large part of the workforce.
Two ideas coalesced to contribute to this post. First, for years in my Principles of Macroeconomics course I’ve taught that we no longer have mass starvation events due to A) Flexible prices & B) Access to international trade. Second, my thinking and taxonomy here has been refined by the work of Michael Munger on capitalism as a distinct concept from other pre-requisite social institutions.
Munger distinguishes between trade, markets, and capitalism. Trade could be barter or include other narrow sets of familiar trading partners, such as neighbors and bloodlines. Markets additionally include impersonal trade. That is, a set of norms and even legal institutions emerge concerning commercial transactions that permit dependably buying and selling with strangers. Finally, capitalism includes both of these prerequisites in addition to the ability to raise funds by selling partial stakes in firms – or shares.
This last feature’s importance is due to the fact that debt or bond financing can’t fund very large and innovative endeavors because the upside to lenders is too small. That is, bonds are best for capital intensive projects that have a dependable rates of return that, hopefully, exceed the cost of borrowing. Selling shares of ownership in a company lets a diverse set of smaller stakeholders enjoy the upside of a speculative project. Importantly, speculative projects are innovative. They’re not always successful, but they are innovative in a way that bond and debt financing can’t satisfy. Selling equity shares open untapped capital markets.
With this refined taxonomy, I can better specify that it’s not access to international trade that is necessary to consistently prevent mass starvation. It’s access to international markets. For clarity, below is a 2×2 matrix that identifies which features characterize the presence of either flexible prices or access to international markets.
SPOILER ALERT FOR THE THIRD SEASON OF THE GILDED AGE
In Season 3 of the drama series “The Gilded Age,” one of the servants (Jack, a footman) earns a sum of $300,000 by selling a patent for a clock he invented (the total sum was $600,000, split with his partner, the son of the even wealthier neighbor to the house Jack works in). In the series, both the servants and Jack’s wealthy employers are shocked by this amount. Really shocked. They almost can’t believe it.
How can we put that $300,000 from 1883 in New York City in context so we can understand it today?
A recent WSJ article attempts to do that. They did a good job, but I think more context could help. For example, they say “Jack could buy a small regional bank outside of New York or bankroll a new newspaper.” Probably so, but I don’t think that quite conveys the shock and awe from the other characters in the show (a regional bank? Ho-hum).
First, the WSJ states that the “figure nowadays would be between $9 and $10 million.” That’s just doing a simple inflation adjustment, probably using a calculator such as Measuring Worth (it’s a good tool, and they mention it later in the story). But as the WSJ goes on to note, that probably isn’t the best way to think about that figure.
Here’s my best attempt to contextualize the $300,000 figure: as a footman, Jack probably made $7 to $10 per week. Or let’s call it $1 per day. That means Jack’s fellow servants would have had to work 300,000 days to earn that same amount of income — in other words, assuming 6 days of work per week, they would have had to work for almost 1,000 years to earn that much income. Jack appears, to his co-workers, to have earned that income almost in one fell swoop (though in reality, he spent months of his free time toiling away at the clock).
Arrrr, me hearties! What think ye of a venture to raise a gigantic hoard of sunken treasure?
The story begins with the last voyage of RMS Republic. This was a luxurious passenger steamship of the White Star Line, which sailed between Europe and America.
Republic was a large vessel (15,000 tons displacement) for her day, and was known as the “Millionaires’ Ship” for the number of wealthy Americans who sailed back and forth on her. A number of such magnates were aboard on her last voyage. In January, 1909 Republic left New York City with passengers and crew, bound for Gibraltar and Mediterranean ports. In thick fog off the island of Nantucket, Republic was rammed amidships by the Italian liner Florida. Florida’s bow was crumpled back, but she stayed afloat. The damage to Republic was fatal. The engine rooms flooded, the ship began to list, and it was clear that the passengers needed to be evacuated.
Using the new-fangled Marconi “wireless” apparatus, a CQD distress signal was broadcast by radio operator Jack Binns. This was the first wireless transmission that resulted in a major life-saving marine rescue. (Binns had to scramble and improvise to get this done, since his apparatus had been damaged and the ship’s power was lost as a result of the collision, so he was a technology nerd turned hero, duly lauded by a ticker-tape parade). It was hard for other ships to locate Republic in the fog, but eventually nearly all the passengers and crew from Republic and from the damaged Florida were safely transferred to other ships.
As was the custom of the time, she did not carry enough lifeboats to hold all the passengers, but only enough to ferry them to some other ship; it was assumed that on the busy Atlantic route there would always be other large ships around. (That scheme played out well with the Republic, but when sister White Star liner Titanic sank four years later, the dearth of lifeboats helped doom some 1,500 people to a watery grave.) Despite efforts to save her, Republic went down stern-first on January 24. She was the largest ship ever to sink at the time. There were reports at the time that she was carrying some $3 million (1909 dollars) of gold, which went down with the ship. That would translate to hundreds of millions of dollars today for that gold.
But wait, there’s more, maybe much more. Enter a modern-day pirate, Martin Bayerle:
Bayerle looks like a pirate, sporting a genuine eyepatch covering an eye lost in an explosives accident. He killed a man who was fooling around with his wife, which seems like a piratical thing to do, and he is after a ship’s gold. His salvage enterprise is even formally described in legal court papers as “modern day pirates”.
His company, Martha’s Vineyard Scuba Headquarters, Inc. (“MVSHQ”), acquired salvage rights to the wreck of the Republic. In 2013 he published a book, The Tsar’s Treasure, detailing his thesis that Republic carried far more gold than was publicly acknowledged. He notes that there was no formal inquiry regarding the sinking of Republic, which was highly unusual and is suggestive of a cover-up. Cover-up of what?
Well, Europe at the time was a tinder box of potential conflict, which did in fact erupt five years later in World War I. Czarist Russia was a key part of the European military equation. Britain was counting on Russia to help contain the emerging militaristic Germany. Russia had incurred huge debts in its disastrous war with Japan in 1905. Russia was about to issue a new round of bonds in 1909, to roll over its debt from 1905. It was critical that that bond issuance would go forward.
Bayerle believes that a large amount of gold was stashed in the hold of the Republic, destined for European banks, to support the Russian bonds of 1909. The revelation that that gold was lost would have jeopardized this crucial financial transaction, perhaps leading to Russia’s collapse, which is something Britain could not afford. Hence, the cover-up. Bayerle estimates that the value of this trove is up to $10 billion in today’s money. Shiver me timbers!
This geopolitical speculation, together with stories of failed previous salvage attempts on Republic, all make for a rollicking yarn. Is it for real? Nobody knows, but Bayerle is offering investors a chance at a slice of the booty. If you are inclined to “Dare to dream the impossible” (per the website), you have the opportunity to invest in his Lords of Treasure enterprise as they make a dive on the site this summer.
I don’t happen to have that much risk appetite, but it should be an interesting story to follow.
UPDATE
According to the June 2025 Lords of Fortune Newletter, salvage operations originally slated for 2025 are being put off till 2026, as funding is still being developed. We note the technical challenge of picking through hundreds of tons of steel plate and girders, deep underwater, in search of a smallish volume of gold. On the other hand, Capt. Bayerle’s recent researches suggest the gold trove may be even larger than earlier estimated, up to some $30 billion. So high risk meets high reward here. It seems ironic that VC’s will throw say $300 million into dubious tech unicorns or the latest crap-coin, but eschew a pretty sure bet of at least breaking even here (if only the lowest estimates of the Republic gold pan out) with a good shot at 10X-ing their investment. We will stay tuned.
In the Road to Serfdom, Friedrich Hayek uses some basic quantitative logic to make an important point about employment and political economy.
Hayek starts by assuming that government jobs are stable relative to those in the private sector. This might seem obvious, but let’s just start by checking the premises. Below are the percent change in total compensation and total employment for government employees and for the private sector. From year to year, private employment and total compensation is more volatile. So, Hayek’s initial premise is correct.
From there, he proceeds to say that if any part of income or employment is guaranteed or stabilized by the government, then the result must be that the risk and volatility is borne elsewhere in the economy. He reasons that if there is a decline in total spending, then stable government pay and employment implies that the private sector must have a deeper recession than the overall economy. Looking at the above graphs, both government employment and the total compensation are much less volatile.
But can’t governments intervene in macroeconomic stabilization policies effectively? Yes! They can and do stabilize the economy, especially with monetary policy. But Hayek is referring to individual stabilizations. For any individual to be guaranteed an income, all others must necessarily experience greater income volatility. How’s that?
Consider two individuals. Person #1 has an average income of $100. In any given year, his income might be $10 – or 10% – higher or lower than average. For the moment, person #2 is not employed and has income volatility of zero. If the government provides a job with a constant pay rate to person #2, then they still have zero income volatility. But instead of earning a consistent $0, person #2 earns a consistent $50. Nice.
Of course, person #2 gets his pay from somewhere. By one means or another, it comes from person #1. Let’s be generous and assume the tax on person #1 has no resulting behavioral effect. His new average income is $50, being $10 higher or lower in any given year. But now, that $10 deviation is over a base of $50 rather than $100. Person #1’s income varies by 20% relative to his new average!
Reasoning through this, we can consider that a person has a stable portion of their income and a volatile portion. If someone takes a part of your stable portion and leaves you with all of your volatile portion, then your remaining income is now more volatile on average. I think that this point is interesting enough all by itself.
IRL, many of our taxes are not lump sum. Rather, progressive taxation causes a negative incentive for production & earnings. The downside is that we produce less. The upside is that the government takes a higher proportion of our volatile income than of our stable income (because income changes are always on the margin and those marginal dollars are taxed at a higher rate). So, the government shares the income volatility of the private sector. By continuing to pay government employees a stable salary, the government is effectively absorbing some of that year-to-year income volatility on behalf of its employees.* The government is, in a sense, providing income insurance to a subgroup.
What does this have to do with The Road to Serfdom? Hayek argues that, as the government employs an increasing proportion of the population, the remaining private sector experiences increasing income and employment volatility. Such volatility increases private risk exposure so much that people begin to fawn over and increasingly compete for the stability found in government work. He gets anthropological and argues that the economic attraction to government jobs will introduce greater competition for those jobs and subsequently greater esteem and respect for those who are able to get them. This process makes the government jobs even more attractive.
My own two cents is that there is nothing internally unstable about this process. Total real income would fall compared to the alternative. However, such a state of affairs might be externally unstable as other governments/economies compete with the increasingly socialist one.
*An important analogue is that firms behave in a similar way. An individual may receive a relatively constant salary so long as they are employed. But the result must be that the firm bears more of the net-profit volatility. So, as more people want stable private sector jobs, the profit volatility of firms would increase and result in greater [seemingly windfall] profits and losses.
I had planned to write about the Trump-BLS fight today. But considering that two of my co-bloggers have already written about this (Mike on Monday and Scott on Tuesday) and that I have written about supposedly “fake” jobs numbers before several times (see January 2024 and August 2024), I will hold off on that topic until all of the dust settles. But this is a very important topic, and I believe Trump is clearly in the wrong (as is Kevin Hassett, see my tweets from this week), so please do continue to follow this topic and sane voices on it (see a Tweet from Ernie Tedeschi and from me for a long-run perspective on data accuracy).
But now, on to something a little more light-hearted: is everyone traveling to Europe these days?
Judging by my Facebook feed, it seems that Yes, lots of people are traveling to Europe. But this could be a result of selection bias in at least two ways: the people I am friends with on Facebook, and what people choose to post about on Facebook.
So what does the hard data say? We actually have pretty good long-run data on this question. In short: yes, lots more Americans are traveling to Europe (and overseas generally). Though don’t worry: not everyone went to Europe this summer, despite what social media might have you believe.
For starters, here’s a chart showing three decades of US overseas travel:
Economist Writing Every Day 
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