how can $8 I’m 1850 be $300 now how does that work and how do we math that.
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Its more about purchasing power – $8 is $8 no matter what date you are talking about, but what $8 _can buy you_ his highly dependent on when we are discussing.
To determine that, we tend to look at a basket of goods that existed across the time periods being discussed and see how the prices of those goods changed. For example, a dozen eggs is a commodity that hasn’t changed much, so if it used to cost $1 and now it costs $5 that is a pretty good indicator of how the purchasing power of $1 has gone down.
Of course, not all prices for goods change uniformly, which is why we look at the average change for an entire basket of goods to get an estimate. Technology is a good example of something that isn’t a great estimator. A cheap TV would cost $129 in 1950 and can cost $99 today, but that doesn’t mean that the value of currency has gone up – it just means that the cost of a TV has gone way down. You have to exclude outliers like that to get a good estimate.
It is as much art as it is sciences and the comparisons may not work for any individual good or service, but it is close _enough_ to help facilitate understanding about the change in currency value.
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