Constant Dollar

We nominate this as the name of your next Americana band. If you play the banjo, get some friends together and go on tour as Constant Dollar. Fame and fortune are yours.

In financial terms, the term has to do with inflation. Say you're a historian. You're trying to figure out what people's spending habits were like 100 years ago. There's a problem, though. None of the prices make any sense. Lunch was a nickel. You could buy a house for $1,000. Because of inflation, all the prices from long ago seem very out of whack to us now.

So to do any kind of rigorous economic analysis comparing now to then, you have to adjust for this inflation effect. Thus the constant dollar. Economists use certain benchmarks to determine some sort of equivalence between our dollar now and the dollars that were used...way back when.

When you hear phrases like "real wages" or "inflation-adjusted," these concepts have to do with the same type of considerations as the constant dollar. It puts prices in a historical context, allowing closer scrutiny of the economy in the past.