inflation

Yes, there has been inflation over the last century -- so much that any time inflation is discussed someone feels obligated to point out that a dollar has been devalued by well over 90% in the last century. That's true. But inflation has pushed average wages up by a far greater amount, causing the share of income spent on most consumer goods to plunge. The average household spent 43% of their income on food in 1900, 30% in 1950, and 13% in 2003.

Such shifts are often missed when discussing inflation and wealth. At an investment conference two years ago, Berkshire Hathaway (NYSE: BRK-B ) Vice Chairman Charlie Munger remarked: "I remember the $0.05 hamburger and a $0.40-per-hour minimum wage, so I've seen a tremendous amount of inflation in my lifetime. Did it ruin the investment climate? I think not."

Later that day, a questioner asked Munger about inflation's "devastation" over the past half-century. In 1950, a corned-beef sandwich at a local diner cost $0.55, the questioner noted. Today it's $10. How can a country be anything but a failure when its currency loses 95% of its value to inflation, he wondered.

"If you think the past half-century was bad, you will have serious problems in life," Munger replied. "Despite inflation, we've been a huge success. Real GDP has grown 2% per year per capita. That's fantastic. The period you describe as miserable was a tremendous time for the American economy. You've described success."