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Inflation is the most universal tax nobody voted for. Since the US Federal Reserve was founded in 1913, the dollar has lost over 97% of its purchasing power. A basket of goods that cost $100 in 1913 costs roughly $3,200 today. But the erosion isn't uniform — it accelerates during wars, recessions, and supply shocks, then slows during stability. The key insight: inflation doesn't destroy money, it transfers purchasing power from savers to borrowers and from the present to the future. Understanding it physically — as stacks of bills that shrink over decades — makes the abstract viscerally real.

In 1950, $100 could buy 20 gallons of gas ($0.27/gallon), two weeks of groceries for a family of four, a new suit, or four months of rent in a rural area. Average US household income was $3,300 per year — meaning $100 represented about 3 weeks of average earnings. In physical cash, the dollar was smaller (the same size as today but backed by Bretton Woods gold convertibility until 1971). The purchasing power felt enormous to modern eyes: a movie ticket was 46 cents, a new car $1,500. That $100 in 1950 dollars is equivalent to roughly $1,290 today — a 12.9x multiplier in nominal terms.

The 1970s delivered America's most destructive peacetime inflation, peaking at 14.8% annually in 1980. The causes: Nixon ending gold convertibility in 1971, two OPEC oil shocks (1973, 1979), and expansionary fiscal policy. $100 in 1970 became equivalent to $50 in real terms by 1980 — cutting purchasing power in half in just ten years. The physical equivalent: your $100 bill stack from 1970 would need to double in size just to buy the same things in 1980. Fed Chair Paul Volcker ended the crisis with interest rates above 20%, triggering a deep recession but permanently breaking double-digit inflation.

The 1990s were the best decade for dollar stability since the 1950s. Average inflation: 3.0% — above target by today's standards but historically moderate. $100 in 1990 retained about $72 of purchasing power by 2000. The stock market boomed, real wages grew, and the federal government briefly ran surpluses. Technology deflation (computers, TVs) partially masked inflation in services (healthcare, education). The digital economy began decoupling prices from physical production costs. This era gave people false confidence that low inflation was the default state of modern economies — a belief that the 2020s would severely test.

COVID-19 triggered the most significant inflation event in 40 years. The combination of massive fiscal stimulus ($5+ trillion in the US), supply chain collapse, and energy shocks drove CPI to 9.1% in June 2022 — the highest since 1981. $100 in January 2020 had the purchasing power of about $83 by 2024 — a 17% loss in just four years. In physical terms: your January 2020 $100 bill stack buys what $83 worth of bills would have bought four years earlier. The Fed raised rates 11 times between 2022 and 2023, bringing inflation back toward 3% — but the cumulative damage to purchasing power was permanent.

The US has not introduced a new denomination since the $100 bill in 1914. The $20 bill — the most-circulated denomination — loses value every year but never increases. In 1950, a $20 bill bought four movie tickets plus popcorn and change. In 2024, it barely covers one ticket. The $1 bill's purchasing power has collapsed so thoroughly that minting pennies costs more than they're worth (the US Mint loses money on every penny and nickel produced). Countries that indexed their denominations to inflation (like Brazil's repeated currency reforms or Turkey's removal of six zeros from the lira) made the inflation visible. The US strategy of keeping denominations static makes it invisible — and therefore more psychologically tolerable.

The Federal Reserve targets 2% annual inflation — not zero. Why accept any inflation? Three reasons. First, mild inflation prevents deflation, which causes consumers to delay purchases, destroying economic growth. Second, it gives central banks room to cut rates during recessions (hard to do from zero). Third, moderate inflation gradually erodes debt burdens, easing deleveraging after financial crises. But 2% compounding is not benign: over 35 years (a typical working career), 2% annual inflation halves purchasing power. Your $100,000 saved at age 30 buys only $50,000 worth of goods at age 65 in constant dollars. The Federal Reserve calls this price stability. Savers call it losing half your money in slow motion.

The Inflation Time Machine: What $100 Was Worth in 1950, 1970, 1990, 2010

The Invisible Tax

Inflation Time Machine

1950: The Post-War Dollar

1970–1980: The Great Inflation

1990–2000: The Goldilocks Era

Basket of Goods Over Time

2020–2024: The Post-Pandemic Surge

The Denominations That Didn't Keep Pace

The 2% Target Explained

Average Inflation by Decade

Sources & References

Alp Yalay

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