Saturday, June 26, 2010

Tracking inflation with the humble postage stamp

Before the Federal Reserve Bank began to systematically
inflate the United States' money supply by the issuance of
notes masquerading as instruments properly backed by actual US dollars (see; US Coinage Act of 1792), the cost of a first class letter was 2 cents. Today it is 44 cents, and that is with the USPS losing money (2013 update: now 46 cents). This is an increase of 22 times, or a reduction in buying power of 95.5%. This is roughly equal to what Ron Paul and other hard money advocates say regarding the USD's loss in purchasing power overall. The reason it is not a full 98% (the number that is often quoted as the true debasement) is probably due to advances in mail sorting and transportation efficiency over the technology of the late 1800s.

As you can see, the only time the cost was above 2 cents was during the
inflation occurring in the immediate aftermath of the War Between the States and during America's brief involvement in World War One beginning in 1917. However, by 1971, the final death of the quasi-gold standard, the price of postage had quadrupled. By the end of the dollar panic in 1981, the price had increased ten-fold. This was about correct, proportionally speaking, since gold began at $35/oz and settled down in the early 80s in the $300-400 range (a ten-fold increase).

In recent history, there have been postage rate increases every year for the last four years (2006, 2007, 2008, 2009), as the monetary base in the US has increased exponentially.

Rates for Domestic Letters, 1863-2009

Effective Date Postage, in Cents*

Per ½ Ounce
July 1, 1863 3
October 1, 1883 2

Per Ounce
July 1, 1885 2
November 2, 1917 3
July 1, 1919 2
July 6, 1932 3

August 1, 1958 4
January 7, 1963 5
January 7, 1968 6
May 16, 1971 8
March 2, 1974 10
December 31, 1975 13
May 29, 1978 15
March 22, 1981 18
November 1, 1981 20
February 17, 1985 22
April 3, 1988 25
February 3, 1991 29
January 1, 1995 32
January 10, 1999 33
January 7, 2001 34
June 30, 2002 37
January 8, 2006 39
May 14, 2007 41
May 12, 2008 42
May 11, 2009 44

Chart Source: United States Postal Service,

The USPS now has "forever stamps", which one can purchase at the current first-class postage price, but can be used at anytime in the future.  Personally, I have no idea why anyone would buy any other stamps.  If you had bought forever stamps in 2007, you would have had
a roughly 2% rate of return (as of 2010) - better than short-term treasuries, at least. That is obviously not a great increase, but stamps are something most people need regardless, so "forever stamps" are a logical purchase if you are a letter-mailer.  In essence, though not legally or literally, "forever stamps" are an inflation-indexed transferable bearer instrument issued by the United States Postal Service. Obviously there is no coupon and they won't cash them for you, but liquidating them on the secondary market would probably not be difficult. The ROI is both low and uncertain, so I would never recommend them as a way to store wealth, but you really can't go wrong picking up a few sheets in lieu of regular postage. More importantly, the cost of postage is good evidence of price inflation in the United States.

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