Tuesday, 2 July 2013

How has the value of the pound changed since 1750?

Here I provide three graphs depicting how the value of the pound has changed over the last two-and-a-half centuries. The first two graphs are taken directly from the  paper Inflation: The Value of the Pound 1750-2011, which can be found at the House of Commons Library. The third graph uses data from that paper.

As the first two graphs show, prices remained at a more-or-less constant level until the early 20th century, at which time they assumed an upward trend. This upward trend remained relatively gentle until the late 1960s. It then became extremely steep during the 1970s, before shallowing-out again in the 1980s and 1990s. The magnitudes of these changes are illustrated most clearly in the second graph. Prices in 1900 were no lower nor higher than they had been in 1800. But between 1900 and 2000 they increased approximately a hundredfold. This implies that if someone put a pound under her mattress in 1900, it would have lost close to 99% of its original value by 2000.

As is well-known (and as noted above), inflation was particularly rapid during the 1970s. This can be seen most clearly in the third graph. By the end of the decade, the purchasing power of the pound had fallen by an astounding 72%. At this rate of inflation, it would have taken only 4 more years for the pound to lose 99% of its 1970 value.

It is no secret that the changes described above are primarily the result of monetary policy on the part of the Bank of England. For exaxmple, the picture is exactly the same in the United States. Obviously, however, just because the value of the pound has diminished over the course of the 20th century, it does not mean monetary policy has done more harm than good. Indeed, most non-Austrian economists would argue that having some form of monetary policy is sensible--if not essential. My purpose in this post is not to evaluate the merits of monetary policy; just to lay out the historical evidence of price changes in the British economy.


  1. This is most interesting, and confirms the almost incredible stability of the currency until quite recently, and also my own subjective experience of its rampant devaluation in my own life time. So nice when statistics seem to conform with actual experience!

  2. Also, I can't help wondering if there's any connection with the decimalisation of the currency? It was basically the same money for centuries, in pounds, shillings and pence; then when it went decimal in 1970(?) even at the time people noticed and immediate hike in prices.