Debasement of the United States Dollar, Part I

Sturgeon Moon, 09 August 2025

A constant source of frustration for me is the use of the United States dollar (USD) as a measure of value. This is deliberately misleading on several levels. First, of course, is that the USD does not have a constant value. It depreciates over time at an uneven rate. Imagine trying to describe the physical universe where fundamental values like the meter, the second, and the kilogram have different values depending on the time of measurement. Science would be impossible. A second, more subtle misdirection, is that an increase in the quantity of USD seemingly indicates an increase of value or wealth. This is clearly not true. $100 today is not worth more than $10 in 1960. A third misdirection is that the USD, a fiat currency, is inherently worthless.

Economists and political functionaries may try to compensate for the former two deficiencies by “adjusting” the USD for inflation (the debasement of the currency). This, however, often introduces even more bias into the discussion, as there is no standard method for said adjustment. These adjustments, sadly, are usually driven by political agendas, and thus reflect ideological predilections, rather than reality.

In this current post (and future posts), I attempt to remedy the situation by proposing a method for assessing the USD’s real value at any point in time. This involves evaluating the USD with respect to three commodity benchmarks, specifically wheat, oil, and gold.

Before discussing the details, however, I would like to address another concern. That concern is the use of the term “inflation”. Measuring the debasement of the USD by inflation is misleading, probably deliberately so. An increase in inflation subtly suggests improvement (bigger is better), when, in reality, said increase is deterioration. I believe that discussion of value is better served by using an index where deterioration or decline is indicated by a decrease in a numeric quantity.

Strangely enough, or as I suspect, deliberately, there is no such universally accepted measure. I thereby take it upon myself to define a debasement index for the USD, where debasement is the reciprocal or inverse of inflation. A decrease in the debasement index indicates a deteriorating USD.

Consider an inflation rate of 25%. The corresponding debasement index is 80%. This means that when the USD is inflated 25%, the post-inflated USD only has 80% of the purchasing power of the pre-inflated USD. In pure numbers, 25% inflation means 1.25. The reciprocal of 1.25 is .80 (1.25 x .80 = 1.00), or, as I express it, 80%.

My attempt to recalibrate the USD is to examine its purchasing power with respect to three universally recognized commodities: wheat, oil and gold. Wheat is defined as the cost of a bushel of wheat at any point in time, denominated in USD. Oil is defined as the cost of a barrel of West Texas Intermediate crude oil denominated in USD. Gold is defined as the cost of one ounce of gold, again denominated in USD.

I think the purchasing power of the USD against these three commodities (agricultural, energy, precious metals) is a valid first-order estimate of the USD’s value. Each of these three commodities contributes equally to my index of USD purchasing power.

I analyze data from the years 1959 to 2024. I obtained wheat, oil, and gold prices, and the S&P 500 index from:

I obtained average annual wages in the United States from:

When more USD is required to purchase a fixed quantity of a commodity (such as a barrel of oil), the debasement index decreases accordingly. If twice as much USD is required for the purchase, this is indicated by a halving of the debasement index. Consider the example where the debasement index is 80% in year X when a barrel of oil costs 50 USD. If it then costs 100 USD to purchase a barrel in year Y, the debasement index becomes 40%.

It is exceedingly instructive to segment our analysis into two time periods: 1959-1970 and 1972-2024. Up until 1971, the USD was, at least officially, tethered to the price of gold. In theory, if a non-US entity presented the US government with 35 USD, the US government was required to redeem that USD with one ounce of gold. This restricted the supply of USD to the amount of gold possessed by the US government. In 1971, Richard Nixon, unwilling to accept such fiscal restraint, untethered the USD from gold, making the USD a (inherently worthless) fiat currency. The period of 1959-1970 thus represents a period of a valuable sound currency. 1972-2024 represents a period of a deteriorating fiat currency.

Table 1

Table 1 shows the purchasing power of the USD at the key years of 1959, 1970, 1972, and 2024. The raw numbers are the USD required to purchase a bushel of wheat, a barrel of oil, and an ounce of gold in those respective years. The debasement percentages reflect the purchasing power of the USD when compared to the base year 1959. For example, looking at oil, we see a raw 1959 price of 2.98 USD. The raw price in 1970 was 3.35 USD. The debasement is 2.98/3.35 = .890 = 89.0%. A 1970 USD could only purchase 89% as much oil as a 1959 USD. At 76.55 USD in 2024, a 2024 USD could only purchase 3.9% as much oil as a 1959 USD. The total USD debasement in the right-most column is the equally weighted average of the three commodity debasements.

The deterioration of the USD after 1971 is striking. Notice that the USD actually appreciated by 5.4% over the 11-year period from 1959 to 1970 (105.4/100 = 105.4 = 5.4% increase over 100%). Debasement over this 11-year period by the index that I define here is 105.4% (actually enhancement). The average annualized debasement is 100.48%. In terms of inflation, this 11-year period has a negative inflation (deflation) rate of -5.12%, with an annualized rate of -0.46%.

Contrast that with 1972-2024. The debasement over this 52-year period was 12.1%/84.4% = 14.3%. A 2024 USD had only one seventh the purchasing power of a 1972 USD. The average annual debasement is 96.33%. Inflation over this 52-year period was 599%, with an average annual rate of 3.81%.

Figure 1

Figure 1 shows the annual change in the purchasing power of the USD with respect to the three commodities. The three commodities and total debasement are standardized to 100% in the year 1959. The USD shows a loss of purchasing power after 1971 for all three commodities, but at different rates. Purchasing power against wheat is a relatively slow decline. This is not an indicator of the USD’s value, but rather, testimony to advances in agricultural science and free market commerce. Technology and commercial efficiency made 21st century wheat less expensive in real terms than 20th century wheat. Oil shows a steeper decline, and gold (traditional currency) the steepest of the three.

So what can we conclude about the USD? When it was tethered to gold, it was a nearly perfect currency. It held its value against three different commodities for over a decade. When untethered from gold (pure fiat), it debases about 96.33% each year, corresponding to an inflation rate of 3.81%.

How does this reassessment of the USD affect our interpretation of other economic indicators? Let us look at the S&P 500 index, an indicator the stock market’s value, and average annual wages in the United States.

Table 2

Table 2 shows the raw and adjusted values of the S&P 500 at our four critical years. The second column is the S&P’s raw value in pseudo-USD. The third column recalibrates the S&P to account for the USD’s debasement. The fourth and right-most column expresses the recalibrated values as percentages of the baseline year 1959.

Looking at the years 1959 and 1970, we see that the raw and recalibrated values are nearly the same. We assess the S&P’s appreciation during these 11 years as 152.63%/100% = 1.5263. The S&P rose (appreciated) 52.63%. This corresponds to an average annualized rate increase of 3.92% (in real value, as we have adjusted for USD).

The fiat currency years of 1972 to 2024 are a different story. If we look only at the raw S&P, it appears that the index rose nearly fifty-fold during those 52 years (5428.24/109.13 = 49.74). This corresponds to an annualized rate of 7.80%. It seems impressive. But if we adjust for the debasement of the USD, the real rise in the S&P over these 52 years is 662.25/92.11 or 7.19-fold. This corresponds to an average annual increase of 3.87%.

The difference between the nominal 7.80% rate and the real 3.87% rate is 3.93%, which closely approximates the 3.81% rate of USD inflation.

Figure 2

Figure 2 shows the nominal and adjusted values of the S&P index over the span of 1959 to 2024. Again, both nominal and adjusted are standardized to 100 in the year 1959.

Table 3

Figure 3

Table 3 and Figure 3 show the same analysis for average wages in the United States, in USD. The data range here is 1959-2023. The data present an even starker picture than the S&P. First, we examine wages during the sound money period of 1959 to 1970. In raw data, wages increased 1.604-fold (6186/3856). This corresponds to an annual increase of 4.39%. Adjusting for the appreciating USD, however, presents an even better picture. A 1.691-fold increase translates into an average annual increase of 4.89%. These were good years for United States workers.

Alas, the 51 fiat currency years (1972-2023) tell a different story. In nominal terms, there is a 9.34-fold increase in wages, corresponding to an average annual increase of 4.48%. This almost exactly matches the nominal annual increase from 1959-1970. But now we must adjust for a debased USD. Here, the increase is 8128/6021 or a mere 1.350-fold increase. This corresponds to a 0.59% average annual increase in real purchasing power. This is essentially zero.

So what are the main conclusions?

Next posts: Analyzing the cost of housing, consumer staples, wealth inequality.

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