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Dr Mike J Smith
Kingston University

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Relative Values

Fri, 16 Feb 2007

We all know that inflation increases the actual cost of a product over time, whilst the relative cost (to, for example, earnings) remains the same. Well are you interested in the relative cost of items at two different dates? Do you really want to compare two prices and see which is the more expensive? Well the website Measuring Worth allows you to do this for the US$ or UK£ from 1800 to the present day.

Relative cost isn't an exact science and, in fact, you need to measure price increase in some way. There is no ideal measure and, as a result, the website calculates relative prices in five different ways: retail price index, GDP deflator, average earnings, per capita GDP and GDP. They all converge on somewhat similar values, but can (and are) different.

I visited the Ben Cruachan Hydroelectric Power Station (440MW) some years ago and noted from the display that the total cost (in 1966) of the project was £13M (and a dozen or so deaths). Sounds pretty good, especially in comparison to the Dinorwig Pumped Storage System (1728MW) which cost, in memory serves me right, about £1.2B (1983). Of course we not only have inflation, but the further confounder of decimalisation. Anyway, doing the calculations from the completion dates dates and, in comparison, Ben Cruachan cost ~£100M. OK, thats still a fair way short of £1.2B, but it does generate considerably less electricity and, of course, is not a like-for-like project. Anyway, its a good illustration of how raw figures can really illicit the "wow" factor when reality is something else.

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