Stories From The Stacks

How much is a dollar worth? It depends who you ask, when, and where. Economic psychologists have a concept called ‘money illusion,’ which suggests that people are not actually very good at judging the value of money in the context of changing monetary conditions. Distinguishing between the perceived value of money and its “objective” market value introduces a new variable to analyses of debates over prices, wages, and social relations. In this episode of Stories from the Stacks, economic historian Sebastian Teupe, junior professor at the University of Bayreuth, discusses the role of money illusion in wage arbitration in Germany, Britain, and the United States from the 1870s to the 1920s. The time range embraces a long deflationary period followed by an inflationary period of equal duration. According to classical economics, wages should have fallen in the first period and risen in the second. Outcomes in the labor market, however, proved to be more complicated, due to factors including money illusion and t