Value of $100 in 1914, adjusted to 1920

What happened to prices between 1914 and 1920

Between 1914 and 1920, the Consumer Price Index went from 10 to 20. Cumulatively, prices increased 100.0%, which works out to an average of 12.25% per year. Put differently, a dollar in 1914 bought what $0.50 buys in 1920.

Consumer prices barely moved in 1914, rising just 1.0% for the year, even as the country’s financial plumbing was rebuilt from the ground up. The Federal Reserve Banks, created by the Federal Reserve Act signed the previous December, opened their doors on November 16, giving the U.S. a central bank for the first time since the 1830s. Weeks earlier, the outbreak of war in Europe had spooked the New York Stock Exchange into closing for more than four months, the longest shutdown in its history, as officials worried European investors would dump American securities for gold. Domestically, the bigger story was labor: Henry Ford’s decision to pay factory workers $5 a day, announced in January, roughly doubled wages on his assembly lines and pushed other manufacturers to raise pay just to keep workers from leaving. A first-class stamp still cost 2 cents, a price that had held since 1885 and would keep holding for three more years, even as the war reshaping Europe began pulling the American economy toward the sustained wartime inflation of 1917.

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The destination year: 1920

1920 was the last year of the inflation that had built since the war began: consumer prices rose 15.6% for the year, leaving the CPI more than double its 1913 starting level after seven straight years of increases. The boom behind those increases turned to bust before the year was over. The Federal Reserve, worried about speculation, pushed its discount rate to a record 7% that spring, and wholesale prices, which had led the wartime runup, began collapsing within months. The National Bureau of Economic Research dates the resulting downturn from January 1920 to July 1921, one of the shortest but steepest contractions in U.S. history, and consumer prices followed into outright decline, falling 10.5% in 1921. Two constitutional changes reshaped the country that year, too. The 18th Amendment’s ban on alcohol took legal effect January 17, enforced under the Volstead Act Congress had passed the previous October. Then, on August 18, Tennessee’s ratification of the 19th Amendment secured women’s right to vote nationwide, and women cast ballots in a presidential election for the first time that November, when Warren Harding won on a promise to return the country to “normalcy” after a decade of war, pandemic, and rising prices. First-class postage held at 2 cents, unchanged since mid-1919.

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