The value of money

Last week’s Daily Mail article, based on my book, The Man who Broke the Bank at Monte Carlo, appeared under the heading,

REVEALED: THE EXTRAORDINARY STORY BEHIND THE BRITON WHO BROKE THE BANK AT MONTE CARLO WITH HIS RELENTLESS CASINO WINNING STREAK.

It continues by saying that with an initial stake of £4,000 he won £40,000 — equivalent to £4 million in today’s money.  A reader in Harrogate questioned this, saying: “So he actually only won £40,000. Another misleading DM headline!!!”

It looks as if a brief explanation might be called for here!  Where sums of money are mentioned in the book, I give the actual sum (such as £40,000) followed by the same sum with an extra two zeros (in this case £4,000,000).  This gives a rough modern-day equivalent based on the Retail Price Index, which reflects changes in the costs of everyday goods over time.

But it is not quite as simple as that!  While a basket of shopping has only gone up about 100 times, wages and salaries are about 440 times what they were in 1891.  On this scale, Wells’ winnings would be closer to £17.5 million.  And when Wells returned to London with his winnings, he could have chosen to invest the money in property.  With a typical house selling in those days for £300, he might have purchased about 130 properties.  Assuming an average house price today of around £280,000, to buy the same estate would now need over £36 million.

So, to answer the Harrogate reader’s question, it can’t be said that the Daily Mail has exaggerated Wells’ winnings: in fact, depending which formula you use, the rule of “Victorian value times 100” generally errs on the low side.

The relative value of various sums of money over time is explained better, and in more depth than I can achieve here, at measuringworth.com.

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