Have you ever paused to think about the humble can of tomato soup in your pantry? It seems so simple, yet its changing price tag over the decades tells a fascinating and somewhat unsettling story about the very nature of the "money" we use every day. Imagine this: for a long stretch, nearly seventy years from the late 1800s well into the 20th century, that can of soup hovered around a mere ten cents. Then, in the early 1970s, something shifted. The price began a steep climb, and by recent years, it had soared, becoming roughly fifteen times more expensive than it once was. This trend continues, with the soup still inching upwards in cost.

But why? Surely, with modern technology, production should be cheaper. Machines now churn out hundreds of cans in the time it took to produce one in the 19th century when labor was far more intensive. Have tomatoes become a rare, exotic fruit? Are soup cans now crafted from precious metals? The answer, surprisingly, has little to do with the soup itself.

The Turning Point: When Money Became Currency

The real change occurred in our understanding and use of currency. Before 1971, the global economy operated largely under the Bretton Woods monetary system. This framework pegged world currencies to the U.S. dollar, which, in turn, was linked to gold. While the dollar wasn't entirely backed by gold reserves, this connection was substantial enough to maintain a degree of economic stability and keep prices relatively steady.

However, 1971 marked a pivotal moment. The U.S. government, under President Nixon, severed the dollar's direct convertibility to gold. This decision effectively ended the Bretton Woods system and ushered in an era where nations universally adopted fiat currencies. Fiat currency is government-issued money that is not backed by a physical commodity like gold or silver, but rather by the faith and credit of the government that issued it. Without the anchor of gold, the ability to create new currency became, in principle, unrestricted.

The narrative of the increasingly expensive tomato soup isn't really about the soup getting pricier; it's about the purchasing power of the dollar declining. What sits in our wallets or bank accounts, according to this view, isn't "money" in the traditional sense, but "currency." This distinction is crucial for understanding our financial well-being and the subtle psychological shifts that accompany changes in perceived value.

Money That Holds Value, Currency That Fades

What's the distinction? True money, it's argued, should retain its value over long periods. Currency, on the other hand, often does not. If you find this debatable, consider two questions: First, should money ideally preserve its value? If your answer is yes, then a second question arises: Does inflation exist? If prices for goods you bought last year are now significantly higher, say 30 percent more, it suggests you are transacting with currency, not enduring money. The feeling that your efforts yield less over time can be a source of significant psychological stress and insecurity.

Currency has a "price" too. When you buy groceries, you exchange your currency for the store's goods. Conversely, when you sell your labor, goods, or ideas, you are, in effect, "buying" currency. So, how has the dollar's purchasing power fared over the last century?

Let's revisit that tomato soup graph, but invert it. Instead of tracking the dollar cost of soup, let's see how many cans of soup one dollar could buy. For those 70 years, from roughly 1898 to 1971, one "real" silver dollar could consistently purchase about ten cans of Campbell's tomato soup. Today, with a modern fiat paper dollar, you'd be fortunate to buy even one full can. It’s estimated that since 1971, the dollar has surrendered a staggering portion, around 93 percent, of its purchasing power. It’s not that goods have become universally more expensive; rather, the dollar itself has become cheaper. This erosion of value can impact an individual's sense of control and future security.

The Critical Difference: Price vs. Value

There's a vast chasm between price and value. Price is merely a contractual figure – how many units of currency a product commands. Value, however, relates to what you can actually obtain or achieve with something. An awareness of this difference is key to understanding the financial world and can protect against certain cognitive biases in financial decision-making. A product's price can rise while its actual value concurrently falls.

Consider an investment property. You might have bought it, and over time, its market price doubled. That sounds like a win. But what if, during that same period, the overall cost of living quadrupled? Despite your investment's price increase, its real value—its power to command other goods and services—has effectively halved. Or imagine a job offer for a million dollars a month. Enticing, right? But if runaway inflation means that a loaf of bread costs sixty thousand dollars, that million suddenly loses its luster and the psychological comfort it might otherwise provide.

The investor who bought a house twenty years ago might see its price double on the market. But has its value doubled? That depends on the comparison. If compared to other modern real estate, it's unlikely the proceeds from selling that older house would be sufficient to buy two new ones. So, even with an increased price, its exchange value might have remained stagnant or even declined relative to newer, comparable assets. Understanding this helps calibrate expectations and financial planning.

The Lifecycle of Fiat Currencies

Today, every country uses fiat currency. History offers a somber lesson: all fiat monies eventually tend to return to their intrinsic value—zero. Over thousands of years, there have been numerous experiments with fiat currencies, and the typical lifespan from inception to collapse is often cited to be relatively short, historically speaking (some analyses suggest an average around 27 years, though this can vary widely). The record of uncontrollably printed currency successfully saving an economy long-term is bleak; artificial prosperity often gives way to financial reckoning. This historical pattern can create underlying anxiety about long-term financial stability.

When national currencies lose value, it's often because new currency is being created and injected into the economy. This new currency lacks genuine backing or corresponding value creation; it's like a placeholder. But if purchasing power is lost, where does that value disappear to? It doesn't just vanish. Instead, it's argued that this purchasing power is effectively transferred, often to the entities involved in creating and first distributing the new currency, such as central banks and financial institutions that can then inject this new, less valuable currency into the market.

It’s a subtle, almost imperceptible process. The money in your account looks the same as last year, but it buys less. As John Maynard Keynes, one of the 20th century's most influential economists, reportedly observed, through a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens, and not one person in a million may detect the theft. The psychological impact of such an unseen erosion can be a diffuse sense of unease or a feeling that economic goalposts are constantly shifting.

Selective Swelling: The Path of New Currency

If new currency is constantly being created, why doesn't hyperinflation hit immediately or uniformly? Fiat money often doesn't distribute evenly across an economy. It can lead to an oversaturation in certain sectors, forming financial bubbles. Perhaps you haven't noticed dramatic inflation in everyday retail goods over certain periods in the last twenty years because many have remained relatively cheap, partly due to globalized production and technological efficiencies.

However, a different kind of inflation has been more apparent: the rich have become significantly richer, and assets like real estate have seen sharp price increases. Newly created currency needs to find a home, and it often flows into financial assets, leading to this "selective inflation."

There's a striking visual often presented to illustrate this: a graph comparing the monetary base (the amount of money introduced by a central bank) with a broad stock market index, like the Wilshire 5000, which tracks the entire American stock market. Before around 2008, these two lines might have moved with some independence. However, after 2008, when central banks began to significantly expand the money supply through programs often termed "quantitative easing," the lines—monetary base and stock market valuation—began to move in remarkably close concert. An increase in the currency supply often mirrored a rise in the stock market's value, with correlations reported as high as 97 percent. This leads to the interpretation that stock markets, to some extent, have been sustained by these currency injections.

This era of quantitative easing has also coincided with a widening wealth gap. Graphs depicting the deposits of the wealthiest 10 percent versus the remaining 90 percent of the population show a dramatic shift. Before 2008, the middle and lower classes, in aggregate, held a larger portion of deposits. Since then, the figures have starkly reversed, with the top 10% now reportedly holding a significantly larger share (e.g., around 60% of deposits, while the other 90% hold a much smaller portion, perhaps around 33%). This isn't necessarily to blame entrepreneurs, who create businesses, products, services, and jobs. The argument is that the inflationary mechanism itself contributes to this redistribution. Such disparities can fuel social comparison, stress, and feelings of injustice.

Final Reflections

The core message here is a call to differentiate. To understand that money ideally retains value, while currency, as we largely use it today, may not. To recognize that every fiat currency in history has faced immense challenges to its longevity. And crucially, to distinguish price from true value. One of the essential functions of stable money is to be a reliable measure of value, much like a meter measures length or a kilogram measures mass. If our unit of financial measurement is itself unstable, it makes navigating the economic world profoundly more complex and can be a source of chronic uncertainty.

As we plan for the future, focusing on genuine value, rather than just fluctuating price tags, becomes ever more important for both financial resilience and psychological peace of mind. Understanding these dynamics can empower individuals to make more informed decisions and potentially mitigate some of the anxiety associated with economic volatility.

References:

• Keynes, John Maynard. (1919). The Economic Consequences of the Peace.

  This work provides insight into the early observations on inflation and its societal impacts by a foundational economist. Specifically, Chapter VI, "Inflation," discusses how governments can use inflation as a form of taxation and wealth confiscation, a theme echoed in the article's concerns about currency devaluation. "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."

• Fergusson, Adam. (1975). When Money Dies: The Nightmare of Deficit Spending, Inflation, and Hyperinflation in Weimar Germany.

  This historical account vividly details the collapse of a fiat currency (the German Papiermark) in the 1920s. It serves as a powerful real-world example supporting the article's assertion about the potential fate of fiat currencies and illustrates the devastating social and economic consequences of hyperinflation when faith in a currency is lost. It underscores the risks inherent in currencies not backed by tangible assets and the potential for rapid devaluation.

• Maloney, Michael. (2008, with subsequent editions). Guide to Investing in Gold and Silver: Protect Your Financial Future.

  This book aligns with the article's perspective on the distinction between money and currency, the historical role of precious metals as a store of value, and concerns about the long-term stability of fiat currency systems. It elaborates on concepts like the devaluation of paper currency and the potential for financial crises stemming from monetary policy, which are central themes in the provided text.