How Much Was a Dollar Worth in 1979?

Money’s value does not remain constant over time; its purchasing power shifts due to various economic forces. Understanding how much a dollar was worth in a past year like 1979 provides perspective on historical living costs and economic conditions. This concept, known as purchasing power, reflects the quantity of goods and services that a unit of currency can buy. Examining the dollar’s value in a historical context illustrates the impact of economic changes on everyday life.

Measuring the Dollar’s Value

Economists use the Consumer Price Index (CPI) to measure changes in the dollar’s value over time. The CPI tracks the average change in prices paid by urban consumers for a “market basket” of goods and services. This basket includes items from food and housing to transportation and medical care. By comparing the CPI from different years, one can gauge the inflation rate and determine how the purchasing power of money has changed.

To understand what a 1979 dollar would be worth today, the CPI from both periods is used to establish a conversion factor. For instance, if the CPI has doubled between 1979 and the present, then a dollar from 1979 would require two dollars today to purchase the same amount of goods and services. This method allows for a standardized comparison, showing how inflation erodes currency’s buying power. The CPI provides a consistent benchmark for evaluating the dollar’s historical strength.

What a 1979 Dollar Could Buy

In 1979, the average household income in the United States was approximately $17,441, with the median household income reported at $16,530. Housing costs were significantly lower than current prices, as the average cost of a house was around $74,200. In specific areas like San Diego, homes could be found for an average of $85,000 or even $68,000 for a three-bedroom house.

A gallon of gasoline cost about $0.86 in 1979. Basic groceries were much less expensive, with a loaf of white bread costing around $0.29 and a gallon of milk averaging $1.03. Even a first-class U.S. postage stamp was priced at just $0.15. The average price for a new car ranged from approximately $4,000 to $6,000, although some models, like a Toyota Celica ST, were more expensive, costing the equivalent of over $21,000 in 2020 dollars.

Economic Influences on the Dollar’s Value in 1979

The dollar’s value in 1979 was shaped by a significant energy crisis, the second petroleum crisis of the decade. This crisis stemmed from a decline in Iranian oil production, triggered by the Iranian Revolution, leading to a reduction of approximately four percent in the global oil supply. Consequently, crude oil prices more than doubled, reaching around $39.50 per barrel, causing widespread fuel shortages and long lines at gas stations across the nation.

Soaring energy costs contributed to stagflation, characterized by high inflation, slow economic growth, and elevated unemployment rates. This unusual economic environment challenged established theories about the inverse relationship between inflation and unemployment. The Federal Reserve’s monetary policy also played a significant role in this period.

Paul Volcker became Federal Reserve Chairman in August 1979, initiating a more aggressive approach to combat inflation. In October 1979, the Fed implemented new measures aimed at controlling the money supply, including raising the discount rate to 12 percent and imposing additional reserve requirements. These policy shifts allowed interest rates to fluctuate more widely, with the federal funds rate peaking at 20 percent by June 1981.