Thomas Tooke

Measuring the wages in cigarettes, the low government taxes of 1905 and need of inflation for large governments.

In Tobacco on June 16, 2012 at 6:59 pm

In 1905, a pack of 15 cigarettes had a price of 7.5 cents, you can infer that as the mid price between the sweet Caporal for 10 cigarettes produced by the Tobacco Trust and the competing admiral brand which temporarily sold its 20 cigarettes pack for 5 cents in a failed attempt to undercut the Tobacco Trust.

In 1900, the median household income was in nominal terms 438 USD according to this source, so if you measure that in ounces of Gold which were trading at 18.96 USD in 1900, we have the median income equivalent to  23.10 ounces of Gold. The Median household income today is close to $50,050. One can decide if the households are richer now since they make 31 ounces of Gold instead of 23.1 or if the Gold has to be priced at 2,166 dollars in order to be fairly valued.

If one measures the household income in packs of cigarettes, the median household income works at around 438/ 0.075 = 5,840 packs of cigarettes. How about today? The median price of a pack of cigarettes is probably around 7.5 USD, the median income can be measured as 6,673 packs of cigarettes. Not much change in income if you measure median income either in Gold or in packs of cigarettes.

In 1907, Jacobstein wrote:

“Of the total tobacco revenue collected from 1902 to 1906, fifty per cent was derived from manufactured tobacco (plug, chewing and smoking tobacco and snuff), forty-five per cent from cigars and five per cent from cigarettes. If to these internal revenue receipts we add the custom duties on tobacco ($21,500,000), the total income to the government, from 1902 to 1906, from its taxation of tobacco was $66,000,000 annually, which is about thirteen per cent of the national public revenues from all sources.”

So if we work in reverse the numbers, what do we obtain? 66,000,000 / 0.13 = 507,700,000 USD as the total national government revenues. So how many median household incomes would that be? 507,700,000/438 = 1,159,114 median household incomes. How can we compare that to today´s context?

Since, the population of the United States is around 313,000,000 while it was around 76,000,000 at the time, we could say that in today´s context with 4.11 more people, maybe a rough estimate would be around 1,159,114 * 4.11 household incomes.
With today´s US household income at 50,050 USD, we get 1,159,114*4.11*50,050 = 238.5 billion USD.

So a rough estimate in today´s money of the total national public revenues of 1900 from all sources is 238.5 billion USD. Since the GDP is around 15.094 billions today, this works at around 1.58% of total GDP. The other way to look at that is the following: today the USD budget deficit per month is around 100 billion USD while at time the annual national public revenues from all sources would be around 2.8 months of today´s budget deficit. Interestingly according to this link, our approximation is not far of the mark from theirs at 2.7% of GDP as the total government revenues as a % of GDP in 1900.

Evidently the inflation has nothing to do as “with a small inflation being positive for business environment etc…etc…”. Without inflation the government obligations can´t just be repaid and that has been the situation since the huge accumulation of debt starting post World War I with some abatement post world war II and accelerating in the recent decades.

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