Money Illusion: Monetary Values & Social Relations with Sebastian Teupe


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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 the ‘stickiness’ of wage prices. Using Hagley Library collections, including the Reading Company, and Pennsylvania Railroad records, Dr. Teupe discovered that wage stability was not an objective of wage negotiations in the United States, and that neither capital nor labor regularly referred to the cost of living as a reason to adjust wages until the second decade of the twentieth century. This suggests that money illusion was a factor in wage negotiations. It also highlights dissimilarities in how national economies navigate the ups and downs of a shared international monetary system. To support his use of Hagley Library collections, Dr. Teupe received a Henry Belin du Pont Research Grant from the Center for the History of Business, Technology, & Society. More information on funding opportunities for research at Hagley can be found at For more Stories from the Stacks, go to, or subscribe on your favorite podcatcher. Interview by Ben Spohn. Produced by Gregory Hargreaves. Image: From ‘Union Power & the Public Interest’ slideshow, 1963(?), 1973418_078_11_001, National Association of Manufacturers photographs & audiovisual materials (Accession 1973.418), Audiovisual Collections & Digital Initiatives Department, Hagley Museum & Library, Wilmington, DE 19807.

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